Reconciling a Bank Statement and a Receivables Control Account
Tunde Bakare trades as Bakare Electricals. At 31 May 2025 his cash book showed a debit balance of ₦186,400 while the bank statement showed a credit balance of ₦195,850. Checking the records you find: bank charges of ₦2,150 and a standing order for insurance of ₦12,000 appear only on the statement; a customer paid ₦25,000 directly into the bank, again only on the statement; a cheque for ₦9,500 from a customer was returned unpaid and appears only on the statement; and a cheque of ₦8,100 paid to a supplier was entered in the cash book as ₦1,800. Cheques totalling ₦42,300 issued to suppliers had not been presented, and lodgements of ₦27,900 had not been credited by the bank. Separately, the receivables control account shows ₦318,600 at 31 May while the list of customers' balances totals ₦305,900. You discover that a contra of ₦5,200 with the payables ledger was entered in the customer's account but not in the control account; a bad debt of ₦4,800 was written off in the customer's account only; and one customer's balance of ₦2,700 was omitted from the list.
1. Prepare the adjusted cash book and the bank reconciliation statement at 31 May 2025.
Read the worked answer
Step 1 - adjusted cash book (only items the business has not yet recorded)
| ₦ | |
|---|---|
| Balance per cash book (Dr) | 186,400 |
| Bank charges | (2,150) |
| Standing order - insurance | (12,000) |
| Direct credit from customer | 25,000 |
| Dishonoured cheque | (9,500) |
| Cheque under-recorded (₦8,100 − ₦1,800) | (6,300) |
| Adjusted balance | 181,450 |
The cheque error reduces cash because payments were understated by ₦6,300.
Step 2 - reconciliation to the bank statement
| ₦ | |
|---|---|
| Balance per bank statement (credit) | 195,850 |
| Add: lodgements not yet credited | 27,900 |
| Less: cheques issued but not yet presented | (42,300) |
| Balance per adjusted cash book | 181,450 |
The logic: uncredited lodgements are already in the cash book but not yet at the bank, so they are added to the statement balance. Unpresented cheques have been deducted in the cash book but not by the bank, so they are deducted from the statement balance. Both routes must finish at ₦181,450; that equality is the proof.
2. Reconcile the receivables control account to the list of customer balances, showing clearly which figure is adjusted and why.
Read the worked answer
| ₦ | |
|---|---|
| Balance per receivables control account | 318,600 |
| Less: contra with payables ledger recorded in the customer's account but not the control | (5,200) |
| Less: bad debt written off in the customer's account but not the control | (4,800) |
| Corrected control balance | 308,600 |
| Balance per list of customers' balances | 305,900 |
| Add: balance omitted from the list | 2,700 |
| Corrected list total | 308,600 |
Reasoning on direction: the contra and the write-off have already reduced the individual customer's account, so the list is right and the control is overstated - hence deductions from the control, not additions to the list. The omitted balance is missing from the list only, so it is added there.
A common error is to add the contra and the write-off to the list as well, which double-counts them and leaves an unexplained difference of ₦20,000.
3. Explain how the dishonoured cheque is treated and state the figure for cash and bank that should appear in the statement of financial position, with reasons.
Read the worked answer
Dishonoured cheque. The bank has reversed the ₦9,500, so the business must reverse it too: credit cash book ₦9,500 and debit the customer's account ₦9,500, restoring the receivable. There is no effect on profit, because the original sale remains valid - the customer simply has not paid. If the debt is later judged irrecoverable, a separate bad debt or allowance entry would be needed. The customer should also be told that the debt is reinstated.
Cash and bank in the statement of financial position: ₦181,450, the adjusted cash book balance.
Reasons: (a) the bank statement balance is the bank's record, not the entity's, and includes items the entity has not yet recorded; (b) unpresented cheques are a legal obligation already incurred and must be deducted; (c) uncredited lodgements are the entity's asset already received; (d) the ledger must reflect charges and standing orders the moment the bank imposes them, whether or not the business 'agreed' to them.
Because the adjusted figure includes a bank overdraft risk, the ₦181,450 should be presented as cash at bank under current assets only if it is a debit balance - it is, so it is an asset.