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CA Foundation · Accounting · Bank Reconciliation Statement

While preparing a bank reconciliation statement, the accountant of Gupta Enterprises noticed that a cheque for Rs. 12,000 deposited in the bank on 5th April 2024 was returned unpaid on 20th April 2024 marked 'Insufficient Funds'. The cash book still shows the cheque as deposited. The bank statement dated 20th April shows the cheque reversal. How should this be adjusted in the reconciliation?

A dishonored cheque deposited by the company must be deducted from the cash book balance because the deposit never actually increased the bank balance. The cheque was incorrectly recorded as received funds in the cash book.

  1. AAdded to bank statement balance
  2. BDeducted from bank statement balance
  3. CDeducted from cash book balanceCorrect
  4. DAdded to cash book balance

Explanation

A cheque returned by the bank (dishonored cheque) means the company's bank balance should be reduced because the deposit did not actually increase the bank balance. The cash book incorrectly shows this cheque as a deposit, so it must be deducted from the cash book balance during reconciliation. This adjustment brings the cash book balance down to match the true bank position after the cheque bounced.

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