FA – May 2014 – L1 – SA – Q7 – Bank reconciliations

This question tests knowledge of items requiring cash book adjustment in bank reconciliation.

Question

During the preparation of your company’s bank reconciliation statement as at 31 October, 2013, you discovered that the following items caused the difference between the cash book balance and bank statement balance:

i. Bank charges N3,502 ii. Uncredited lodgement N75,000 iii. Cheque of N85,500 paid in by the Company but dishonoured iv. Amount of N225,000 incorrectly debited by the bank to the account

Which of the items above will be required for cash book adjustment?

Answer

(i) Bank charges N3,502 (iii) Cheque of N85,500 paid in by the Company but dishonoured

Explanation: In bank reconciliation, only items that have not been recorded in the cash book require adjustment. Bank charges (i) and dishonoured cheques (iii) are typically not recorded in the cash book until the bank statement is received, so these need to be adjusted. Uncredited lodgements (ii) and incorrect debits by the bank (iv) are temporary differences that will be resolved when the bank processes them correctly, so they don’t require cash book adjustment.

Tags: Bank Reconciliation, Cash Book Adjustment, Financial Statements
Level: Level 1

Topic: Bank reconciliations
Series: MAY 2014

Uploader: Theophilus