Theory question 101
Banking and Bank ReconciliationSection A – Theory of Financial Accounting (answer two questions only from this section)
1. (a) List five items that will cause the Cash Book balance not to agree with the Bank Statement balance. (b) Explain how the items listed in (a) above may cause a difference between the Cash Book balance and Bank Statement balance.
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(a) Any five: unpresented cheques; uncredited lodgements (cheques paid in but not yet credited); bank charges and interest; standing orders/direct debits; direct credits (credit transfers, dividends received by the bank); dishonoured cheques; errors in the cash book or by the bank.
(b) Unpresented cheques: entered as payments in the cash book but not yet deducted by the bank, so the bank balance is higher.
Uncredited lodgements: entered as receipts in the cash book but not yet added by the bank.
Bank charges/interest: deducted by the bank but not yet in the cash book.
Standing orders: paid by the bank on the customer's instruction and only discovered from the statement.
Direct credits: money received straight into the bank and not yet entered in the cash book.
Dishonoured cheques: entered as received in the cash book but returned unpaid and deducted by the bank.
Errors: wrong figures, additions or postings in either record.
For each item say which record has it and which does not yet.