Reconciling Naledi's Bank Account
Naledi's cash book shows a debit balance of P8,240 at 31 May. Her bank statement shows a credit balance of P9,610. She lists the following: unpresented cheques totalling P1,780; a deposit of P950 paid in on 30 May not yet credited; bank charges of P120 not entered in the cash book; a standing order of P300 for insurance not entered; a customer's cheque for P640 returned dishonoured (marked 'refer to drawer') and not yet recorded; and a direct credit of P1,200 from a debtor paid straight into the bank. She also finds she entered a cheque paid to a supplier as P540 when it was actually P450.
1. Starting from the cash book balance, calculate the corrected cash book balance, showing each adjustment and whether it is added or subtracted.
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Start with the cash book balance (debit) P8,240. Items already in the cash book but not the bank statement (unpresented cheques, uncredited deposits) are not adjusted here - they belong to the reconciliation statement.
Adjustments to the cash book:
| Item | Effect | Amount (P) |
|---|---|---|
| Bank charges | subtract | (120) |
| Standing order - insurance | subtract | (300) |
| Dishonoured cheque | subtract | (640) |
| Direct credit from debtor | add | 1,200 |
| Error: cheque recorded P540, actual P450 | add back 90 | 90 |
| Corrected cash book balance | 8,470 |
Reasoning notes:
- Bank charges, standing orders and dishonoured cheques are known only from the statement, so the cash book is incomplete and must be updated.
- The direct credit is money received that Naledi never recorded - add it.
- The error: she debited (reduced bank) by P540 but should have reduced it by P450, so she over-reduced by P90; add P90 back.
Corrected cash book balance = P8,470 debit.
2. Prepare the bank reconciliation statement from the corrected cash book balance to the bank statement balance, and explain why the two balances differ even after correction.
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Bank reconciliation statement at 31 May
| P | |
|---|---|
| Balance per corrected cash book | 8,470 Dr |
| Add: deposit not yet credited | 950 |
| Less: unpresented cheques | (1,780) |
| Balance per bank statement | 7,640 Cr |
But the statement shows P9,610 Cr, so a further discrepancy of P1,970 remains unexplained. Naledi must investigate - likely candidates are an unrecorded direct debit, a bank error, or a cheque she has not yet recorded.
Why balances differ after correction: timing. The bank records transactions when they clear the clearing system; the business records them when the cheque is written or the deposit made. Unpresented cheques and deposits in transit are legitimate timing differences. The reconciliation proves the records agree once timing is allowed for; any residual difference is an error by the bank or an omission by Naledi, and must be traced, not simply plugged.
Examiner tip: never force the reconciliation to balance by inserting a figure - state the residual and what it implies.