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Hi John,
I do not understand how the answer is calculated on the following:
The cash book shows a bank balance of $5,675 overdrawn at 31 August 20X5. It is subsequently discovered that a standing order for $125 has been entered twice, and that a dishonoured cheque for $450 has been debited in the cash book instead of credited.What is the correct bank balance?
My Answer:
1. I understand it that the Cashbook balance (5675) overdraft is what the bank balance should be according to the cashbook. Because there are errors, we need to show what the bank balance is supposed to be after recon. Is this correct? According to this question, I mean.
I understand how bank recon works. Only this question is confusing me.
2. The (5675 overdraft) includes a customer dishonored cheque that was added (debitted) that should have been deducted (creditted). SO this is a cashbook error that needs to be fixed? So deduct the 450 x2 = 900.
3.The bank balance will have a standing order deducted. The cashbook will not show this. we need to deduct it as well.
The answer: 5675 – 900 – 125 = 4650 overdraft is what I think the bank balance is supposed to be. The question says the correct bank balance is 6450 overdraft. Could you please explain?The correct balance is what the correct balance is that should appear in the cash and bank account.
The standard order should not have been entered twice, and so the overdraft should be 125 less than that shown.
The dishonoured cheque should have been credited and to the overdraft should be 900 more that that shown.
So the correct overdraft is 5675 – 125 + 900 = 6450.
This is the correct amount for cash at bank (and on the bank statement since none of the errors affect the bank statement).
Hello John,
I’m having some trouble solving this problem:
Arrow’s bank statement shows a credit balance of $2200 as on 30 Nov 20×9. these figures do not match Arrow’s cash book balance. the reasons for this difference as explained by his accountant are as follows:1- A direct debit of $600 was mistakenly entered twice
2- Cheques worth $800 are not yet cleared by the bank
3- Cheques worth $400 are not yet presented to the bankWhat would be the balance in arrows cash book for the month ended 30 Nov 20×9?
I didn’t understand what direct debit is. and what would be the answer?
A direct debit is just like a standing order – it is an automatic payment.
You really should watch the free lecture on bank reconciliations. Direct debits are explained in the lecture.
So, to $2200 we add $600 and add $800 and deduct $400?
would the answer be $3200?I have a bank reconciliation question.
Question prompt is:
I do not understand why following overdrawn is negative and
The cash book shows a bank balance of $5,675 overdrawn at 31 August 20X5. It is subsequently discovered that a standing order for $125 has been entered twice, and that a dishonored cheque for $450 has been debited in the cash book instead of credited.I do not understand why question on top overdrawn is negative and question below overdrawn is positive in calculation
Your cash book at 31 December 20X3 shows a bank balance of $565 overdrawn. On comparing this with your bank statement at the same date, you discover the following:
A cheque for $57 drawn by you on 29 December has not yet been presented for payment.
A cheque for $92 from a customer, which was paid into the bank on 24 December 20X3, has been dishonoured on 31 December 20X3.An overdraft is always a negative balance at the bank, and is therefore a credit balance in the cash account but a debit balance on the actual bank statement.
Have you watched the free lectures on this? The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
Hi Mr. John Moffat
I have some trouble understanding this question.
The cash book shows a bank balance of $5,675 overdrawn at 31 August 20X5. It is subsequently discovered that a standing order for $125 has been entered twice, and that a dishonored cheque for $450 has been debited in the cash book instead of credited.
My answer is 6000 overdrawn. Because if bank dishonored the cheque for 450$, then why we dont reduce credit side of cashbook?
A dishonoured cheque is a cheque that we have received, but turns out that the payer has no money and we do not receive anything.
When they received the cheque, they will have debited cash as we always do.
When they found out that the cheque was dishonoured then they should have credited cash (to cancel the receipt that has not been received).
Instead, the have debited cash, which is wrong. Therefore to correct it they need to credit cash with 450 (to cancel the debit that should not be there) and then credit cash again with 450 (because that is what they should have done in the first place).
So in total, credit cash with 900.I do suggest that you watch my free lectures on this.
The lectures are a complete free course for Paper FA (F3) and cover everything needed to be able to pass the exam well.Dear John, I have read the posts above because I have problems with the same question:
The cash book shows a bank balance of $5,675 overdrawn at 31 August 20X5. It is subsequently discovered that a standing order for $125 has been entered twice, and that a dishonored cheque for $450 has been debited in the cash book instead of credited.
you explained that the answer is 5675 – 125 +900 = 6450
1. why is the overdraft which is 5675 a positive figure
2. why is the dishonored cheque added instead of subtracting it since we need to reduce the amount as it is dishonored.I have watched the videos. I still don’t understand. Hope you can help me out.
The cash account is showing an overdraft which is a credit balance in the cash account.
It is a negative bank balance, but if we refer to it as an overdraft then we don’t say it is negative because that is implicit in the word overdraft.Crediting the cash balance with 900 will make the overdraft even bigger.
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