A bank reconciliation that keeps timing differences out of the cash book
A fictional workshop keeps a cash book and receives a bank statement for the same closing date. The cash book shows a favorable debit balance of five thousand. The statement shows a bank charge of two hundred and a standing-order payment of one hundred, neither yet entered by the workshop. Cheques already recorded as payments in the cash book but not yet presented total eight hundred. A deposit already recorded in the cash book but not yet credited by the bank totals three hundred. The exercise assumes all listed items are genuine and there are no other differences, overdrafts or errors. A trainee wants to enter the unpresented cheques as another cash payment and then alter the ledger until it equals the statement. The owner asks for an explanation that preserves the distinction between missing entries and timing differences.
1. Calculate the adjusted cash-book and expected bank-statement balances.
Read the worked answer
Adjusted cash book is 5,000 −200 −100 =4,700. Under the favorable-balance convention, the bank statement is 4,700 +800 −300 =5,200. The unpresented cheques and deposit were already recorded by the business, so they explain timing rather than new cash-book entries.
2. Explain the risk in the trainee’s proposed adjustment.
Read the worked answer
Recording the cheques twice understates business cash. Changing an unexplained balance to force agreement hides errors rather than reconciling records. Record only the genuinely missing charges, then document the timing reconciliation and check later clearance.