3.3 Bank reconciliation (3)
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1.
Describe the information that can be found on a bank statement and explain how this information is useful to a business.
A bank statement typically contains the following information:
- Date of the transaction: Indicates when the transaction occurred.
- Description of the transaction: Provides details about the nature of the transaction (e.g., customer payment, supplier payment, bank charges).
- Amount of the transaction: Shows the monetary value of the transaction.
- Previous balance: The balance at the start of the period.
- Current balance: The balance at the end of the period.
- Bank charges: Details any fees charged by the bank.
This information is useful to a business for:
- Tracking cash flow: Helps understand the movement of money in and out of the business.
- Reconciling accounts: Provides data for bank reconciliation.
- Identifying spending patterns: Helps analyze where money is being spent.
- Supporting accounting records: Provides evidence of transactions for the business's accounting records.
2.
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
3.
Question 1
On 1st January, ABC Company had a cash book balance of £2,500. During January, the following transactions occurred:
- Bank charges of £15 were debited to the bank account.
- Bank interest received of £8 was credited to the bank account.
- A correction was required for an error of £25, where a payment of £100 was incorrectly recorded as £75.
- A credit transfer of £50 was received from XYZ Ltd.
- A direct debit of £30 was taken by a supplier.
- Dividends of £100 were received.
- A standing order payment of £50 was made.
Prepare an updated cash book extract as at 31st January.
Answer 1
Updated Cash Book Extract - ABC Company
| Date | Particulars | Debit (£) | Credit (£) |
January 1st (Balance):
| Date | Particulars | Debit (£) | Credit (£) |
Balance £2,500
January Transactions:
- Bank Charges: £15 (Debit)
- Bank Interest Received: £8 (Credit)
- Correction of Error: £25 (Credit)
- Credit Transfer from XYZ Ltd: £50 (Credit)
- Direct Debit: £30 (Debit)
- Dividends Received: £100 (Credit)
- Standing Order Payment: £50 (Debit)
Updated Balance:
| Date | Particulars | Debit (£) | Credit (£) |
Balance £2,500 + £15 - £8 + £25 + £50 - £30 + £100 - £50 = £3,330