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The following information relates to bank reconciliation.
(i) The bank balance in the cashbook before taking items below into account was $8,970 overdrawn.
(ii) Bank charges of $550 n the bank statement have not been entered in he cashbook.
(iii) Cheque payments totalling $3,275 have been entered in the cashbook but have not been presented for payment.
(iv) The bank has credited the account in error with $425 which belongs to another customer.
(v) Cheques totalling $5,380 have been correctly entered on the debit side of the cashbook but have not been paid in at the bank.
What was the balance as shown by the bank statement before taking the items above into account?
A. $8,970 overdrawn
B. $11,200 overdrawn
C.$12,050 overdrawn
D.$17,750 overdrawn(i) ($8,970) – balance, overdrawn
(ii) ($550) – bank will show these charges
(iii) $3,275 – bank doesn’t know about these outflows
(iv) $425 – bank will show this balance on our account by error
(v) ($5,380) – bank doesn’tknow about these inflowsBank will show next balance: -8,970 – 550 + 3,275 + 425 – 5,380 = – 11,200.
Answer is B.the question states that the overdrawn bank balance of 8970 is BEFORE taking the items below into account.
and the question asks to give the bank balance BEFORE the items are taken into account.so.. it shd be the same!
where am going wrong in my understanding
:-))))))
That’s BRILLIANT!!!!!
Are you sure that you have replicated the question correctly?
The question refers to the bank balance in the CASH BOOK and the bank balance on the BANK STATEMENT..
The two will not be the same because of un presented cheques etc.. – that is the whole point of bank reconciliations. To be able to explain the reasons that they are different.
Then what does the line :What was the balance as shown by the bank statement before taking the items above into account?” mean?
the phrase ‘before taking the items above into account’
maybe that is what is throwing me off
You will know from studying bank reconciliations, that the balance on the bank statement will not be the same as the balance in the cash account, for two reasons – one is mistakes in the cash account, and the other is unprecedented cheques and lodgements not yet appearing on the bank statement.
So……obviously we first need to correct mistakes in the cash account to get the correct cash account balance.
This still will not agree with the bank statement (because of the unpresented cheques and the deposits which have not year appeared) – however if we adjust for these we should be able to reconcile/agree the bank statement with the cash account.
What this question is asking for is to calculate what the bank statement balance is at the moment (i.e. before adjusting for the cheques and deposits that have not yet appeared).
Since we know what we should end up with (i.e. the same figure as the corrected balance on the cash account) we need to work backwards to calculate what the bank statement balance currently is.
Is an unprecedented cheque different from an unpresented cheque or are they the same thing?
Well spotted Giggles!
The auto spell checker changed my ‘unpresented’ to ‘unprecedented’ and I didn’t notice!! There is no such thing as an unprecedented cheque.
The following information relates to a business’s
bank balance at 30 November 20X7:
$
Debit balance in cash book 25,050
Cheques not yet presented at bank 8,612
Deposits not yet cleared at bank 11,665
Cheques paid to suppliers on 29 November
not yet recorded in the cash book
2,157
Cheque received on 27 November recorded
twice in the cash book
620
Cheque received on 1 December 20X7 1,019
What is the correct bank balance to be included in the
financial statements at 30 November 20X7?
A) 22,275$
B) 22,273$
C) 23,500$
D) 21,569$Hello.. can smb explain this question pls?
Have you watched my free lectures on bank reconciliations? Everything in this question is explained in the lectures!!
(iv) The bank has credited the account in error with $425 which belongs to another customer is the error of cash account or bank statement sir ?
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