We are already aware that all the firms open with a current account with a bank in order to record the transactions entered into each firm. Banks open a separate account for each firm. In fact, banks enter all the transactions in it.
Bank gives a copy of firmâ€™s account in its ledger to the firm for information. This copy of firmâ€™s account is called bank pass book. At the time when a transaction takes place with the bank, a firm also maintains a bank account in its cash book.
Since all the transactions are recorded with the Bank, details are registered in both cash book and pass book. A balance of both the books must tally with each other.
There can be many reasons which create a difference in the account of both the books. It can become difficult for students at first to comprehend difference that occurs between the two.
Merely studying Reconciliation of Financial Transactions may not achieve the objectives of students. As it is a cumbersome process, in terms of understanding, its value and working are based on time. Other accounting procedures homework answers address this problem in time bound manner, which provides a rational way to get its essence of the matter in execution.
Other Accounting Procedures Homework Answers- Tips:
Rationale behind difference in the Passbook and Cashbook Balance-
When entering a transaction in both cashbook and passbook there occurs a difference in time lag. This is because it is not possible to record in both the books at the same time.
Some of the instances which increase time lag in documenting transactions.
Following are the instances of the time lag between the accounts of cash book and pass book:Â
However, the bank will record this transaction only when the cheque is presented to bank by the creditor for payment. Â Hence, there occur gap of few days. This is usually between the problems of a cheque or its presentation to relevant bank.
Banks credit the firm account only on a certain situation. It is when the actual payment collection is made from the cheque from other banks.
Hence, there again will be a time lag between depositing of cheques and also those cheques cleared by the banks. Thus, until the bank clears cheques, the cash book of the company will show a hike in balance when compared to that of pass book.Â
Whenever the cheques are received from third parties, they are deposited in the bank. These records for such transactions are instantly made on debit section of bank column. But, if the bank dishonors cheques, no entry will be made in the pass book.
As a result, there occurs a disparity between the balances of cash book and pass book.Â
But the customer will be informed about the amount of interest only when he gets his pass book updated after a certain period of time. This time interval between the update of passbook and the amount of interest credited by the bank will create an imbalance of accounts of pass book and cash book.Â
But, the firm will be able to enter the same transaction only after getting information. This will also lead to an imbalance between the accounts of both the books.
A Disparity in the balances due to not recording certain transactions:
In some cases, human errors take place while recording the accounting transactions. For instance:
Need of other Accounting Procedures Homework Answers-
This will help you to understand the objective and importance of reconciliation in accounting and finance field.
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