- 5 Marks
FA – L1 – Q55 – Bank reconciliations
Question
A company, Connelly Enterprises, receives a bank statement showing a credit balance of GH₵7,400,000. On investigation, its accountant discovers that the bank statement does not show cheques received from customers for GH₵16,200,000 and banked, or cheque payments to suppliers for GH₵18,500,000. The bank statement also shows bank charges of GH₵250,000, which have not yet been recorded in the ledger.
Required
What is the current balance on the cash book? (This is the balance on the bank account in the main ledger.)
Answer
To determine the current balance on the cash book for Connelly Enterprises, we start with the bank statement balance and adjust for items not reflected in the bank statement or not recorded in the cash book.
Step 1: Bank statement balance
- The bank statement shows a credit balance of GH₵7,400,000, which indicates a positive balance (cash in hand at the bank).
Step 2: Adjust for items not on the bank statement
- Cheques received from customers (GH₵16,200,000): These have been banked but not yet credited on the bank statement. They are recorded in the cash book when banked.
- Cheque payments to suppliers (GH₵18,500,000): These are unpresented cheques, recorded in the cash book as payments but not yet cleared by the bank.
Step 3: Adjust for items not in the cash book
- Bank charges (GH₵250,000): These are on the bank statement but not recorded in the cash book, meaning the cash book balance is overstated by this amount.
Step 4: Bank reconciliation
Start with the bank statement balance and adjust to find the adjusted bank balance:
| Bank Reconciliation Statement | GH₵ |
|---|---|
| Balance as per bank statement (credit) | 7,400,000 |
| Add: Cheques received and banked (not credited) | 16,200,000 |
| Less: Unpresented cheques (payments to suppliers) | (18,500,000) |
| Adjusted bank balance | 5,100,000 |
Step 5: Adjust for bank charges
The cash book does not include the bank charges of GH₵250,000, so the cash book balance is:
| Calculation | GH₵ |
|---|---|
| Adjusted bank balance | 5,100,000 |
| Add: Bank charges (not recorded in cash book) | 250,000 |
| Balance as per cash book | 5,350,000 |
Final Answer
The current balance on the cash book is GH₵5,350,000 (debit balance, indicating cash in hand).
- Topic: Bank reconciliations
- Uploader: Samuel Duah