Chapter 4 Bank Reconciliation Statements

Chapter 4 Bank Reconciliation Statements

QUESTION 1

Bank balances for Nana Chong’s business are as follows:

Balance as per bank statement, 31 July 2012$12,345(Cr)

Balance as per cash book (bank column), 31 July 2012$38,086(Dr)

The following events were not yet recorded in the cash book:

(i)A trade debtor’s cheque for $5,000 was returned because of insufficient funds.

(ii)Monthly bank charges amounted to $120.

(iii)During the month, the following sums were paid by standing orders:

Insurance premium$1,220

Rent$2,600

(iv)A customer deposited a cheque for $3,900 directly into Nana Chong’s business bank account on 20 July 2010.

Additional information:

(v)A cheque for $2,500 deposited into the bank account on 31 July 2012 did not appear on the bank statement.

(vi)Post-dated cheques totalling $23,000 were held in the cash till on 31 July 2012, but had already been recorded in the cash bookas banked.

(vii)The following cheques issued by the business were not presented to the bank for payment:

Cheque No.Amount

445216$991

445217$1,371

445218$2,635

(viii)A cheque payment of $4,321 was entered into the cash book as $4,123.

Required:

Prepare a bank reconciliation statement for the business as at 31 July 2012 without adjusting the cash book. Start with the balance as per bank statement. (6 marks)

Answer:

QUESTION 2

The bank account for Flora Lee’s business showed a credit balance of $33,220 as at 30 September 2011, which did not agree with the debit balance of $19,997 shown on the bank statement as at the same date. The following discrepancies were found upon investigation:

(i)Cheques for $350, $600 and $2,100 were issued by the business during the month but had not been presented for payment.

(ii)On 30 September 2011, the bank paid the business office rentof $13,300 under a standing order. This itemhad not been recorded in the cash book.

(iii)On 29 September 2011, the owner transferred $11,200 from her personal bank account to the business bank account. This itemhad not been recorded in the cash book.

(iv)A trade debtor paid $340 directly into the business bank account. Thisitemwas shown on the bank statement buthad not beenrecorded in the cash book.

(v)An amount of $900 was paid into the bank account on 30 September 2011 but had not yet been credited by the bank.

(vi)A cheque issued to Albert Au for $3,880 was correctly recorded in the bank statement but had been recorded in thecash book as $3,180.

(vii)A cheque receipt of $7,122 waswrongly recorded on the credit side of the cash book as $7,211.

(viii)Due to a casting error, the total of the debit side of the cash book was overstated by $800.

Required:

(a)Update the cash book.(4 marks)

(b)Draw up a statement, under the correct heading, to account for the difference between the updated cash book and the balance shown on the bank statement. (2 marks)

Answer:

(a)

(b)

QUESTION 3

Jack Wong received abank statement for the month of October 2012 which showed a debit balance of $29,686 as at 31 October 2012.

On examining the cash book and the bank statement, the following additional information wasfound:

(i)A post-dated cheque for $6,000 received from a customer on 31 October 2012 had been entered in the cash book.

(ii)A cheque for $440 received from a customer had been debited twice in the cash book.

(iii)Three cheques drawn by the business during October 2012 had not yet been presented for payment. The amounts were as follows: $220, $460 and $1,380

(iv)A cheque payment of $2,677 made to a trade creditor had been entered in the cash book as $2,766.

(v)Share dividends of $800 werecredited directly into the bank account but had not been entered in the cash book.

(vi)During October 2012, the bank paid the following amounts on behalf of the business under standing orders:

Subscription to a trade association$500

Office rent $4,000

(vii)Owing to a casting error, the total of the credit side of the cash book had been overstated by $500.

(viii)A cheque of $3,000 received and banked at 30 October 2012 was not credited by the bank until 2 November 2012.

Required:

Prepare a bank reconciliation statement as at 31 October 2012, starting with the unadjusted cash book balance. (6 marks)

Answer:

QUESTION 4

The bank account and the bank statement of a business for the month of July 2011 are given below:

Required:

(a)Update the cash book.(3.5 marks)

(b)Draw up a bank reconciliation statement as at 31 July 2011, starting with the bank statement balance and ending with the updated cash book balance. (2.5 marks)

Answer:

(a)

(b)

QUESTION 5

Mr Lee received a bank statement for his business on 2 December 2011, showing a credit balance of $36,326 as at 30 November 2011, which did not agree with the cash book balance.

