How to make the appropriate entries to the accounts when a cheque is dishonoured.

10 How to make the appropriate entries to the accounts when a cheque is dishonoured.

Chapter 30 l Bank reconciliation statements

Answers to activities

30.1 There is quite a long list of possible causes, including: l

a business may take a day or two to deposit some cheques that it has already entered in the Cash Book l

a cheque may take a few days to be entered in the account of the business held at the bank after it is deposited (because the bank won’t recognise the amount received until a few days later, in case there is a problem with it)

l bank interest paid and bank charges often aren’t known by a business until a bank statement is received

l bank interest received won’t be known by a business until it receives a bank statement l standing orders may not be written up in the Cash Book of the business until they are

identified on the bank statement l the amount of a direct debit is sometimes not known and so should not be entered in the Cash

Book until it is confirmed how much was paid out of the bank account l customers may pay their accounts by direct transfer from their bank account or by paying cash

directly into the business bank account and the business may only learn of their having done so some time later

l there may have been an error made in the Cash Book entries l the bank may have made an error in operating the account, such as adding funds to it instead

of to the account of the person depositing the funds l

a cheque paid into the bank may have ‘bounced’ (i.e. there were insufficient funds in the writer of the cheque’s bank account to make the payment).

30.2 It is wise to wait until receiving the bank statement before balancing off the bank account in the Cash Book at the end of the accounting period. In a manual accounting system, if a Cash Book is balanced on a regular basis, balancing off is usually done at the end of the time period selected and any additional entries are recorded along with the other entries made in the following day, week, month, or quarter. However, at the end of the accounting year, the balancing off is often done in pencil (so that financial statements can be drafted) and then done in ink after any missing entries and corrections of errors have been entered following receipt of the bank statement.

30.3 M Peck £200 and J Soames £470.

30.4 ‘Dr’ indicates an overdraft. The customer is a debtor of the bank. In the customer’s balance sheet, the overdraft is included in the current liabilities, indicating that the bank is a creditor. Always remember that a bank is looking at the relationship from the opposite side to the view seen by the customer.

Review questions

30.1 From the following draw up a bank reconciliation statement from details as on 31 December 20X6:

£ Cash at bank as per bank column of the cash book

2,910 Unpresented cheques

730 Cheques received and paid into the bank, but not yet entered on the bank statement

560 Credit transfers entered as banked on the bank statement but not entered in the cash book

340 Cash at bank as per bank statement

30.2A Draw up a bank reconciliation statement, after writing the cash book up to date, ascer- taining the balance on the bank statement, from the following as on 31 March 20X9:

Part 4 l Adjustments for financial statements

£ Cash at bank as per bank column of the cash book (Dr)

2,740 Bankings made but not yet entered on bank statement

410 Bank charges on bank statement but not yet in cash book

32 Unpresented cheques W Shute

131 Standing order to Giffy Ltd entered on bank statement, but not in cash book

93 Credit transfer from B Barnes entered on bank statement, but not yet in cash book

30.3 The following are extracts from the cash book and the bank statement of F Perry.

You are required to:

(a) Write the cash book up to date, and state the new balance as on 31 December 20X9, and (b) Draw up a bank reconciliation statement as on 31 December 20X9.

Cash Book

20X9 Dr

1 Balance b/d

Dec

8 B Young

7 F Lamb

15 F Gray

22 G Brock

28 T Errant

31 Balance c /d 3,437 ==

31 W Terry

31 S Miller

Bank Statement

20X9

Dr

Cr Balance

£ £ Dec

1 Balance b/d 3,419 ==

7 Cheque 101 3,520 ==

11 B Young

20 F Gray 21 3,037 ==

22 Cheque 44 3,081 ==

31 Credit transfer: T Morris 93 3,174 ==

31 Bank charges 47 3,127

30.4A The bank columns in the cash book for June 20X7 and the bank statement for that month for D Hogan are as follows:

Cash Book

20X7 Dr

1 Balance b/d

Jun

5 L Holmes

12 J Rebus

16 T Wilson

582 == 30 Balance c /d

16 T Silver

29 Blister Disco 22 ==

28 F Slack

30 G Baker

Bank Statement

20X7 Dr Cr Balance £

£ £ Jun

1 Balance b/d 1,410 ==

7 Cheque 62 1,472 ==

8 F Lane 180 1,292 ==

16 Cheque 75 1,367 ==

17 J Rebus 519 848 ==

18 T Silver 41 807 ==

28 Cheque 224 1,031 ==

29 SLM standing order 52 979 ==

30 Flynn: trader’s credit 64 1,043 ==

30 Bank charges 43 1,000

Chapter 30 l Bank reconciliation statements

You are required to:

(a) Write the cash book up to date to take the above into account, and then (b) Draw up a bank reconciliation statement as on 30 June 20X7.

30.5 Read the following and answer the questions below. On 31 December 20X8 the bank column of C Tench’s cash book showed a debit balance of £1,500.

The monthly bank statement written up to 31 December 20X8 showed a credit balance of £2,950. On checking the cash book with the bank statement it was discovered that the following trans- actions had not been entered in the cash book:

Dividends of £240 had been paid directly to the bank. A credit transfer – Customs and Excise VAT refund of £260 – had been collected by the bank. Bank charges £30. A direct debit of £70 for the RAC subscription had been paid by the bank. A standing order of £200 for C Tench’s loan repayment had been paid by the bank. C Tench’s deposit account balance of £1,400 was transferred into his bank current account.

