3.3 Bank reconciliation (3)
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1.
Question 3
On 1st July, Delta Co. had a cash book balance of £1,200. During July, the following transactions occurred:
- Bank charges of £10 were debited.
- Bank interest received of £3 was credited.
- A payment of £80 was incorrectly recorded as £100.
- A credit transfer of £40 was received from Epsilon Ltd.
- A direct debit of £60 was taken by a supplier.
- Dividends of £20 were received.
- A standing order payment of £30 was made.
Prepare an updated cash book extract as at 31st July.
Answer 3
Updated Cash Book Extract - Delta Co.
| Date | Particulars | Debit (£) | Credit (£) |
July 1st (Balance):
| Date | Particulars | Debit (£) | Credit (£) |
Balance £1,200
July Transactions:
- Bank Charges: £10 (Debit)
- Bank Interest Received: £3 (Credit)
- Correction of Error: £20 (Credit)
- Credit Transfer from Epsilon Ltd: £40 (Credit)
- Direct Debit: £60 (Debit)
- Dividends Received: £20 (Credit)
- Standing Order Payment: £30 (Debit)
Updated Balance:
| Date | Particulars | Debit (£) | Credit (£) |
Balance £1,200 + £10 - £3 + £20 + £40 - £60 + £20 - £30 = £1,377
2.
Explain three reasons why a business needs to regularly check its bank statement.
Businesses need to regularly check their bank statements for several important reasons:
- To identify errors: Bank errors can occur, such as incorrect transaction amounts or duplicate entries. Regular checks help in identifying and rectifying these errors promptly.
- To detect unauthorized transactions: It's crucial to spot any transactions that the business did not authorize. This could indicate fraud or an error by an employee.
- To reconcile the bank balance: Comparing the bank statement balance to the business's own records (cash book) helps to identify discrepancies and ensure the accuracy of financial records. This process is known as bank reconciliation.
3.
Question 3
The following information is provided for Green Grocers as at 31 December 2023:
- Cash balance at bank: £5,200
- Cash on hand: £800
- A credit entry of £150 was made by the bank for a deposit made on 27 December 2023.
- An unpresented cheque for £250.
- A bank charge of £10.
Prepare a bank reconciliation statement for Green Grocers as at 31 December 2023.
Answer 3
Green Grocers
Bank Reconciliation Statement
As at 31 December 2023
| Balance per Bank Statement: £5,200 |
| Add: Deposit credited by bank: £150 |
| Less: Bank charge: £10 |
| Less: Unpresented cheque: £250 |
| Adjusted Bank Balance: £5,190 |
Explanation of Items:
- Deposit credited by bank: This is a credit item that increases the bank balance.
- Bank charge: This is a debit item that decreases the bank balance.
- Unpresented cheque: This is a debit item that decreases the bank balance.