Year-End Cash Shortage and a Pile of Unreconciled Entries
On 31 March 2025 the cash book of a branch shows a cash balance of ₹6,84,200 while the teller's physical cash is ₹6,81,900. Investigation on 1 April reveals five items: (i) a customer's cheque for ₹18,500 deposited on 28 March was credited to her account the same day but returned unpaid on 3 April with the memo 'insufficient funds'; (ii) a standing instruction for an EMI of ₹7,400 was posted twice on 31 March; (iii) a clearing difference of ₹11,000 was left in the suspense account on 30 March; (iv) bank charges of ₹472 for a demand draft were recovered in cash but not entered in the books; and (v) a peon's salary advance of ₹2,300 paid in cash was not recorded at all. The accountant must close the books, correct the customer accounts and file the statutory returns without delay.
1. Pass the entries needed to correct the cash shortage and item (v), and state the final cash balance.
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The difference is ₹6,84,200 − ₹6,81,900 = ₹2,300 short, and it matches the unrecorded salary advance exactly.
Entry for the salary advance:
- Dr Staff Salary Advance (asset) ₹2,300
- Cr Cash ₹2,300
After this, the cash book shows ₹6,81,900, agreeing with physical cash. The cash short/excess account is not used, because the cause is known and the amount is recoverable from the employee's salary.
Control point: a cash payment without a voucher is a serious internal-control failure. Record the voucher now with the sanction of the manager, obtain the peon's acknowledgement, and note the lapse in the incident register. If the advance were not recoverable, it would be written off only with the competent authority's approval, never by quietly adjusting the cash book.
Generic rule: cash balance in the books must always equal the teller's physical cash at close of day; any unexplained difference is parked in 'cash short/excess' only overnight, and investigated the next working day.
2. How should items (i) to (iv) be treated in the books and in the customer's account?
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(i) Returned cheque ₹18,500: the credit given on 28 March was provisional. On receipt of the return memo, reverse it - Dr customer's account ₹18,500, Cr Clearing/Suspense ₹18,500. Inform the customer in writing before debiting, and if the debit creates a shortfall, follow the bank's tariff for return charges only if the customer was informed of them. Do not allow drawings against uncleared effects beyond the permitted limit.
(ii) Double EMI debit ₹7,400: reverse the second posting - Dr EMI Suspense/Standing Instruction account ₹7,400, Cr customer's account ₹7,400. If the double debit caused other instruments to bounce, the bank must bear the resulting charges and record the reason.
(iii) Suspense ₹11,000: suspense is not a parking place for differences. Trace it to the clearing settlement, the mirror account or a wrong branch credit. If it is a genuine unreconciled difference, keep it under daily review and escalate to the controlling office; write-back needs documented approval, not a silent transfer to income.
(iv) DD charges ₹472 recovered in cash: Dr Cash ₹472, Cr Commission/Fee income ₹472. Cash received must enter the cash book the same day, whatever the ledger shows.
Every correction should carry a narration, date and authority, and be reflected in the customer's statement.
3. What practical controls and records should the branch put in place to prevent a repeat, keeping in view the need to file returns on time?
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The failures here are procedural, not accounting puzzles; the controls should target each one.
- Daily proof and balance: the teller and the accountant must independently balance cash, clearing and suspense at close of day, with dual signatures. No cash payment without a numbered voucher and the manager's authorisation above the teller's limit.
- Clearing mirror account: every deposit credited before realisation must be matched to the clearing settlement the same day; returns must be reversed on the day the memo is received, with a written intimation to the customer.
- Standing instructions register: a register should list each SI, its amount, date and the account to be debited, and a duplicate posting must be caught by an exception report on the core banking system.
- Suspense account discipline: daily listing, ageing, and escalation of any entry older than the permitted period; no write-back without approval.
- Charges and commissions: the tariff applied should be system-driven, with consent records for value-added services, so that recovery and posting cannot diverge.
- Records and returns: keep vouchers, day books, reconciliation statements and registers for the statutory retention period; the balance sheet and CRR/SLR returns must be prepared only after the books are proved, since a wrong NDTL figure can cause a regulatory default.
A short internal note recording each lapse and the corrective step protects the branch at inspection.