General Knowledge · General Awareness
A rural branch of a nationalized bank is undergoing a concurrent audit. The auditor notices that the 'Sundry Creditors' account has several credit entries totaling 25 lakh rupees that have been outstanding for over 18 months. Upon investigation, it is found that the former branch manager had diverted interest from several 'Fixed Deposit' accounts to this Sundry account to cover up a cash shortage at the branch. The customers' FD receipts show the correct interest, but the bank's general ledger does not. How should the bank rectify these operational accounting entries?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The Sundry account balance should be used to pay for the branch's upcoming renovation to keep the transaction 'off the books'.
- 2Since the amount is less than 50 lakhs, the bank can ignore it and wait for the customers to come for their FD maturity before making any entries.
- 3The bank must reverse the entries in the Sundry account, credit the respective customers' FD interest accounts, and record the 25 lakh shortage as a 'Loss due to Fraud' in the Profit and Loss statement.✓
- 4The branch should simply transfer the 25 lakhs to the 'Other Income' account to boost the current year's profit.
Correct answer
The bank must reverse the entries in the Sundry account, credit the respective customers' FD interest accounts, and record the 25 lakh shortage as a 'Loss due to Fraud' in the Profit and Loss statement.
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