Bank Reconciliation at Nkwen Stores
At 31 March 2025 the cash book of Nkwen Stores showed a debit balance of 1,980,000 FCFA, while the bank statement showed a favourable balance of 2,450,000 FCFA. Investigation revealed: • Cheques paid but not yet presented: 620,000 FCFA. • Deposits not yet credited by the bank: 480,000 FCFA. • Bank charges of 30,000 FCFA and a standing order of 100,000 FCFA had not been entered in the cash book. • A customer's cheque for 60,000 FCFA had been dishonoured. • The bank had collected a dividend of 240,000 FCFA for the business. • A cheque for 95,000 FCFA paid to a supplier had been entered in the cash book as 75,000 FCFA. • The bank had credited the account with 300,000 FCFA in error. The owner wants the cash book corrected and a reconciliation statement showing why the two balances differ.
1. Prepare the updated cash book (bank column) at 31 March 2025.
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Updated cash book
| Dr | FCFA | Cr | FCFA |
|---|---|---|---|
| Balance b/d | 1,980,000 | Bank charges | 30,000 |
| Dividend collected | 240,000 | Standing order | 100,000 |
| Dishonoured cheque | 60,000 | ||
| Correction of cheque: 95,000 − 75,000 | 20,000 | ||
| Balance c/d | 2,010,000 | ||
| Total | 2,220,000 | Total | 2,220,000 |
The dishonoured cheque must be reversed because the earlier receipt is no longer valid. The transposition error means the cash book was credited with 20,000 FCFA too little, so a further credit is needed.
2. Prepare a bank reconciliation statement starting from the bank statement balance.
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| Reconciliation | FCFA |
|---|---|
| Balance per bank statement (favourable) | 2,450,000 |
| Add deposits not yet credited | 480,000 |
| 2,930,000 | |
| Less unpresented cheques | (620,000) |
| Less bank error: credit entered by bank but not in cash book | (300,000) |
| Adjusted bank statement balance | 2,010,000 |
This agrees with the updated cash book balance of 2,010,000 FCFA. The bank error is not entered in the cash book; the bank must be notified to reverse it.
3. Explain why unpresented cheques and deposits not yet credited are not entered in the cash book, and state the treatment of the dishonoured cheque.
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Unpresented cheques and deposits not yet credited are timing differences. The business records a cheque when it is issued and a receipt when it is banked; the bank records them only when they clear. They therefore appear in the reconciliation, not as new cash book entries.
The dishonoured cheque is different: the business had already recorded the receipt, but the bank has now refused payment. The cash book must be credited with 60,000 FCFA and the customer's account debited again, because the debt is still owed. The bank error of 300,000 FCFA is a bank-side error and should not affect the cash book.