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CMA Foundation · Fundamentals of Financial and Cost Accounting · Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement

On 31 March, the cash book of Rao & Sons shows a bank balance of ₹40,000 (debit). The passbook shows a credit balance of ₹42,500. The only difference is that the bank has directly collected a customer's dividend of ₹4,000 and charged ₹1,500 as service fees, neither of which is in the cash book. Which statement is correct?

The two items explain the difference exactly. Dividend collected by the bank adds ₹4,000 and service fees deduct ₹1,500, a net increase of ₹2,500. Adjusting the cash book balance of ₹40,000 gives ₹42,500, matching the passbook balance.

  1. AThe two items together explain the difference exactlyCorrect
  2. BThe items explain only ₹1,500 of the difference
  3. CThe items explain a difference of ₹5,500
  4. DThe items leave ₹2,500 unexplained

Explanation

Net effect of bank-only items is +4,000 - 1,500 = +2,500. Adjusting the cash book: 40,000 + 4,000 - 1,500 = 42,500, which equals the passbook balance. The difference of ₹2,500 is therefore fully explained. Adding the two as ₹5,500 ignores that charges reduce the balance.

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