Bank Reconciliation at a Jaipur Handloom Supplier
You are the junior accountant at M/s Sanganer Handloom Supplies, Jaipur. On 31 March 2024 the cash book shows a debit balance of ₹1,84,500 in the bank column, while the bank statement shows a credit balance of ₹2,06,300. You gather the following: cheques issued to suppliers but not yet presented ₹18,000; cheques deposited by customers but not yet credited ₹7,200; bank SMS and processing charges ₹1,500 not entered in the cash book; a customer directly deposited ₹21,000 into the firm's account, of which the cashier had no information; the bank wrongly debited ₹2,500 against the firm's account for another party's cheque; and a customer's cheque of ₹6,000 was dishonoured, the bank debited it, but the cash book still shows it as a receipt. The proprietor wants to close the books today and asks whether the difference means cash is missing. Prepare a reconciliation and advise.
1. Prepare a bank reconciliation statement starting from the cash book balance and determine whether the bank statement balance is fully explained. Show your workings.
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Starting from the cash book debit balance of ₹1,84,500:
| Item | ₹ |
|---|---|
| Cash book balance (Dr) | 1,84,500 |
| Add: customer's direct deposit not in cash book | 21,000 |
| Add: cheques issued but not presented | 18,000 |
| Less: cheques deposited but not credited | (7,200) |
| Less: bank charges not recorded | (1,500) |
| Less: dishonoured cheque not recorded | (6,000) |
| Less: bank's wrong debit | (2,500) |
| Expected bank statement balance (Cr) | 2,06,300 |
The computed figure equals the bank statement credit balance of ₹2,06,300. Therefore the difference is fully explained by timing differences and unrecorded items; there is no missing cash. The proprietor's fear is unfounded, but the cash book needs adjustment for the three unrecorded items.
2. State the adjusting entries needed in the cash book and explain how the wrongly debited ₹2,500 should be treated if the bank does not reverse it.
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Adjusting entries in the cash book:
- Bank charges ₹1,500: debit Bank Charges, credit Bank.
- Dishonoured cheque ₹6,000: debit the customer's account, credit Bank.
- Direct deposit ₹21,000: debit Bank, credit the customer's account.
The wrongly debited ₹2,500 is a bank error, not a cash book error. No entry should be passed in the firm's cash book merely to force a match. The firm should send a written complaint with the cheque details and ask the bank to reverse the debit. If the bank does not reverse it, the amount is a receivable from the bank or from the party whose cheque was wrongly charged; it should not be written off as an expense without approval. Documentary evidence should be preserved.
3. The proprietor says 'just write off the difference to suspense and close the books'. Evaluate this proposal.
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Writing off the difference to suspense is wrong because there is no unexplained difference after the reconciliation. The ₹2,06,300 is proved by timing differences and identifiable unrecorded items. Suspense is used only for a genuinely unidentified difference pending investigation; using it here would conceal errors, overstate or understate expenses, and make the accounts unreliable. The correct action is to pass the three adjusting entries, notify the bank about the wrong debit, and attach the reconciliation to the accounts. If the wrong debit is not reversed before closing, disclose it as a receivable or claim, not as a suspense write-off.