Theory question 105
Banking and Bank Reconciliation5. Okoro's Cash Book showed a debit balance of N3,344 on 31st January, 1995. His bank statement for January, 1995 however showed a credit balance of N3,424. On investigation, it was discovered that
(a) The opening balance in the Cash Book for the month had been wrongly brought down as N1,505 instead of N1,550.
(b) Payment for rent N250 had been debited in the Cash Book.
(c) A customer had paid N600 direct into the bank.
(d) The bank had paid, on a standing order, N300 to an insurance company.
(e) A cheque for N870 deposited in the bank on 25th January, was not credited until 3rd February, 1995.
(f) Cheques paid to suppliers totalling N1,875, had not been presented for payment.
(g) Cost of cheque book and other charges by bank totalling N90 had not been entered in the Cash Book.
(h) The bank had paid a cheque of N680 in error from Okoro's Account.
You are required to prepare:
(i) Adjusted Cash Book;
(ii) Bank Reconciliation Statement as at 31st January, 1995.
Show the model answer
(i) Adjusted cash book: balance 3,344 + opening balance undercast 45 (1,550 − 1,505) + direct payment by customer 600 = 3,989; less rent wrongly debited 500 (250 to cancel + 250 to record the payment), standing order 300, bank charges 90 = 890; adjusted balance 3,099 (Dr).
(ii) Bank reconciliation statement at 31/1/95: balance as per bank statement 3,424; add uncredited lodgement 870 and cheque wrongly paid by the bank 680 = 4,974; less unpresented cheques 1,875; balance as per adjusted cash book 3,099.
Correct the cash book first for items the bank knows about; only timing differences and bank errors go into the reconciliation.