I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 

269 

Required 

(a) 

Indicate the appropriate adjustments in the cash book. 

(b) 

Prepare a statement reconciling the corrected cash book balance with that shown in the bank 

statement. 

Solution

 

(a) 

The errors to correct are given in notes (c), (e), (f), (g) and (h) of the question. Bank charges (note 

(d)) also call for an adjustment. 

(Note that debit entries add to the cash balance and credit entries are deductions from the cash 

balance.) 

Items  

Adjustments in cash book 

 

 

Dr  

Cr  

  

$ 

$ 

 

 

 

 

(c) 

 

Cash book incorrectly credited with interest on  

 

 

 

    

30 June; should have been debited with the receipt 

 

60 

 

(c) 

 

Debit cash book (current a/c) with transfer of interest 

 

 

 

   

 from deposit a/c (note 1) 

 

60 

 

(d) 

 

Bank charges 

 

 

35 

(e) 

 

Undercast on payments (credit) side of cash book 

 

 

10 

(f) 

 

Dividends received should be debited in the cash book 

 

200 

 

(g) 

 

Cheque drawn on deposit account, not current account 

 

 

 

 

Add cash back to current account 

 

50 

 

(h) 

 

Cheque paid to Jones is out of date and so cancelled 

 

 

 

 

Cash book should now be debited, since previous 

 

 

 

    

credit entry is no longer valid (note 2) 

 

  25 

 

     

 

 

 

395 

 

45 

 

 

 

$   

 

$    

Cash book: balance on current account as at  

 

 

   30 June 20X0 

 

 

(300) 

Adjustments and corrections: 

 

 

  Debit entries (adding to cash) 

 

395 

 

  Credit entries (reducing cash balance) 

 (45) 

 

 Net 

adjustments 

 

 

350 

Corrected balance in the cash book 

 

 

  50 

Notes 

1 

Item (c) is rather complicated. The transfer of interest from the deposit to the current 

account was presumably given as an instruction to the bank on or before 30 June 20X0. 

Since the correct entry is to debit the current account (and credit the deposit account) the 

correction in the cash book should be to debit the current account with 2  $60 = $120, 

ie to cancel out the incorrect credit entry in the cash book and then to make the correct 

debit entry. However, the bank does not record the transfer until 5 July, and so it will not 

appear in the bank statement. 

2 

Item (h). Two cheques have been paid to Jones, but one is now cancelled. Since the cash 

book is credited whenever a cheque is paid, it should be debited whenever a cheque is 

cancelled. The amount of cheques paid but not yet presented should be reduced by the 

amount of the cancelled cheque. 

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