QUESTION 1

The bank column of Angie Lam’s cash book showed a debit balance of $23,080 as at 31 December
2010. On the same date, the bank statement showed a credit balance of $13,648.

The following information was obtained:

(i) A standing order of $2,390 for electricity payment appeared on the bank statement but no entry
was made in the cash book.
(ii) A cheque of $3,210 issued to Mr Lai was dishonoured by the bank as the amount in words
differed from the amount in figures.
(iii) A cheque received from a trade debtor of $6,020 was returned from the bank. No entry was
made in the cash book.
(iv) A cheque for $2,960 was issued to settle credit purchases and was recorded in the cash book,
but had not yet been presented for payment.
(v) A cheque was issued to settle a trade creditor’s account of $34,500. A discount of 2% was
received but the gross amount had been entered in the cash book.
(vi) A cheque for $6,402 representing disposal proceeds of a van was entered in the cash book but
had not yet been banked.
(vii) Charges of $100 were made by the bank.
(viii) A cheque for $1,380 was deposited into the bank account at the end of December 2010, but was
not shown on the bank statement.

Required:
(a) Update the cash book, showing all the necessary adjustments.
(b) Prepare a bank reconciliation statement as at 31 December 2010.
QUESTION 2

Terence Hung is a sole trader. He received his bank statement dated 30 April 2012, but the balance
shown on the bank statement did not agree with the credit balance of $2,670 shown in the bank
column of the cash book.

The following items were then discovered:

i. A direct debit of $500 for electricity charges for the month of April 2012 had not been entered
in the cash book.
ii. A credit transfer of $5,500 from Mr Lee on 20 April 2012 had not been recorded in the cash
book.
iii. Terence Hung took out $590 in cash from the bank account for his private use. This had been
not recorded in the cash book but appeared on the bank statement.
iv. A cheque for $1,500 was received from Mr Ho on 24 April 2012. Terence Hung duly recorded
the amount in the cash book and deposited the cheque. On 29 April 2012, Terence Hung’s
bank returned the cheque marked ‘refer to drawer’. The returned cheque had not been
recorded in the cash book.
v. Cheques issued by the business totalling $3,800 had not been presented to the bank for
payment.
vi. A cheque donation of $200 to a charity appeared in the bank statement on 22 April 2012, but no
entry had been made in the cash book.
vii. A cheque for $2,050 was received from Mr Chan on 30 April 2012. This had been recorded in
the cash book but did not appear in the bank statement until 2 May 2012.

Required:
(a) Update the cash book.
(b) Prepare a bank reconciliation statement as at 30 April 2012.
QUESTION 3

The bank account for Flora Lee’s business showed a credit balance of $33,220 as at 30
September 2011, which did not agree with the debit balance of $19,997 shown on the bank
statement as at the same date. The following discrepancies were found upon investigation:

i. Cheques for $350, $600 and $2,100 were issued by the business during the month but
had not been presented for payment.
ii. On 30 September 2011, the bank paid the business office rent of $13,300 under a
standing order. This item had not been recorded in the cash book.
iii. On 29 September 2011, the owner transferred $11,200 from her personal bank account
to the business bank account. This item had not been recorded in the cash book.
iv. A trade debtor paid $340 directly into the business bank account. This item was shown
on the bank statement but had not been recorded in the cash book.
v. An amount of $900 was paid into the bank account on 30 September 2011 but had not
yet been credited by the bank.
vi. A cheque issued to Albert Au for $3,880 was correctly recorded in the bank statement
but had been recorded in the cash book as $3,180.
vii. A cheque receipt of $7,122 was wrongly recorded on the credit side of the cash book as
$7,211.
viii. Due to a casting error, the total of the debit side of the cash book was overstated by
$800.

Required:
a) Update the cash book.
b) Draw up a statement, under the correct heading, to account for the difference between
the updated cash book and the balance shown on the bank statement.
QUESTION 4

Mr. Lee received a bank statement for his business on 2 December 2011, showing a credit balance of
$36,326 as at 30 November 2011, which did not agree with the cash book balance.

Upon investigation, he found that:

i. An autopay item of $360 for a telephone bill had not been recorded in the cash book.
ii. A cheque for $4,100 received and recorded in the cash book had not been credited by the
bank.
iii. A cheque for $3,300 received from a customer, Vicky Leung, had been entered in the cash
book but the cheque was subsequently dishonoured by the bank. The returned cheque had not
been recorded in the cash book.
iv. Mr. Lee found that a standing order of $1,230 for the payment of subscriptions to a trade
journal had been recorded on the bank statement but not in the cash book.
v. Bank charges of $1,400 were wrongly listed as a credit item on the bank statement. This item
had been correctly recorded in the cash book.
vi. A cheque from a debtor for $12,200 deposited in the bank in November 2010 had been
entered in the cash book as $21,200.
vii. The bank failed to follow the cancellation notice of a standing order for rent payment, which
amounted to $38,000.
viii. Mr. Lee found that the following cheques issued during November 2011 had not been
presented for payment:
Cheque No. Amount
212234 $5,220
212235 $2,380
212236 $1,040
212237 $876

Required:
(a) Show the necessary adjustments in the cash book.
(b) Prepare a bank reconciliation statement as at 30 November 2011, beginning with the updated
cash book balance.
(c) State three possible reasons as to why the cheque from Vicky Leung was dishonoured by the
bank.