A business’s cash book as at 31 October 2020 had a debit balance of $4,340. On the same date, the bank statement had a credit balance of $3,880. After checking the cash book against the bank statement, the following differences were discovered:
(a) The bank had paid a standing order for rental expense of $1,200.
(b) The bank had received by credit transfer the sum of $960 due to the business from Alpha Ltd.
(c) A cheque issued to supplier for $1,720 had not been presented for payment.
(d) $940 cheque deposited by the business on 30 October 2020 did not appear in the October bank statement.
(e) A cheque for $380 issued by the business to pay utilities bill had been entered wrongly as $830 in the cash book. This was correct on the bank statement.
(f) Bank charges $70 had been charged by the bank but unrecorded in the cash book.
(g) A cheque for $2,290 banked in had been marked “dishonoured cheque” and “returned to drawer” but no adjustment was made in the cash book.
(h) Commission of $910 due to the business had been paid directly into the bank
Required:
(a) Bring the cash book up to date. Calculate the updated balance on 31 October 2020 and state whether it is a debit or credit balance.
(b) Prepare a statement to reconcile the difference between your amended cash book balance and the balance in the bank statement on 31 October 2020.
(c) State the amount of cash at bank to be put into the Statement of Financial Position as at 31 October 2020.
(d) Briefly explain why an organisation prepares monthly bank reconciliation.
Sample Solution
