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In the cash book of a company, the bank balance shows a credit balance of $5000. There were unpresented cheques amounting to $1,500. The bank statement showed bank charges of $700 not in the cash book.
What is the balance on the bank statement?
A $3,300 debit
B $4,200 debit
C $4,800 creditD $5,800 credit
The answer is 5800:
Cash book 5000 – has already posted 1500 unpresented cheques, but doesn’t have 700 charges. So to find bank balance you must reverse these transaction: you have 700 paid out from bank but you don’t see yet cheques(bank doesn’t know about them yet). 5000+1500-700 = 5800- Topics: 0
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I am sorry, I don’t quite understand. I think the answer is B-4200 debit (but i can make a mistake I’ve just began to learn this course.)
Credit in Cash book $5000 – this mean that company owes bank $5000, but bank has not yet received unpresented cheques so the company’s debt (5000-1500)=3500. Then we have $700 of bank charges thus the debt has to be increased by this sum => 5000-1500+700=4200. This is company’s debt and from bank’s point of view it is the recivables and must be shown on th debit side.Yes, you are absolutelly right – I haven’t seen the info that cashbook balance is credit. Of course it changes meaning. Thanks for your post. It shows how easy is to make a mistake. Thanks again
Ok, let start from the beginning. Credit balance cashbook means overdraft ( like credit balance on bank account in you ledger means overdraft). It means that you owe 5000 to the bank. Now there are 1500 unpresented cheques – they are included in cashbook but not on bank statement – they are already included in the balance -5000 per cashbook. It means that bank ‘thinks’ that you owe less money that you think as bank doesn’t know yet about your cheques. So bank thinks that you owe only – 5000 – (- 1500) = – 5000 + 1500 = -3500, than you see 700 charges which are on bank statement but not in cashbook. Means that per bank you owe -3500 + (-700) = -3500 – 700 = – 4200. So your bank statement should have a balance 4200 Cr.
Bank statement shows balances on the other side. In your ledger there will be a credit balance on bank account – means liability(overdraft). On bank statement there will be debit balance as you owe money to the bank so you are a debtor for bank, debtor as asset has the balance Dr.
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