Upon investigation, he found that:

(i)An autopay item of $360 for a telephone bill had not been recorded in the cash book.

(ii)A cheque for $4,100 received and recorded in the cash book had not been credited by the bank.

(iii)A cheque for $3,300 received from a customer, Vicky Leung, had been entered in the cash book but the cheque was subsequently dishonoured by the bank. The returned cheque had not been recorded in the cash book.

(iv)Mr Lee found that a standing order of $1,230 for the payment of subscriptions to a trade journal had been recorded on the bank statement but not in the cash book.

(v)Bank charges of $1,400 were wrongly listed as a credit itemon the bank statement. This item had been correctly recorded in the cash book.

(vi)A cheque from a debtor for $12,200 deposited in the bank in November 2010 had been entered in the cash book as $21,200.

(vii)The bankfailed to follow the cancellation notice of a standing order for rent payment, which amounted to $38,000.

(viii)Mr Lee found that the following cheques issued during November 2011 had not been presented for payment:

Cheque No.Amount

212234$5,220

212235$2,380

212236$1,040

212237$876

Required:

(a)Show the necessary adjustments in the cash book.(3 marks)

(b)Prepare a bank reconciliation statement as at 30 November 2011, beginning with the updated cash book balance. (3 marks)

(c)State three possible reasons as to whythe cheque from Vicky Leung was dishonoured by the bank.

(3 marks)

Answer:

(a)

(b)

(c)Possible reasons include:

(i)The drawer does not have enough money in the current account for payment.

(ii)There is no signature on the cheque, or the signature does not match that on record at the bank.

(iii)The amount in words differs from the amount in figures.

(iv)The cheque is not dated.

(v)The cheque is a stale cheque.

(vi)The cheque is a post-dated cheque, that is, the date of the cheque has not yet been reached.

(vii)The drawer’s account has been closed.

(viii)Alterations to the cheque have not been countersigned by the drawer.

(Any three of the above, 1 mark each)

QUESTION 6

The following details concern the cash book (bank columns) of Jessica Kong’s business for October 2010:

2010

Oct1Balance b/d: $5,660 (overdraft)

"6Jessica Kong settled the account of $1,900 with a supplier, Dinnie Chung, by cheque. A cash discount of 5% was received.

"8Paid wages of $2,300 by cheque.

"15Paid $2,520 by cheque to settle the account of Minnie Man, a supplier.

"22Banked cash sale proceeds of $46,173.

"29Withdrew$12,000 cash from the bank for business use.

Required:

(a)Write up the cash book for the month of October 2010.(3marks)

The bank statement showed a credit balance of $19,538 as at 31 October 2010. Also, the following information was found:

(i)A standing order made on 15 October 2010 to pay insurance of $3,500 had not been entered in the cash book.

(ii)A trade debtor, Norman Ko, paid $5,000 by credit transfer. This had not been recorded in the cash book.

(iii)An autopay of $2,000 for rent appeared on the bank statement but had not been recorded in the cash book.

(iv)A cheque payment of $1,440 to a trade creditor, Raymond Tam, had been entered in the cash book as $4,140.

(v)The bank had not credited a cheque for $4,466 received from a trade creditor. This had been debited in the cash book and deposited into the bank on 30 October 2010.

(vi)Bank charges of $99 had not been recorded in the cash book.

(vii)The following cheques had not been presented to the bank:

Cheque No.PayeeAmount

113162Susan Au$1,206

113163Besa Cheung$2,110

113164Cathy To$499

(vii)A cheque for $3,800 received from Lisa Mok was dishonoured and returned by the bank. This had not been recorded in the books.

Required:

(b)Update the cash book of Jessica Kong, showing the adjusted balance as at 31 October 2010.(4 marks)

(c)Prepare a bank reconciliation statement as at that date, commencing with the adjusted cash book balance. (2marks)

Answer:

(a)

(b)

(c)

QUESTION 7

The following cash book summary was extracted from the books of Peter Pang for the month of January 2012:

The following information was found after investigation:

(i)The receipt side of the above cash book wasoverstated by $3,800 due to casting errors.

