The Bank Reconciliation That Would Not Balance
Dev's business received its bank statement for May. The cash book showed a debit balance of $3,842. The bank statement showed a credit balance of $4,915. Dev listed the differences:
- Cheques paid to suppliers not yet presented: $1,260
- A customer's cheque for $640 paid directly into the bank by Dev, not yet entered in the cash book
- Bank charges of $85 entered on the statement only
- A standing order for rent of $450 entered on the statement only
- A cheque for $310 received from a customer and banked, later dishonoured, not yet recorded in the cash book
- A cheque for $520 paid to a supplier that Dev had entered in the cash book as $250
Dev prepared a reconciliation and found it still would not balance by $180.
1. Prepare the corrected cash book and a bank reconciliation statement, and identify the likely cause of the $180 difference.
Read the worked answer
Corrected cash book (debit balance brought down $3,842):
| Item | Dr | Cr |
|---|---|---|
| Balance b/d | 3,842 | |
| Customer cheque banked directly | 640 | |
| Bank charges | 85 | |
| Standing order - rent | 450 | |
| Dishonoured cheque | 310 | |
| Correction of understated payment ($520 − $250) | 270 | |
| Balance c/d | 3,367 |
Check: 3,842 + 640 − 85 − 450 − 310 − 270 = $3,367 debit.
Bank reconciliation at 31 May:
| $ | |
|---|---|
| Balance per bank statement (credit) | 4,915 |
| Less: unpresented cheques | (1,260) |
| Balance per corrected cash book | 3,655 |
This does not agree with $3,367; the gap is $288, not $180. Rechecking the arithmetic: 4,915 − 1,260 = 3,655; 3,655 − 3,367 = $288. The $180 Dev reported suggests he omitted the $270 correction (or part of it) or mis-added. The disciplined answer is to trust the arithmetic: the reconciliation must be $3,367 = $3,655 − $288, so a further unpresented item of $288 (or an error of that amount) is missing from Dev's list.
Conclusion: the cash book is corrected to $3,367; the statement must then reconcile to it. Dev's $180 gap indicates an unrecorded item, not a rounding issue.
2. Explain why the bank statement credit balance is not the same as a cash book debit balance, and why the dishonoured cheque is treated as Dev's loss rather than the bank's.
Read the worked answer
The bank statement is written from the bank's point of view: when Dev has money at the bank, the bank owes Dev, which is a liability of the bank and therefore a credit in the bank's books. Dev's cash book records the same money as an asset, a debit balance. The two are mirror images, so a debit cash book normally corresponds to a credit bank statement.
A dishonoured cheque is reversed because the original deposit was only provisional - the bank credited Dev's account on the understanding the cheque would clear. When it is dishonoured, the bank removes the funds and returns the cheque. Dev still has the customer's debt, so the correct entry is to reinstate the receivable (debit receivables, credit cash book). The loss belongs to Dev because Dev extended the credit; the bank was merely the collection agent.