A cheque deposited by a business has been entered in the cash book but has not yet been credited by the bank. What is the effect?
Correct answer: B. The cash book balance is higher than the bank statement balance
- A. The bank statement balance is higher than the cash book balance
- B. The cash book balance is higher than the bank statement balance
- C. Both balances are increased immediately
- D. The cash book balance becomes a bank overdraft
Explanation
The cash book records the deposit when the business receives it, while the bank statement records it after the bank processes it. Until then, the cash book balance exceeds the bank statement balance by the deposit amount.
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About Bank Reconciliation and Control Accounts
Bank reconciliation explains differences between the cash book and bank statement through unpresented cheques, outstanding deposits, bank charges, direct payments, credited amounts and recording errors. Control accounts summarise receivables and payables ledgers, and their balances are reconciled with individual accounts to locate discrepancies.
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