Accounting Examples with Solutions

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Financial Accounting (Mgt-101)

EXAMPLE # 2

From the following data ascertain the balance as per bank statement of Rashid & Co on March 31, 20--

· Balance as per bank book Rs. 79,000

· Cheques issued but not presented for payment Rs. 24,000.

· Cheques deposited but not cleared Rs. 35,000

· Interest on deposit was credited by bank but not debited in bank book Rs. 1,000.

· A customer paid into bank directly Rs. 13,000 but the same was not recorded in bank book.

· Other receipts in bank that were not recorded in bank book Rs. 20,000.

SOLUTION

In such an example, where bank reconciliation statement is not required the answer will show only what is

required i.e. the balance that should appear in Bank Statement. Whereas, the reconciliation statement is

prepared in WORKING / Rough Work

Let's see the solution now:

Rashid & Co.

Balance As per Bank Statement Rs. 80,000

WORKING

Balance as per Bank Book

79,000

Add Un presented cheques

24,000

Less Un credited cheques

(35,000)

Add Interest received

1,000

Add amount deposited by customer

13,000

Add other receipts in bank

20,000

Balance as per bank statement

102,000

As this is a working, therefore, we have put all the items in the statement. If the question had required the

adjusted bank book balance, then, we would have adjusted items 3,4 and 5 first and then prepared the

reconciliation statement.

Similarly the question could have given us the balance as per bank statement and required us to calculate

bank book balance.

Let's see how we will work out the balance of bank book:

Rashid & Co.

Balance as per Bank Statement

102,000

Less Un presented cheques

(24,000)

Add Un credited cheques

35,000

Less Interest received

(1,000)

Less amount deposited by customer

(13,000)

Less other receipts in bank

(20,000)

Balance as per bank book

79,000

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Financial Accounting (Mgt-101)

RECTIFICATION OF ERROR

In the beginning of this lecture, we also said that one reason for a difference between balance of bank book

and bank statement could be a mistake made by us in recording transactions. Such differences are removed

by making an adjusting entry through Journal Voucher, which is also called rectification of error.

Any other error when rectified / corrected would also be termed as Rectification of Error.

For Example, assume that we received cash Rs. 50,000 from a debtor and instead of Debiting the Cash Book

/ Cash Account, we debited the Bank Book. Whereas, the credit was given to the correct account. Now we

have overstated bank book by Rs. 50,000 and understated the cash book by the same amount. To correct

this, we will have to reduce / credit bank and increase / debit cash by Rs. 50,000.

So the entry will be:

Debit

Cash Account

50,000

Credit

Bank Account

50,000

After posting this transaction, our bank book will be reconciled if all other items have been taken into

account.

We can prepare a general procedure for rectification of errors.

Step 1

Note down the correct entry

Debit:

Cash

50,000

Credit:

Creditors

50,000

Step 2

Note down the incorrect entry

Debit:

Bank

50,000

Credit:

Creditors

50,000

Step 3

See that Credit effect is correct. In case of Debit, effect has been given to Bank, instead of

cash. Therefore, we will give the due effect to Cash by debiting it and Remove the incorrect

effect from bank by crediting it.

Debit:

Cash Account

50,000

Credit:

Bank Account

50,000

This is one type of error where entry has been posted in incorrect account but with the correct amount.

Other errors that may occur while recording are as follows:

· A transaction is completely omitted. For example, in our above examples, we had not recorded the

bank charges or the payment made by our customers directly in our bank.

· This type of errors is simple to rectify. The entry that was required at the time of event is recorded

when it comes to our knowledge.

The entry is recorded in correct account but with incorrect amount. For example, Electricity bill of

Rs. 1000 paid in cash is recorded as Rs. 100 in correct head. In this case, rectification will be done by

following entry:

Debit

Electricity

900

Credit

Cash

900

(This will increase the expense to Rs. 1000 and decrease the cash to the correct amount.)

164

Financial Accounting (Mgt-101)

On the other hand, if the entry was recorded at 10,000. Then a reversal entry will be posted to

correct the effect.

Debit:

Cash

9000

Credit:

Electricity

9000

Another type of error could be Wrong Head of Account with wrong amount. For example,

Purchase of vehicle worth Rs. 500,000 through cheque is recorded as vehicle repair Rs. 50,000.

· The Correct Entry would have been:

Debit:

Vehicle

500,000

Credit:

Bank

500,000

· The wrong entry that we posted is:

Debit:

Vehicle repair

50,000

Credit:

Bank

50,000

· Rectification will be as follows:

Debit:

Vehicle

500,000

Credit:

Bank

450,000

Credit:

Vehicle Repair

50,000

We can, therefore, use this method to rectify any mistake.

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