Bank Reconciliation and Sales Ledger Control Account With a Dishonoured Cheque
At 30 June 2024 the bank column of a sole trader's cash book showed a debit balance of €1,200, while the bank statement showed a credit balance of €700. The following had not been recorded in the cash book: bank charges €80; a standing order for insurance €520; a dishonoured customer cheque €1,400; and a cheque for €310 issued to a supplier that had been entered as €110. Lodgements of €1,600 had not yet been credited by the bank, and cheques for €2,300 had not yet been presented. The bank had also wrongly debited the business account with €400. Separately, the sales ledger control account showed opening debit balances of €24,600 and an opening credit balance of €300. During the year: credit sales €86,000; cash received from debtors €79,500, including the later dishonoured cheque; discount allowed €1,200; sales returns €2,400; bad debt written off €700; contra with purchases ledger €900; interest charged on overdue accounts €150.
1. Prepare the adjusted cash book and a bank reconciliation statement at 30 June 2024.
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Adjusted cash book (bank column)
| € | |
|---|---|
| Balance per cash book | 1,200 Dr |
| Bank charges | (80) |
| Standing order | (520) |
| Dishonoured cheque | (1,400) |
| Cheque error: €310 entered as €110 | (200) |
| Adjusted balance | 1,000 Cr |
The adjusted cash book is an overdraft of €1,000. The cheque error reduces the bank balance because an extra €200 must be credited to the bank column.
Bank reconciliation statement
| € | |
|---|---|
| Balance per bank statement | 700 Cr |
| Add unpresented cheques | 2,300 |
| 3,000 Cr | |
| Less lodgements not credited | (1,600) |
| Less bank error: wrong debit | (400) |
| Reconciled balance | 1,000 Cr |
The reconciled overdraft agrees with the adjusted cash book. The bank error is deducted because the bank has made the overdraft €400 larger than it should be.
2. Prepare the sales ledger control account and explain why the dishonoured cheque appears in both the control account and the bank reconciliation.
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Sales ledger control account
| Debit | € | Credit | € |
|---|---|---|---|
| Opening debit balances | 24,600 | Opening credit balance | 300 |
| Credit sales | 86,000 | Cash received | 79,500 |
| Interest charged | 150 | Discount allowed | 1,200 |
| Dishonoured cheque | 1,400 | Sales returns | 2,400 |
| Bad debt written off | 700 | ||
| Contra with purchases ledger | 900 | ||
| Total | 112,150 | Total | 85,000 |
| Closing balance c/d | 27,150 |
The closing debit balance is €27,150, so debtors are an asset. The dishonoured cheque is entered on the debit side because the customer's debt is restored when the cheque fails. In the cash book it is a credit entry because the bank balance is reduced. The same event therefore affects both records, but from opposite directions.
3. The list of debtor balances totals €27,450 while the control account shows €27,150. State two possible causes of the €300 difference and say which figure should be used in the statement of financial position.
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Possible causes include: a debtor balance of €300 omitted from the list; a credit balance of €300 wrongly treated as a debit balance in the list; a €300 invoice or credit note posted to the control account but not to the individual ledger; or an addition error in the list. The control account figure of €27,150 should be used if the control account has been checked and the postings are complete, because it is the ledger total. The list should then be investigated and corrected. If the control account itself contains the error, the control account must be corrected before the financial statements are prepared.