Question

Bank collected a dividend \[25,000\] on behalf of a customer which was not recorded in the cash book.
In respect to the given transaction which of the following treatments is correct for preparation of bank reconciliation statement?
(1) If BRS is prepared without adjusting the cash book and the balance as per cash book is the starting point then Rs. \[25,000\] will be subtracted.
(2) If BRS is prepared with adjusting the cash book then Rs. \[25,000\] will be debited to the adjusted cash book.
(3) If BRS is prepared without adjusting the cash book and the balance as per cash book is the starting point then Rs. \[25,000\] will be added.
(4) If BRS is prepared with adjusting the cash book then Rs. \[25,000\] will be credited to the adjusted cash book.
Which option is correct?
A. Only (1) is correct
B. Only (2) is correct
C. Both (1) and (4) are correct
D. Both (2) and (3) are correct

Answer 1

Hint: When the bank received a dividend of Rs. \[25,000\] on behalf of the customer that was not reported in the cash book, the passbook balance increased. It is because the amount of dividend received was credited to the passbook. As a result, the balance in the pass book now exceeds the balance in the cash book.

Complete step-by-step solution:
In this situation, we have two choices when preparing a bank reconciliation statement:
If the cash book balance is adjusted, the dividend must be recorded in the cash book by debiting it by Rs. \[25,000\], because the cash book is debited when cash comes in and credited when cash leaves.
If the cash book is not adjusted, we must add Rs. \[25,000\] to arrive at the balance as per the pass book when reconciling.
Therefore statement (2) and (3) are correct which means option D is the correct answer.

Note: If BRS is prepared without adjusting the cash book then Rs. \[25,000\] will be credited to the adjusted cash book. If BRS is prepared by adjusting the cash book and the balance as per cash book is the starting point then Rs. \[25,000\] will be added.