Your client C Dunne has provided you with her businesss cash

Your client C Dunne has provided you with her business\'s cash book and bank statement Cash Book (prepared by C Dunne) Dec 1 Dec 7 Dec 22 Dec 31 61,526 5.400 1,500 12.900 Dec8 Dec 15 Dec 20 Dec 28 Dec 28 Dec 28 Dec 31 DD Gas Cheque #31 Cheque #32 Cheque # 33 Cheque # 34 Cheque # 35 Bal bld Lodgement-L Jones Lodgement Lodgement 1.350 6,060 2,820 250 1,500 5,000 64.346 81,326 Bal c/d 81.326 Jan 1 Bal b/d 64,346 Bank Statement as at 31 Dec (Source: KCB Bank) Dr Dec 1 Balance b/d Dec 7 Lodgement-L Jones Dec 11 DD-gas Dec 20 Cheque #31 Dec 22 Credit Transfer - dividends Dec 29 Cheque #33 Dec 31 Credit transfer- VAT refund Dec 31 Bank charges Balance 61,526 C 67,076 Cr 65,726 Cr 59,126 Cr 63,126 Cr 62,876 Cr 63,226 Cr 62,676 Cr 5,550 1,350 6,600 4,000 250 350 550 Required A) B) C) Make the necessary adjustments to the cash book balance at 31 December 2016 to arrive at the corrected balance Prepare a bank reconciliation statement reconciling the closing balance per the bank statement to the corrected cash book balance as at 31 December 2016 Explain why it is important to prepare a bank reconciliation statement on a regular basis.

Solution

A.

B. Bank Reconciliation Statement

December 31, 2016

C. A bank reconciliation statement ( BRS) is essentially the periodic comparison between the internal cash records of the company with the bank statement issued by the bank every month. The BRS helps to identify any discrepancies and unusual transactions resulting from accounting frauds or accounting errors.

On a given day, the cash balance as per the books, and that as per the bank statement would rarely be identical because of the following reasons:

a. Bank charges debited by babk.

b. Direct EFT deposits into bank

c. Direct EFT withdrawals from bank.

d. Interest credits.

e. Deposits in transit

f. Outstanding checks

g. Accounting errors in recording transactions.

h. Frauds.

i. NSF checks.

Therefore, it is necessary to periodically reconcile ( monthly) the book cash balance and the cash balance as per bank statement, as a measure of internal control in cash management, to ensure that nothing untoward is taking place within the organization.

Cash book balance, Unadjusted	$ 64,346
Credit Transfer: Dividends	4,000
Credit Transfer: VAT Refund	350
Bank Charges	(550)
Error in recording check # 31	(540)
Cash book balance, Adjusted	$ 67,606