Question 7 of 50intermediate💡 UnderstandFill in the Blanks1 mark

If the passbook shows a favourable balance and if it is taken as the starting point for the purpose of bank reconciliation statement then cheques issued but not presented for payment should be ...to find out cash balance.

Correct Answer

deducted

Exercise: Test Your Understanding - I | Q: II(vi) | (Page 7)
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Explanation

When the passbook shows a favourable balance and is taken as the starting point for preparing the Bank Reconciliation Statement, cheques issued but not presented for payment should be deducted. This is because these cheques have already been recorded in the cash book (reducing the cash book balance), but the bank has not yet processed them (so the passbook still shows a higher balance). Therefore, to arrive at the correct cash book balance from the passbook balance, the amount of such unpresented cheques must be subtracted. The passbook balance is higher than the cash book balance by the value of these unpresented cheques.

Solution Steps

  1. Step 1: Identify that passbook balance is the starting point with favourable balance.

  2. Step 2: Understand that cheques issued but not presented reduce the cash book but not the passbook.

  3. Step 3: Conclude that to find cash balance from passbook balance, these cheques must be deducted.

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