Update Cash Book and Bank Reconciliation Statement for E Flynn
What is the purpose of updating the cash book and drawing up a bank reconciliation statement?
This question pertains to updating cash books and bank reconciliation. For updating the cash book, credits in the bank statement, not in the cash book should be added and charges deducted. For bank reconciliation, begin with cash book balance, add items that appear in the cash book but not bank statement (outstanding checks) and subtract items not in cash book (deposits in transit, bank charges).
Explanation:
This question pertains to the topic of bank reconciliation statements and updating the cash book based on bank statements. A bank reconciliation statement is a procedure that explains the difference between the bank balance shown in an organization's bank statement, as supplied by the bank, and the corresponding amount shown in the organization's own cash book at a particular point in time.
(a) To update the cash book, you should first of all add any credits that appear on the bank statement but not in the cash book (like K Saunders trader's credit, and P Philip), and deduct any charges that appear on the bank statement but not in the cash book (like the Mercantile standing order and bank charges).
(b) In drawing up a bank reconciliation statement as of 31 December 2007, you'd start with the balance as per cash book. Add any items appearing in the bank column of the cash book but not the bank statement, i.e., outstanding checks (J Hall, C Walters, and P Miller). Subtract any items appearing in the bank statement but not in the cash book: deposits in transit (K Saunders trader's credit) and bank errors or charges (Mercantile standing order and bank charges). This should give you the adjusted bank balance that matches with the bank statement.
This question provides insight into the importance of updating financial records such as cash books and bank reconciliation statements. In accounting, it is crucial to ensure that the cash book accurately reflects the transactions recorded in the bank statement to maintain financial accuracy and transparency.
Updating the cash book involves adding any credits that appear in the bank statement but not in the cash book, as well as deducting any charges or fees that are present in the bank statement. This process helps reconcile discrepancies and ensure that the cash book aligns with the actual bank balance.
Similarly, drawing up a bank reconciliation statement allows for a thorough comparison between the balance shown in the organization's cash book and the bank statement provided by the bank. By identifying outstanding checks, deposits in transit, and other discrepancies, businesses can ensure that their financial records are accurate and complete.
Overall, maintaining accurate and up-to-date financial records through processes like updating cash books and conducting bank reconciliation statements is essential for sound financial management and decision-making within an organization.