Read the statements carefully and choose a correct option given below :
Statement I: Passbook is the statement of account of the customer maintained by the bank.
Statement II: A business firm periodically prepares a bank reconciliation statement to reconcile the bank balance as per the cash book with the passbook as these to show different balances for various reasons.

Question

Read the statements carefully and choose a correct option given below : 
Statement I: Passbook is the statement of account of the customer maintained by the bank. 
Statement II: A business firm periodically prepares a bank reconciliation statement to reconcile the bank balance as per the cash book with the passbook as these to show different balances for various reasons.

Accepted Answer

The correct option is 3:
Both statements are fundamentally correct in the context of accounting and banking practices. Statement I correctly defines the Passbook (or Bank Statement) as the bank's record of the customer's account, showing deposits and withdrawals from the bank's perspective. Statement II accurately describes the primary function of a Bank Reconciliation Statement (BRS). The BRS is a vital managerial tool created by the business to systematically reconcile the differing balances in the Cash Book and Passbook. These differences commonly arise because the bank records certain transactions (like bank charges or direct deposits) before the firm knows about them, or because the firm records transactions (like issuing or depositing cheques) before the bank has processed them. Since both statements align perfectly with established accounting principles, the option asserting their mutual correctness is the right choice.

The incorrect option is 1:
This option suggests that only Statement I is correct, which is inaccurate because Statement II is also a factual representation of accounting practice. The preparation of a Bank Reconciliation Statement (BRS) is an essential, periodic procedure for any business that operates a bank account. Its purpose is precisely to investigate the causes of the mismatch between the company's internal record (Cash Book) and the bank's record (Passbook). Therefore, rejecting Statement II means denying a core concept of cash control.

The incorrect option is 2:
This option suggests that only Statement II is correct, which is incorrect because Statement I provides a factually accurate definition. The Passbook is, by its nature, the customer's account statement maintained and periodically issued by the bank. It is the external proof of the bank transactions. The BRS (Statement II) cannot be prepared without the Passbook (Statement I). Therefore, the definition of the Passbook given in Statement I is correct and foundational to the process described in Statement II.

The incorrect option is 4:
This option asserts that both statements are incorrect, which contradicts established accounting principles. Both statements are universally accepted facts within the field of commerce and accountancy. Statement I correctly defines the Passbook as the bank's document, and Statement II correctly identifies the BRS as the mechanism used by the firm to explain the temporal and processing discrepancies between the Passbook and the Cash Book. Since both premises hold true, this option is logically flawed.