Theory question 105
Banking and Bank ReconciliationSection B – Financial Accounting Practice
5. The bank columns in the cash book of Kamara for the month of April, 2005 and the bank statement are as follows (D'000):
Cash book – Dr: 1st April Balance b/f 106; 9th April Cheque from Jane 740; 15th April Cheque from Turay 978; 30th April Henry 393; total 2,217. Cr: 4th April Kaikai (cheque 101) 214; 4th April Hassan Plc (102) 416; 10th April Kadie (103) 370; 10th April City Council (104) 116; 21st April Brima (105) 336; 25th April Cesay (106) 183; 28th April Kargbo (107) 284; 30th April Balance c/f 298; total 2,217. 1st May Balance b/f 298.
Bank statement (Debit; Credit; Balance): 1st April Balance 106 CR; 4th April Standing order 140, 34 DR; 10th April Credit 740, 706 CR; 11th April Cheque No. 101 214, 492 CR; 16th April Cheque No. 103 307, 185 CR; 18th April Investment interest 772, 957 CR; 18th April Cheque No. 104 116, 841 CR; 24th April Cheque No. 105 336, 505 CR; 28th April Direct debit 250, 255 CR; 30th April Bank charges 54, 201 CR.
Additional information: (a) The correct figure for cheque number 103 is D307,000 instead of D370,000 (b) The direct debit of D250,000 was a monthly subscription payment made on behalf of Samara, another customer of the bank, but was debited in error to Kamara's account.
You are required to: (i) update the cash book to show the correct cash book balance as at 30th April, 2005; (ii) prepare a bank reconciliation statement as at 30th April, 2005.
Show the model answer
(i) Updated cash book (D'000): balance b/f 298 + cheque 103 overstated 63 (370 − 307) + investment interest 772 = 1,133; less standing order 140 and bank charges 54; correct balance 939.
(ii) Bank reconciliation statement at 30th April 2005: balance per bank statement 201; add direct debit wrongly charged 250 and uncredited lodgements (Turay 978, Henry 393) 1,371 = 1,822; less unpresented cheques (102 Hassan 416, 106 Cesay 183, 107 Kargbo 284) 883; balance per cash book 939.
Correct the cash book for items only the bank knew; the bank's own error goes in the reconciliation.