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CSEET · Fundamentals of Accounting · Bank Reconciliation Statement

A cheque issued by a firm to a supplier has been recorded in the cash book but has not yet been presented to the bank for payment. How does this item affect the two balances on the date of reconciliation?

An issued but unpresented cheque makes the pass book balance higher than the cash book balance. The firm has already reduced its cash book balance on issuing the cheque, whereas the bank will deduct the amount only when the cheque is presented for payment.

  1. APass book balance is higher than the cash book balance because the bank has not yet deducted the amountCorrect
  2. BPass book balance is lower than the cash book balance because the bank has already deducted the amount
  3. CCash book balance is higher because the firm has not recorded the cheque
  4. DBoth balances are the same because the cheque is only a promise to pay

Explanation

The firm credited the bank column in the cash book on issuing the cheque, but the bank deducts the amount only on presentation. Until then the pass book still shows the money, so the pass book balance (when favourable) is higher than the cash book balance.

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