The Reconciliation That Was Eight Thousand Short
On 31 March 2025 the cash book of Ravi Traders showed a debit balance of ₹1,86,420; the bank statement for the same date showed ₹1,75,370 credit. A junior clerk prepared a reconciliation showing ₹1,78,370 and could not explain the gap. You are given:
(i) Cheques deposited on 29 and 30 March totalling ₹31,400 were credited by the bank on 3 April. (ii) Cheques issued in March totalling ₹24,600 were presented in April. One cheque for ₹9,000 dated 12 December 2024 is still unpresented. (iii) Bank charges of ₹1,250 appear only in the statement. (iv) A customer's cheque for ₹8,000 was dishonoured on 30 March; intimation reached the firm on 2 April. (v) The bank wrongly debited the firm's account with ₹5,000, being a cheque drawn by another customer.
The proprietor suspects a defalcation because the two balances do not agree and wants the clerk held responsible.
1. Which items require entries in the firm's cash book, and how should the stale cheque of ₹9,000 be treated?
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Cash book adjustments:
- Bank charges: Dr Bank Charges ₹1,250, Cr Bank ₹1,250.
- Dishonour: Dr Customer (Ramesh or whoever) ₹8,000, Cr Bank ₹8,000; the amount becomes a receivable again and must be pursued.
- Bank's wrong debit ₹5,000: no cash book entry. The bank has made an error; take it up in writing with the bank with a copy of the statement. Until corrected by the bank, it stays as an addition in the reconciliation.
Stale cheque: a cheque dated 12 December 2024 is beyond the three-month validity period and cannot be paid now. If the liability is still due, reverse the original payment entry (Dr Bank ₹9,000, Cr Supplier ₹9,000) and issue a fresh cheque; if not due, transfer it to an unclaimed liability. Remove it from the outstanding list, otherwise dead items accumulate and mask real differences year after year. Show the reversal in the reconciliation as well so the bank statement still agrees.
2. How would you satisfy the proprietor that no defalcation has occurred?
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Do not start from the reconciliation; start from independent evidence. Obtain a bank balance certificate and statement of unpaid cheques as at 31 March directly from the bank. Trace every March deposit slip to the credit appearing in the April statement, one by one, and check that the total of slips equals the total of cash and cheques recorded in the books. Examine the bank's advice for the wrong debit and get written confirmation of reversal. Verify the dishonoured cheque with the returning memo and the customer's account. Compare daily collections with deposit slips and receipt books, and check subsequent statements for deposits that never reached the books.
If every difference is explained by timing or by known bank entries, and no unrecorded deposits or unrecorded payments exist, there is no defalcation and the clerk's error is one of competence, not dishonesty. Record the conclusion and the work done. Separately recommend that reconciliation be prepared by someone independent of cash handling.