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- 20 Marks
Question
The following is a summary from the cash book of BW Ltd for July 2015:
| Description | GH¢ |
|---|---|
| Opening balance | 1,530 |
| Receipts | 23,104 |
| Payments | (23,005) |
| Closing balance | 1,629 |
On investigation, it was discovered that:
i) Bank charges of GH¢15 shown on the bank statement have not been entered in the cash book.
ii) A cheque drawn for GH¢110 to pay a supplier has been entered in the cash book as a receipt.
iii) A cheque from a customer for GH¢120, which was banked (and included above in receipts), has been returned by the bank, but this has not been adjusted in the company’s books.
iv) An error of transposition which occurred in the opening balance of the cash book should have been recorded as GH¢1,350.
v) Cheques totaling GH¢264 have been sent by post to suppliers but were not presented to the company’s bank until August 2015.
vi) The last page of a bank account paying-in book shows a deposit of GH¢1,040 which was not credited to the account by the bank until 1st August 2015.
vii) The company’s bank statement at 31st July 2015 shows a balance of GH¢318.
Required:
a) Demonstrate any adjustments needed to the company’s accounting records. (8 marks)
b) Prepare a Bank Reconciliation Statement as at 31st July 2015. (6 marks)
c) Explain THREE benefits to BW Ltd of reconciling its cash book and bank statement balances. (6 marks)
Answer
a) Adjusted Cash Book
b) Bank Reconciliation Statement as at 31st July 2015
| Description | GH¢ |
|---|---|
| Balance as per bank statement | 318 |
| Add: Banking not yet credited (GH¢1,040) | 1,040 |
| Less: Cheques drawn but not yet presented | (264) |
| Balance as per cash book (adjusted) | 1,094 |
c) Benefits of Reconciling Cash Book and Bank Statement Balances
- Error Detection and Correction: Reconciliation helps identify discrepancies such as errors in recording transactions in the cash book or the bank statement. It allows for timely correction of these errors, ensuring accurate financial reporting.
- Fraud Prevention: Regular reconciliation acts as a deterrent against fraudulent activities. Since the bank statement is an independent record prepared by the bank, discrepancies can highlight unauthorized transactions or misappropriations.
- Cash Management: Reconciliation provides a clear picture of the company’s cash position, helping in effective cash management. It ensures that all transactions are accounted for, enabling better financial planning and decision-making.
- Tags: Accounting Errors, Adjustments, Bank Reconciliation Statement, Cash Book
- Level: Level 1
- Topic: Bank reconciliations
- Series: MAY 2016
- Uploader: Theophilus