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Hi Sir,
Confused about this question:
Sigma’s bank statement shows an overdrawn balance of $38,600 at 30 June 20X5. A check against the company’s cash book revealed the following differences:
1) Bank charges of $200 have not been entered in the cash book
2) Lodgements recorded on 30 June 20X5 but credited by the bank on 2 July $14700
3) Cheque repayments entered in cash book but not presented for payment at 30 June 20X5 $27,800
4) A cheque payment to a supplier of $4,200 charged to the account in June 20X5 recorded in the cash book as a receipt.Based on this information, what was the cash book balance before any adjustments?
The answer is 43,100 overdrawn.
I am having issue with both the logic and even the technique. I am not comfortable in starting from the overdrawn balance and working my way step-to-step to the cash balance before the adjustments.
Also, what is the importance of the lodgement being credited after the bank statement date? This means that the bank statement figure does not include this, yes?
As usual, your help is greatly appreciative.
Regards,
YazanLodgements after date and unpresented cheques are receipts and payments that have been entered (correctly) in the cash account, but have not yet appeared on the bank statement.
So……the only reasons that the bank statement will not be showing the correct cash account balance are either mistakes by the bank (which are not common) and lodgements after date and unpresented cheques. So to get the correct cash account balance you need to take the balance on the bank statement and adjust for these.
This question wants to know what the cash account balance is at the moment. The reason it will be different from the correct balance is that there have been mistakes (bank charges have not been entered; a payment has been entered as though it was a receipt). So, you need to take the correct cash account balance and work backwards to find out what it would have been before these two mistakes were corrected.
It might help you to watch my free lecture on bank reconciliations.
I can’t get yazan’s answer. I don’t understand.
I gotbank statement (38,600) +14700 = $ 23900 overdrawn.
I though It will be the same balance the cash book.so i supposed the balance the balance of the cash book will be a credit account
-X – ( 200+ 27800+ 4200 + 4200)= -23900
– X=-60300
X= 60300
it’s confusingThe bank statement shows $38600. So to get the correct cash account figure we need to add the unrecorded lodgements of 14700, and subtract the unpresented cheques of 27800.
Having got the correct cash account balance, we need to add back the 200 bank charges that had not been entered, and we need to add back the 4200 twice.
What you have done wrong is the way you have dealt with the unpresented cheque.
This make a lot of sense now. Seeing this question by splitting it from the POV of the cash book and the bank statement helps.
Much thanks, as usual.
Yazan
Because it was recorded as a receipt and therefore increased the balance. It should have been recorded as a payment and so should have decreased the balance.
i don’t know why we have to add bank charge and 4200 twice as two of these are credited to cash book(it means we have to deduct it)
thank youThe question is asking what the cash book balance was before correcting any mistakes.
The bank reconciliation statement tells us what the correct cash book balance should have been and we need to then work backwards to find out what the balance was before the mistakes were corrected as I explain in my previous replies.
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