Raj Goyal has bank account in XYZ bank. According to his cash book, his bank balance on 31 March was Rs. 7,340. He sent the cheques of Rs. 3,450 to his bank for collection but cheques amounting to Rs. 345 were not collected by that date. Out of the cheques issued by him towards payment of his debts, cheques of Rs. 790 were not presented for payment. What is the balance as shown by his bank passbook?

Raj Goyal has bank account in XYZ bank. According to his cash book, his bank balance on 31 March was Rs. 7,340. He sent the cheques of Rs. 3,450 to his bank for collection but cheques amounting to Rs. 345 were not collected by that date. Out of the cheques issued by him towards payment of his debts, cheques of Rs. 790 were not presented for payment. What is the balance as shown by his bank passbook? Correct Answer Rs. 7,785

The correct answer is Rs. 7,785

Solution:

Bank Reconciliation Statement

Key Points

Explanation of Statements:

1. Favourable balance as per cash book: This is the balance of the amount lying in the bank account as reflected by the company's cashbook. As it is a favourable balance, Rs.7340 is shown in the plus items column.
    
2. Cheques deposited but not credited: Since cheques have been paid into a bank, the entry for the same would have already been passed in the cash book. It’s a receipt therefore Rs. 3450 should have been debited in the cash book. This will increase the balance in the cash book. But Bank balance has increased only by Rs. 3105 as cheques of Rs. 345 have not been collected yet by bank. To neutralise the overcast effect, the balance has to be decreased from the cash book which can be done by crediting the cashbook.  Hence, the Rs. 345 should be subtracted by placing it in minus items Column
    
3. Cheque issued but not presented for payment: Since cheques have been issued, the entry for the same would have been passed in the cash book. It’s a payment therefore the amount should have credited in the cash book. This will decrease the balance in the cash book. Since, cheques of Rs. 790 have not been presented for payment, the balance has not actually decreased. To neutralise the undercast effect, the balance has to be increased in the cashbook which can be done by debiting the cashbook.  Hence, the Rs. 790 should be added by placing it in Plus Column.
    

By finding the difference between the totals of the ‘Plus’ & ‘Minus’ Column, we arrive at balance as per the Passbook which is Rs. 7,785.

Confusion Points

• Debit as per cash book is favourable that denotes deposit of amount but debit as per Passbook is unfavourable that denotes withdrawal from a bank account.
• Credit as per cash book is unfavourable that denotes amount withdrawn but credit as per Passbook is favourable that denotes deposit of amount in a bank account.