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CSEET · Fundamentals of Accounting · Bank Reconciliation Statement

A bank dishonours a cheque that a firm had deposited and received from a customer, and the firm has not yet been informed. What is the effect on the balances?

The pass book balance is lower than the cash book balance. The firm recorded the deposit of the cheque, but on dishonour the bank reversed the credit, and the firm has not yet made the corresponding entry in its cash book.

  1. AThe pass book balance is lower than the cash book balanceCorrect
  2. BThe pass book balance is higher than the cash book balance
  3. CThe cash book balance is lower than the pass book balance because the firm already reversed the entry
  4. DThe two balances remain equal until the customer pays

Explanation

The firm debited the cheque in its cash book on deposit. When the bank dishonours it, the bank reverses the credit in the pass book, but the firm has not made any reversal. The cash book is therefore higher and the pass book lower.

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