(ii)Three cheques drawn by the business in January 2012were not yet presented for payment. The relevant amounts were: $2,320, $960 and $670.

(iii)On 10 January 2012, Peter deposited into the business bank account a cheque for $3,353 received from a trade debtor. Appropriate entries had beenmade in both the cash book and the bank statement. On
13 January 2012, however, the cheque was returned unpaid by the payer’s bank. The entry in respect of the returned cheque was shown on the bank statement, but an entry was not yet made in thecash book.

(iv)During the month, bank interest revenue of $378 was not recorded in the cash book.

(v)At the end of the month, a trade debtor, Mr Wong, paid $1,900 directly into the business bank account but this amount did not appear in the cash book.

(vi)Dividend income of $3,456 was credited directly into the bank account but the amount has been wrongly credited in the cash book as bank charges.

(vii)The following items were shown in the bank statement, but had not yet been entered in the cash book:

(a)Bank loan interest of $2,000 charged by the bank

(b)An autopay of $2,210 for rent in January 2010

(viii)Rental income amounting to $800 was deposited directly into the bank but was not yet been entered in the cash book.

(ix)The following cheque receipts were recorded in the cash book for the month of January 2012:

Date depositedDate credited by the bankAmount

Jan29Feb1$1,200

"30Jan31$2,400

"31Feb2$2,350

Required:

(a)Update the cash book for Peter Pang and show the adjusted bank balance as at 31 January 2012.

(5.5 marks)

(b)Prepare a bank reconciliation statement as at 31 January 2012, starting with the bank statement
balance.(2 marks)

(c)State the amount of the bank balance that should be shown in the balance sheet of Peter Pang’s business as at 31 January 2012. (0.5 marks)

Answer:

(a)

(b)

(c)The bank balance shown in the balance sheet as at 31 January 2012 should be $8,658 (overdraft).

(0.5 marks)

QUESTION 8

Danny Ma, a wholesaler, received a bank statement for the month of March 2010. The statement shown on the bank statement did not agree with the credit bank balance of $34,766 shown in the cash book.

The difference was accounted for by the following items:

(i)An amount of $2,180 was paid directly into the bank by a trade debtor, Elle Or, but this did not appear in Danny’s books.

(ii)A bank interest charge of $771 appeared in the bank statement but was not recorded in the cash book.

(iii)During the month, the bank returned a cheque for $690, drawn by a trade debtor, Besa Chan. This cheque was marked ‘insufficient funds’ by the bank. Danny had not yet dealt with the dishonoured cheque in the books.

(iv)A standing order of $6,600 for the payment of office rent was not recorded in the cash book.

(v)The bank statement showed that a rates refund of $2,100was credited directly to the bank account, but this was not reflected in the books of the business.

(vi)A cheque for $4,000 drawn on 1 March 2009 to settle a trade creditor’s account had not been presented to the bank. The cheque was dated 1 March 2009.

(vii)A debt of $3,320 that was written off as bad was recovered and a cheque dated 2 May 2010 was received. This cheque had been recorded in the cash book (bank column) but was not yet banked.

(viii)A cheque for $2,100 issued to pay for office equipment was mistakenly recorded as$1,200 in the cash book.

(ix)The debit side of the cash book (bank column) was understated by $700 due to a casting error.

(x)A cheque for $2,793, after deducting a cash discount of 5%, was received from a trade debtor on
13 March 2010. The cashier recorded the gross amount in the cash book.

Required:

(a)Update the cash book.(6 marks)

(b)Show the journal entries for items (i) to (vii). (No narrations are required.)(7 marks)

Additional information:

(xi)On 30 March 2010, a cheque for $1,260 received from Grace Lam, a trade debtor, was banked. This had not been credited in the bank statement.

(xii)Cheques for $330, $1,940 and $100,respectively, were issued and entered in the cash book. None of these cheques had been presented for payment.

(xiii)An amount of $8,300 was credited on the bank statement by mistake.

(xiv)Danny Ma instructed the bank to transfer $2,910 from his personal savings account to the business bank account. The bank made the transfer in reverse.

Required:

(c)Draw up the bank reconciliation statement by starting with the bank statement balance, and reconcile this balance with the adjusted balance of the bank column in the cash book. (3 marks)

Answer:

(a)

(b)