- 15 Marks
FA – L1 – Q59 – Bank reconciliations
Question
Kofi & Associates
Mr. Kofi is a sole trader and carries on business under the name “Kofi & Associates”. The balance on his cash book at 31 December 20X9 did not agree with the balance as per the bank statement which shows a credit balance of GH¢367,500.
An examination of the cash book and bank statement disclosed the following:
(i) A deposit of GH¢49,200 made on 29 December 20X9 had been credited by the bank on 1 January 20Y0.
(ii) Bank charges of GH¢1,700 have not been entered in the cash book.
(iii) A debit of GH¢4,200 appeared on the bank statement for an unpaid cheque which has been returned marked “out of date”. The cheque was re-dated by his customer and paid into the bank again on 3 January 20Y0.
(iv) A standing order for payment of an annual subscription amounting to GH¢1,000 has not been entered in the cash book.
(v) On 26 December 20X9, Mr. Kofi had given the cashier a cheque for GH¢10,000 tos to pay into his personal account at the bank. The cashier deposited it into the business account by mistake.
(vi) On 27 December 20X9, a customer had made an online transfer of GH¢49,900 in payment against goods supplied. The advice was received and recorded in the cash book on 2 January 20Y0.
(vii) On 30 September 20X9, Mr. Kofi entered into a hire purchase agreement and issued a standing order to the bank to pay a sum of GH¢2,600 on the 10th day of each month, commencing from October 20X9. No entries have been made in the cash book for these payments.
(viii) A cheque for GH¢36,400 received from Mr. Kwame had been entered twice in the cash book.
(ix) Cheques issued amounting to GH¢467,200 had not been presented to the bank for payment until after 31 December 20X9.
(x) Dividend collected by the bank amounting to GH¢12,000 has not been recorded in the cash book.
(xi) A cheque of GH¢243,000 received from Mr. Asante was deposited in the bank but entered in the cash book as GH¢234,000.
Required
(a) Prepare a bank reconciliation statement as on 31 December 20X9.
(b) Prepare necessary journal entries in the books of Kofi & Associates and determine the correct cash balance that should be reported in the statement of financial position. Also specify the situations in which no adjustment/entry is required.
Answer
(A)
Kofi & Associates
Bank Reconciliation Statement as at 31 December, 20X9
Adjustment in cash book (Note: “Add” = increase bank overdraft and “less” = decrease bank overdraft)
| Description | GH¢ |
|---|---|
| Balance as per bank book – (OD) – Balancing figure (Step 3) | |
| 2 Add: Bank charges | 1,700 |
| 3 Add: Cheque returned and re-deposited after re-dating | 4,200 |
| 4 Annual subscription | 1,000 |
| 5 Less: Mr. Kofi’s cheque wrongly deposited | (10,000) |
| 6 Less: Debtor’s A/c (direct deposits) | (49,900) |
| 7 Add: Hire purchase vendor | 2,600 |
| 8 Add: Mr. Kwame – Cheque entered twice now adjusted | 36,400 |
| 10 Less: Dividend A/c | (12,000) |
| 11 Less: Error – cheque short booked | (9,000) |
| Adjusted balance as per bank statement – Overdraft (Step 2) | (79,800) |
| Description | GH¢ |
|---|---|
| Balance as per bank statement – in favour of Kofi & Associates | 367,500 |
| 9 Less: Cheques issued but not presented | (467,200) |
| 1 Add: Amount deposited but not credited by bank | 49,200 |
| Adjusted balance as per bank statement – Overdraft (Step 1) | (79,800) |
(B)
Journal entries
| Description | Debit (GH¢) | Credit (GH¢) |
|---|---|---|
| 2 Bank charges | 1,700 | |
| Bank account | 1,700 | |
| 3 Debtor’s A/c | 4,200 | |
| Bank account | 4,200 | |
| 4 Subscription | 1,000 | |
| Bank account | 1,000 | |
| 5 Bank account | 10,000 | |
| Mr. Kofi | 10,000 | |
| 6 Bank account | 49,900 | |
| Debtor’s A/c (direct deposits) | 49,900 | |
| 7 Hire purchase vendor | 2,600 | |
| Bank account | 2,600 | |
| 8 Mr. Kwame – Cheque entered twice | 36,400 | |
| Bank account | 36,400 | |
| 10 Bank account | 12,000 | |
| Dividend a/c | 12,000 | |
| 11 Bank account | 9,000 | |
| Receivables account | 9,000 |
Corrected cash book balance:
(79,800) + 29,300 (net favourable balance of above) = GH¢(50,500)
Situations in which no adjustment/entry is required:
(i) Deposit of GH¢49,200 not credited by the bank until 1 January 20Y0 – no entry in the cash book is required as it was already recorded correctly.
(ix) Cheques issued amounting to GH¢467,200 not presented until after 31 December 20X9 – no entry in the cash book is required as they were correctly recorded when issued.
- Tags: Bank reconciliation, Cash book, Financial Statements, Journal entries, Overdraft
- Level: Level 1
- Topic: Bank reconciliations
- Uploader: Samuel Duah