Bank Reconciliation With Unrecorded Items and a Double-Entered Cheque
Katete Traders prepares its accounts to 31 March. At 31 March 2025 the cash book showed a debit balance of MWK 4,286,500 while the bank statement showed a balance of MWK 4,144,000. The following were discovered: unpresented cheques totalling MWK 612,000; deposits not yet credited by the bank MWK 845,000; bank charges MWK 38,500 entered on the statement but not in the cash book; a customer's cheque for MWK 275,000 deposited on 28 March and returned dishonoured on 2 April, not recorded in the cash book; a standing order for insurance MWK 120,000 paid by the bank but not recorded; a direct credit from a customer MWK 410,000 not recorded; a cheque of MWK 95,000 shown on the statement was entered in the cash book as MWK 59,000; and a cheque payment of MWK 150,000 to a supplier was entered twice in the cash book. The owner cannot understand why the adjusted cash book balance is higher than the bank statement.
1. Prepare the adjusted cash book and a bank reconciliation at 31 March 2025, showing the treatment of each item.
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Adjusted cash book
| Item | MWK |
|---|---|
| Balance per cash book (Dr) | 4,286,500 |
| Bank charges | (38,500) |
| Dishonoured cheque | (275,000) |
| Standing order | (120,000) |
| Direct credit | 410,000 |
| Transposition (95,000 - 59,000) | (36,000) |
| Cheque recorded twice | 150,000 |
| Adjusted balance | 4,377,000 |
Bank reconciliation
| Item | MWK |
|---|---|
| Balance per bank statement | 4,144,000 |
| Add: deposits not credited | 845,000 |
| Less: unpresented cheques | (612,000) |
| Balance per adjusted cash book | 4,377,000 |
Reasoning: items already on the bank statement but not in the cash book are adjusted in the cash book. Deposits not credited and unpresented cheques are timing differences and appear only in the reconciliation. The transposition is a cash book error: the payment was understated by 36,000, so the cash book is reduced. The double-recorded payment overstated payments by 150,000, so it is added back.
2. Explain whether the dishonoured cheque and the double-recorded cheque affect the suspense account, and give the correcting journal entries.
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The dishonoured cheque affects the cash book, not the suspense account, because both sides of the original entry were recorded; only the subsequent return of the cheque is missing. Correcting entry: Dr receivables 275,000; Cr bank 275,000. The double-recorded cheque is also an error within the cash book: payments are overstated by 150,000. Correcting entry: Dr bank 150,000; Cr payables 150,000. Neither error creates a trial balance difference, so neither belongs in suspense. Writing them to suspense would leave the cash book wrong and hide the need to pursue the customer or correct the supplier ledger.
3. The owner says the adjusted cash book balance of MWK 4,377,000 means the business has more cash than the bank statement shows. Evaluate this view.
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The adjusted cash book balance is the business's corrected record of cash at bank. The bank statement is the bank's record at a point in time. The 233,000 difference (4,377,000 - 4,144,000) is explained by deposits not yet credited (845,000) less unpresented cheques (612,000), i.e. 233,000. It is not extra cash available: the business cannot spend uncleared deposits, and cheques already issued will reduce the bank balance when presented. The owner should monitor unpresented cheques for old items and deposits for delayed clearing, but the adjusted cash book is the figure for the statement of financial position.