Theory question 107
Banking and Bank Reconciliation7. James was examining his bank statement for the month of December, 2001. He discovered that the balance on the statement disagreed with the Cash Book balance which was N18,440. On investigation, the following were revealed: (a) The opening balance in the Cash Book for the month had been wrongly brought down as N3,705 instead of N3,750. (b) Two cheques for N16,300 and N4,650 which were issued to creditors had not been presented for payment. (c) The bank returned a cheque for N3,800 deposited on 5th December. (d) A cheque for N7,600 deposited on 24th December was not credited until 2nd January, 2002. (e) Cost of cheque book and other charges by bank totalling N385 was yet to be entered in the Cash Book. (f) The bank had paid N850 on standing order to Premier Insurance Company.
You are required to prepare: (i) Adjusted Cash Book; and (ii) Bank Reconciliation Statement for December, 2001.
Show the model answer
(i) Adjusted cash book: balance 18,440 + opening balance understated 45 = 18,485; less dishonoured cheque 3,800, bank charges 385, standing order 850 (total 5,035); adjusted balance 13,450.
(ii) Bank reconciliation statement, 31st December 2001: balance as per adjusted cash book 13,450; add unpresented cheques 16,300 + 4,650 = 20,950 → 34,400; less uncredited lodgement 7,600; balance as per bank statement 26,800.
Update the cash book first, then reconcile only the timing differences.