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Mo’s cash ledger has a debit balance of $7,980. There are $2,300 of uncleared lodgements and $3,700 of unpresented cheques. The cash ledger has not been updated to reflect bank charges of $45.
What cash balance would be shown on the bank statement for Mo’s business? $_____
The correct answer is $9,335.
$
Cash book balance 7,980
Uncleared lodgements (2,300)
Unpresented cheques 3,700
Bank charges (45)
Bank account balance 9,335I don’t understand what they have done here. As per the lectures, Kaplan, BPP books and ACCA Study Hub chapter on this topic, we are first supposed to correct the Cash book balance by deducting the bank charges which will also be the balance that should appear on bank statement after adjusting bank statement balance for any errors or timing differences.
Please explain how they have arrived at the answer.
The correct cash book balance is 7980 – 45 = 7935.
However this is not the same a the balance showing on the bank statement, but we should be able to reconcile the bank balance with the cash book balance by adjusting for the uncleared lodgements and the unpresented cheques.
So in order to find out what balance is showing on the bank statement we need to take the cash book balance and work backwards, adjusting for these two items. That is what the printed answer has effectively done.
With a bank statement showing a balance of 9,335, in the reconciliation statement we subtract the unpresented cheques of 3,700 and we add the uncleared lodgements of 2,300. Doing this results in a final figure of 7935, which is of course the balance in the cash book.
Have you watched my free lectures on bank reconciliations? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
So the question is asking us to find the original balance on bank statement before reconciling it with the revised balance on cash book?
Yes. The question asks for the balance on the bank statement.
The reconciliation statement explains why it is different from the cash book balance, but doesn’t change the balance on the bank statement.
Again, have you watched my free lectures on this?
Yes, I have watched the lectures. I was confused by the wordings of the question. I thought they were asking for the bank statement balance after correcting the cash book balance and adjusting the bank statement balance, in which case the revised cash book balance of $7935 would be the same as the bank statement balance after adjusting the opening balance of bank statement.
The question would have not been confusing had they clearly mentioned that we had to find the bank statement balance before the adjustments.
But we do not adjust the bank statement.
The reconciliation statement is simply explaining (reconciling) the bank statement balance with the cash book balance.
The lodgements and cheques will automatically appear on the bank statement in the future – we certainly never adjust the statement.
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