Hi!
I would like to ask the following questions
Can you explain the treatment for the transactions given below?
1. A bill for Rs 700 retired by the bank under a rebate of Rs 20 the full amount of the bill was credited in the cash book.
2.A sum of Rs. 800 deposited in the bank has been credited as Rs 80 in the pass book
3.A bill for Rs 5500 discounted with the bank is entered into the cash book without recording the discount charges of Rs 270.
I was unable to understand the solutions given in the chapter.
Thanks a lot!
Priya
↵Hi Priya,
Let us understand these transactions one by one:
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Let us understand these transactions one by one:
- When a bill of Rs 700 retired by the bank under a rebate of Rs 20. Now in this case, bills payable was credited with full amount of Rs 700 whereas actually it should be credited with Rs 680 only (i.e. 700 - 20). Thus, in case of debit balance as per Cash Book, it will be added, because the pass book balance will be higher with this amount. However, in case of credit balance as per Pass Book, this amount will be deducted as it has caused the decrease in the balance as per Cash Book.
- The amount recorded in the Cash Book is Rs 800, however, only Rs 80 was recorded in Pass Book. It implies that the pass book is showing lesser balance as compare to Cash Book. Thus, if we are starting with the debit balance as Cash Book, then Rs 720 should be subtracted because the Pass Book is showing lesser amount. However, if we are moving with credit balance as per Pass Book, then we will add this amount of Rs 720, because Cash Book balance is higher with this amount.
- This means that instead of debiting Rs 5,230 , mistakenly Rs 5,500 were debited in the Cash Book. Thus, the Cash Book must be showing higher balance to the extent of Rs 270. Thus, if we are moving with the debit balance as per Cash Book, we will deduct this amount. But, if we are moving with credit balance as per Pass Book, then Rs 270 will be added.
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