Theory question 106
Banking and Bank ReconciliationJohnson's cash book showed an overdrawn balance of ₦3,000 on 31st December, 2012 on his current account, while the balance as per the bank statement was an overdrawn balance of ₦800. Further investigation showed the following:
(i) Cheque drawn amounting to ₦5,000 had not been presented for payment.
(ii) Cheques amounting to ₦2,500 entered in the cash book as paid into the bank had not yet been cleared by the bank.
(iii) A cheque book costing ₦400 had been charged in the bank statement but not entered in the cash book.
(iv) A dividend of ₦400 paid direct to the bank had not been recorded in the cash book.
(v) A cheque for ₦1,200 drawn on his current account had been charged by the bank to his deposit account.
(vi) A cheque for ₦500 paid into the bank had been dishonoured and shown as such by the bank, but no entry had been made in the cash book.
(vii) The payment side of the cash book had been undercast by ₦700.
(viii) Bank charges of ₦300 entered in the bank statement had not been entered in the cash book.
You are required to prepare: (i) Adjusted Cash Book; (ii) Bank Reconciliation Statement.
Show the model answer
(i) Adjusted Cash Book (bank column)
Dr: dividend received 400; balance c/d (overdraft) 4,500 = 4,900
Cr: balance b/d (overdraft) 3,000; cheque book 400; dishonoured cheque 500; undercast payments 700; bank charges 300 = 4,900
Corrected balance: overdraft ₦4,500 (credit b/d)
(ii) Bank Reconciliation Statement at 31/12/2012
Overdraft per adjusted cash book (4,500)
Add unpresented cheques 5,000 → 500
Less uncredited cheques (2,500) → (2,000)
Add bank error: cheque wrongly charged to deposit account 1,200 → (800)
Overdraft per bank statement ₦800 ✓
Items the bank knows but Johnson didn't go in the cash book; timing differences and bank errors go in the reconciliation.