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Difficulty: HardPreparation of Bank Reconciliation Statement

The Cash Book of Biobaku Traders showed an unadjusted overdraft balance of NGN 18,100\text{NGN } 18,100 on 31st May 2026. On comparing the Cash Book with the Bank Statement, the following discrepancies were identified:

- Bank charges of NGN 1,500\text{NGN } 1,500 and a standing order payment of NGN 3,200\text{NGN } 3,200 were recorded only in the Bank Statement.
- A cheque for NGN 4,000\text{NGN } 4,000 deposited into the bank was returned unpaid (dishonoured).
- Unpresented cheques totaled NGN 8,600\text{NGN } 8,600.
- Uncredited lodgements totaled NGN 11,400\text{NGN } 11,400.

What is the balance as per the Bank Statement on 31st May 2026?

  1. Overdraft of NGN 29,600\text{NGN } 29,600Answer
  2. B
    Overdraft of NGN 24,000\text{NGN } 24,000
  3. C
    Overdraft of NGN 25,600\text{NGN } 25,600
  4. D
    Overdraft of NGN 12,200\text{NGN } 12,200

Answer

Overdraft of NGN 29,600\text{NGN } 29,600
The correct answer is derived by first adjusting the cash book for items not previously entered (bank charges, standing order, dishonoured cheque), increasing the overdraft from NGN 18,100\text{NGN } 18,100 to NGN 26,800\text{NGN } 26,800. Reconciling to the bank statement balance, unpresented cheques of NGN 8,600\text{NGN } 8,600 are added and uncredited lodgements of NGN 11,400\text{NGN } 11,400 are subtracted, giving a final bank statement overdraft of NGN 29,600\text{NGN } 29,600.

Step-by-Step Solution

1
Calculate the Adjusted Cash Book Balance
Adjusted Cash Book Overdraft = NGN 26,800\text{NGN } 26,800
Bank charges, standing orders, and dishonoured cheques must be debited/deducted from cash book balance (which increases an overdraft). Initial Overdraft (−NGN 18,100-\text{NGN } 18,100) −- Bank charges (NGN 1,500\text{NGN } 1,500) −- Standing order (NGN 3,200\text{NGN } 3,200) −- Dishonoured cheque (NGN 4,000\text{NGN } 4,000) = −NGN 26,800-\text{NGN } 26,800.
2
Prepare the Bank Reconciliation Statement starting from Adjusted Cash Book Overdraft
Bank Statement Balance = Overdraft of NGN 29,600\text{NGN } 29,600
To reconcile from Cash Book Overdraft (−NGN 26,800-\text{NGN } 26,800) to Bank Statement Balance: Add Unpresented Cheques (+NGN 8,600+\text{NGN } 8,600) and Deduct Uncredited Lodgements (−NGN 11,400-\text{NGN } 11,400). Total = −NGN 26,800+NGN 8,600−NGN 11,400=−NGN 29,600-\text{NGN } 26,800 + \text{NGN } 8,600 - \text{NGN } 11,400 = -\text{NGN } 29,600.

Key Concept

Two-step Bank Reconciliation with Overdraft Balances
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Topics

Preparation of Bank Reconciliation Statement

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