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W’s bank statement shows a balance of 715 overdrawn. Statement includes amount of 74 which have not been entered in cash book. There are unpresented cheques of 824 and lodgments not credited worth 337. In addition the ban erroneously includes dividend receipt of 25 belonging to X.
Bank Overdraft in SOFP is given as 1227.
In the answer, the 74 has not been considered. Why is it so?
The balance recorded in the SOFP will be the correct balance in the cash book which is equal to the result of the bank reconciliation.
If the question had told us the current balance in the cash book then we would indeed correct it for the 74 in order to get the correct balance.
However we do not told the current balance in the cash book – only the balance on the bank statement. Therefore we complete the bank reconciliation and the end result will be equal to the correct balance in the cash book. The error in the cash book does not affect the bank statement.
Presumably you have not watched my free lectures on bank reconciliations either!
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