Question

Question No 2: (5+5) If the company has checking accounts in three banks, explain the following: a) Should it maintain a separate ledger account for each? b) Should the company's balance sheet show as three separate items the amount on deposit in the three banks?

Answer 1

ANSWER:

(a) Should it maintain a seperate ledger account: If a company has 3 accounts in different banks it is not necessary to create three seperate accounts for each bank account, though the company can open a single ledger account mentioning the amount present in each bank account with the bank name. For example: If there is an amount of INR 1000,2000,3000 have been deposited into ABC,DEF,HIJ bank accounts in the beginning of a financial year. The accounting journal entry follows:

ABC a/c Dr. 1,000

DEF a/c Dr. 2,000

HIJ a/c Dr. 3,000

To Cash 6,000

and subsequent ledger entries follow:

Cash a/c Debit Credit Bank a/c Debit Credit

ABC a/c 1,000 Cash a/c 6,000

DEF a/c 2,000

HIJ a/c 3,000

Hence, no entries formulate individual recordings and henceforth the amount increase and decrease would depend upon overall bank amount and not on individual accounts.

(b)Should the company balance sheet show as three seperate accounts: No, these are not required to be recorded individually, though the 3 different accounts could be mentioned under a single tab of Bank in the assets header of the balance sheet.

Comment below in case of any doubts.