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Could you explain Question 14.11 from the BPP F3 revision kit for exams From February 2014 to August 2015.
I look forward to hearing from you as this question is driving me crazy. Thank you.
Hi John
I’m confused by this question, an eg from BPP interactive text kit.
It says: A company bank sttmt shows $715 direct debits and $353 Investment income not recorded in the cash book.The bank sttmt doesn’t show (a customer’s cheque for $875) entered in the cash book on the last day of the Acc.period. If the cash book shows a Cr Balance of $610,what balance appears on the bank sttmt?
I got the correct bal.per cash book of $972(Cr). But as to why they then said: Corrcted Bal per Cash book. (972)
Customer’s Cheque. (875), giving a bank balance of (1847), is confusing. I thought the Cheque was an outstanding Lodgement and therefore had to be Debited in the company’ a cash book and THEN Credited on the Bank statement. I must have confused things somewhere. I’d really be grateful for your help.
RegardsThe customers cheque is an outstanding lodgement, which means that it has already been entered in the cash account, but had not yet appeared on the bank statement.
Since the final balance on the cash account is a credit balance, it means that they have an overdraft of 972.
On the bank statement, since the 875 receipt has not yet appeared, the balance on the statement must be even more overdrawn – 1847 overdrawn.
The free lecture on bank reconciliations should help you.
Thanks John for the reply and I did watch the lecture. Note 5 of the eg in the OT lecture says a lodgement of $4000 had not appeared in the bank statement, and in the bank recon.statement the amount was ADDED. As per your comment and my understanding, the $875 HAS NOT APPEARED, but the amount is subtracted ie -972-875=1847. This what I meant by “I must have confused things somewhere”. Put another way, what is the difference between these two examples/questions.
Many many thanks once again for your patience.
RegardsAn outstanding lodgement will increase a balance at the bank. However it will reduce any overdraft at the bank. Here there is an overdraft at the bank. Therefore the overdraft currently appearing on the bank statement will be higher than the overdraft appearing in the cash account because the lodgement (which will reduce the overdraft when it appears) is not yet on the bank statement.
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