Zawadi Enterprises: What Goes Through the Ledger and What Stays in the Reconciliation
Zawadi Enterprises prepares a bank reconciliation each month. At 31 March 2025 the cash book showed a debit balance of KSh 84,500, while the bank statement showed a balance of KSh 73,200 in the firm's favour. Investigation revealed: cheques drawn but not yet presented, KSh 22,300; deposits not yet credited by the bank, KSh 14,600; bank charges of KSh 1,200 not entered in the cash book; a standing order for insurance of KSh 6,000 not entered; a customer's cheque for KSh 4,500 returned dishonoured and not recorded; a cheque of KSh 9,000 paid to a supplier entered in the cash book as KSh 900 (the cheque has since been presented); and bank interest of KSh 800 credited by the bank but not yet recorded. The trainee accountant proposes to 'adjust the bank statement balance for everything' and report KSh 73,200 as cash.
1. Prepare the adjusted cash book (bank column) at 31 March 2025, stating clearly which items require entries in the ledger and why.
Read the worked answer
Items recorded by the bank but not yet in the firm's books must be entered in the cash book, because the firm's records are incomplete:
| Item | KSh |
|---|---|
| Balance per cash book (debit) | 84,500 |
| Less bank charges | (1,200) |
| Less standing order - insurance | (6,000) |
| Less dishonoured customer cheque (reversal of the original receipt) | (4,500) |
| Add bank interest credited | 800 |
| Less correction of undercast cheque: 9,000 − 900 | (8,100) |
| Adjusted cash book balance | 65,500 |
The dishonoured cheque also requires a receivable to be reinstated against the customer; the cheque error is a transposition error in the cash book, not a bank matter. None of these five items appears in the reconciliation statement itself.
2. Prepare the bank reconciliation statement at 31 March 2025 and explain why the two balances differ even after the cash book has been corrected.
Read the worked answer
| Bank reconciliation at 31 March 2025 | KSh |
|---|---|
| Balance per bank statement (favourable) | 73,200 |
| Add: deposits not yet credited | 14,600 |
| 87,800 | |
| Less: cheques drawn not yet presented | (22,300) |
| Balance per adjusted cash book | 65,500 |
The two records differ only because of timing: the firm records a payment when it writes the cheque and a receipt when it banked it, whereas the bank records them when they clear. Unpresented cheques and uncredited deposits are legitimate timing differences and require no ledger entry. Everything else in the list was a genuine error or omission in the firm's books and has been corrected above - which is why the reconciliation now ties.
3. The trainee wants to report KSh 73,200 as the bank balance in the statement of financial position. Advise, and state what will happen to the unpresented cheques and uncredited deposits in April.
Read the worked answer
The figure to report is the adjusted cash book balance of KSh 65,500, not the bank statement balance. The statement of financial position reports the firm's own asset - the amount it controls - and KSh 73,200 is simply what the bank had recorded by 31 March, including cheques the firm has already issued and therefore already deducted from its available funds. Reporting 73,200 would overstate cash by KSh 7,700 and would not agree to the ledger.
In April the timing items will clear: the KSh 22,300 of unpresented cheques will reduce the bank statement, and the KSh 14,600 of deposits will be credited. At that point both balances converge without any further ledger entry. Note also that the KSh 65,500 must be presented as a positive (debit) balance; if the corrected figure had been a credit balance it would be reported as a bank overdraft within current liabilities.