Subsidiary Books and Bank Reconciliation Statement
What this domain tests
This domain covers the subdivision of the journal (purchases, sales, returns, cash book, petty cash, journal proper) and the preparation of a bank reconciliation statement from either the cash book or the pass book balance.
Core rules
- Purchases book: only credit purchases of goods. Cash purchases, purchase of assets and goods returned go elsewhere.
- Sales book: only credit sales of goods; the sales returns book records credit notes issued to customers.
- Cash book types: simple, two-column (cash and bank), three-column (with discount). A contra entry arises when cash is deposited into or withdrawn from bank - both effects appear in the same cash book and it is marked 'C'.
- Petty cash book on the imprest system: the petty cashier is reimbursed exactly what was spent, restoring the float.
- A BRS starts from either the cash book (bank column) balance or the pass book balance; every item is added or deducted according to the starting point.
Worked example
The cash book shows a debit (favourable) balance of ₹15,000. Cheques issued ₹4,000 are not yet presented; cheques deposited ₹2,500 are not yet credited; bank charges ₹150 are not entered in the cash book; bank interest credited ₹500 is not entered. BRS from the cash book: 15,000 + 4,000 − 2,500 − 150 + 500 = ₹16,850, the credit balance as per the pass book. Reasoning: a cheque issued reduces the pass book only when presented, so it is added back; a deposit reaches the pass book only on clearing, so it is deducted; charges reduce the pass book and interest increases it, so both are adjusted against the cash book figure.
Traps
Treating a contra entry as a BRS adjustment; recording an item in both books; adding uncredited deposits instead of deducting them; forgetting that a debit balance in the cash book is a credit balance in the pass book.