A further check revealed the following items: Two cheques drawn in favour of T Cod £250 and F Haddock £290 had been entered in the cash

book but had not been presented for payment. Cash and cheques amounting to £690 had been paid into the bank on 31 December 20X8 but were not credited by the bank until 2 January 20X9.

(a) Starting with the debit balance of £1,500, bring the cash book (bank columns) up to date and then balance the bank account. (b) Prepare a bank reconciliation statement as at 31 December 20X8.

(Midland Examining Group: GCSE) 30.6A In the draft accounts for the year ended 31 October 20X9 of Thomas P Lee, garage propri-

etor, the balance at bank according to the cash book was £894.68 in hand. Subsequently the following discoveries were made: (1) Cheque number 176276 dated 3 September 20X9 for £310.84 in favour of G Lowe Limited has

been correctly recorded in the bank statement, but included in the cash book payments as £301.84.

(2) Bank commission charged of £169.56 and bank interest charged of £109.10 have been entered in the bank statement on 23 October 20X9, but not included in the cash book. (3) The recently received bank statement shows that a cheque for £29.31 received from T Andrews and credited in the bank statements on 9 October 20X9 has now been dishonoured and debited in the bank statement on 26 October 20X9. The only entry in the cash book for this cheque records its receipt on 8 October 20X9.

(4) Cheque number 177145 for £15.10 has been recorded twice as a credit in the cash book. (5) Amounts received in the last few days of October 20X9 totalling £1,895.60 and recorded in

the cash book have not been included in the bank statements until 2 November 20X9. (6) Cheques paid according to the cash book during October 20X9 and totalling £395.80 were not presented for payment to the bank until November 20X9. (7) Traders’ credits totalling £210.10 have been credited in the bank statement on 26 October 20X9, but not yet recorded in the cash book. (8)

A standing order payment of £15.00 on 17 October 20X9 to Countryside Publications has been recorded in the bank statement but is not mentioned in the cash book.

Required:

(a) Prepare a computation of the balance at bank to be included in Thomas P Lee’s balance sheet as at 31 October 20X9.

Part 4 l Adjustments for financial statements

‘ (b) Prepare a bank reconciliation statement as at 31 October 20X9 for Thomas P Lee.

(c) Briefly explain why it is necessary to prepare bank reconciliation statements at accounting year ends.

(Association of Accounting Technicians)

30.7 The bank statement for R Hood for the month of March 20X6 is:

20X6

Dr

Cr Balance

£ £ Mar

1 Balance 4,200 O/D ==

4,384 O/D ==

8 T MacLeod

16 Cheque 292 4,092 O/D ==

4,252 O/D ==

20 W Milne

21 Cheque 369 3,883 O/D ==

31 G Frank: trader’s credit 88 3,795 O/D ==

31 TYF: standing order 32 3,827 O/D ==

31 Bank charges 19 3,846 O/D The cash book for March 20X6 is: 20X6

1 Balance b/d 4,200 ==

G Philip

21 J Forker

6 T MacLeod

31 S O’Hare

== 30 W Milne

31 Balance c /d

== 30 S Porter

You are required to:

(a) Write the cash book up to date, and (b) Draw up a bank reconciliation statement as on 31 March 20X6.

30.8A The following is the cash book (bank columns) of F King for December 20X7: 20X7

1 Balance b/d 1,900 ==

20 C Hook

10 J Lamb

31 W Britten

19 P Wilson

31 Balance c/d

29 K Coull

2,502 The bank statement for the month is:

Cr Balance

£ £ Dec

1 Balance 1,900 O/D ==

6 Cheque 230 1,670 O/D ==

1,974 O/D ==

13 J Lamb

20 Cheque 265 1,709 O/D ==

1,970 O/D ==

22 P Wilson

30 Tox: standing order 94 2,064 O/D ==

31 F Ray: trader’s credit 102 1,962 O/D ==

31 Bank charges 72 2,034 O/D

You are required to:

(a) Write the cash book up to date to take the necessary items into account, and (b) Draw up a bank reconciliation statement as on 31 December 20X7.

Chapter 30 l Bank reconciliation statements

30.9 The following is a summary of a cash book as presented by George Ltd for the month of October:

£ Receipts

761 Balance c/d

Balance b/d

2,023 All receipts are banked and all payments are made by cheque On investigation you discover: (1) Bank charges of £136 entered on the bank statement have not been entered in the cash book.

(2) Cheques drawn amounting to £267 had not been presented to the bank for payment. (3) Cheques received totalling £762 had been entered in the cash book and paid into the bank,

but had not been credited by the bank until 3 November. (4)

A cheque for £22 for sundries had been entered in the cash book as a receipt instead of as a payment. (5)

A cheque received from K Jones for £80 had been returned by the bank and marked ‘No funds available’. No adjustment has been made in the cash book. (6)

A standing order for a business rates instalment of £150 on 30 October had not been entered in the cash book. (7) All dividends received are credited directly to the bank account. During October amounts totalling £62 were credited by the bank but no entries were made in the cash book. (8)

A cheque drawn for £66 for stationery had been incorrectly entered in the cash book as £60. (9) The balance brought forward in the cash book should have been £711, not £761.

Required:

(a) Show the adjustments required in the cash book. (b) Prepare a bank reconciliation statement as at 31 October.

You can find a range of additional self-test questions, as well as material to help you with your studies, on the website that accompanies this book at www.pearsoned.co.uk/wood You can find a range of additional self-test questions, as well as material to help you with your studies, on the website that accompanies this book at www.pearsoned.co.uk/wood