MGT101 GDB Solution

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GDB Question:
Rahim & Sons has a business bank account in a local bank. For an internal control,
the accountant of Rahim & Sons records all deposits and withdrawals related to
business bank account in bank columns of the cash book which showed an overdraft
balance of Rs. 100,000 on 30th April 2023. On the other hand, the bank also records
such movements of funds in the business bank account. The record of bank column
of cash book maintained by the accountant should be similar to the recorded entries
in business bank account at bank. Rahim & Sons received a bank statement at the
end of April 2023 from bank. Unfortunately, the balance as per bank column of cash
book maintained by the accountant of business is not similar to the balance shown
in bank statement sent by the bank as on 30th April 2023. The causes of disagreement
between the balance as per cash book (bank column) and the bank statement (bank’s
record), as identified by the accountant, are given below:
 i. Cheques of Rs. 85,000 issued during the month of April 2023, out of which a
cheque of Rs. 20,000 cashed during the month of April, a cheque of Rs. 10,000
was cashed on 3rd May 2023 and the others cheques are still un-presented.
ii. Cheques of Rs. 35,000 deposited into the bank for collection on 29 th April
2023 were not credited by the bank till the end of April due to some clearance
process.
iii. Interest on overdraft of Rs. 5,000 charged by the bank debited in bank
statement only.
Required:
1. What will be the balance as per bank statement after reconciling the
mentioned causes of disagreements as on 30th April 2023?
Answer:

To determine the balance as per the bank statement after reconciling the mentioned
causes of disagreements, we need to consider the following adjustments:
1. Cheques issued during April:
 A cheque of Rs. 20,000 was cashed during April, so it should be
deducted from the balance as per the cash book.
 The remaining cheques of Rs. 65,000 (Rs. 85,000 - Rs. 20,000) that are
still un-presented should not be deducted at this point since they haven't
been cleared by the bank yet.
2. Cheques deposited for collection:
 The cheques of Rs. 35,000 deposited on 29th April were not credited
by the bank until the end of April. So, we need to add this amount to
the balance as per the cash book.
3. Interest on overdraft:
 The interest charged by the bank on the overdraft of Rs. 5,000 should
be added to the balance as per the cash book.
Now, let's calculate the balance as per the bank statement after reconciling these
causes of disagreements:
Balance as per cash book (overdraft balance): Rs. 100,000 Adjustments:
 Cheque cashed during April: - Rs. 20,000
 Cheques deposited for collection: + Rs. 35,000
 Interest on overdraft: + Rs. 5,000
Adjusted balance as per cash book: Rs. (100,000 - 20,000 + 35,000 + 5,000) = Rs.
120,000
Therefore, the balance as per the bank statement after reconciling the causes of
disagreements as on 30th April 2023 would be Rs. 120,000.

2. What will be the effect of interest on overdraft of Rs. 5,000 charged by

the bank if not adjusted in bank column of cash book? (Just mention
the effect as: Adjusted balance as per Bank column of Cash Book is
overstated or Adjusted balance as per Bank column of Cash Book is
understated or No effect on Adjusted balance as per Bank column of
Cash book).

Answer:
If the interest on overdraft of Rs. 5,000 charged by the bank is not adjusted in the
bank column of the cash book, the effect would be that the Adjusted balance as per
Bank column of Cash Book is understated.
Since the interest charged by the bank has not been accounted for in the bank column
of the cash book, the balance shown in the bank column will be lower than the actual
balance. Thus, the adjusted balance as per the Bank column of the Cash Book will
be lower than it should be, resulting in an understatement of the balance.

3. What will be the effect of unrepresented cheques on adjusted cash

balance while preparing the adjusted cash book? (Just mention the effect
as: Adjusted balance as per Bank column of Cash Book is overstated or
Adjusted balance as per Bank column of Cash Book is understated or No
effect on Adjusted balance as per Bank column of Cash book).
Answer:

The effect of unrepresented cheques on the adjusted cash balance while preparing
the adjusted cash book would be:
Adjusted balance as per Bank column of Cash Book is understated.
Unrepresented cheques are those cheques that have been issued but have not yet
been presented to the bank for payment. Since these cheques have not been cleared
by the bank, they do not appear in the bank statement or the bank's record.
If unrepresented cheques are not considered in the adjusted cash book, the balance
shown in the bank column will be higher than the actual balance. Therefore, the
adjusted balance as per the Bank column of the Cash Book will be lower than it
should be, resulting in an understatement of the balance.

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