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On 31st May,the bank statement of Edward shows a balance in hand of $4,100. When checking the bank statement, it is found that bank charges of $50 and a credit of $1,000 from a trade receivable have not been entered in the cashbook.
There are cheques entered in the cashbook totaling $3,330 which have yet to be presented to the bank,one of which,in respect of a purchase of goods of $950, was issued but not sent to the supplier because the goods were not delivered. A banking of $400 made on 31 May was not credited on the bank statement until 6 June.
What amount of cash at bank or bank overdraft should appear on the company’s SOFP at 31 May?
A. $5050 in hand
B. $2120 bank overdraft
C. $2120 in hand
D. $7980 in handMr John my question is, if you can please explain the second part of the question. This is where i really can’t understand.
Thank you in advance 🙂
Because we are given the bank statement balance (of 4,100) we have to deal with items that affect the bank statement. So the items that have not been dealt with in the cash account are not relevant (we are not asked to correct the cash account).
What are relevant are the unpresented cheques – when they appear on the bank statement, the balance will fall by (3,330 – 950), and the lodgements that have not year appear – when they appear the balance will increase by 400.
The free lecture on bank reconciliations will help you.
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