Examkin

Question

Difficulty: HardPreparation of Adjusted Cash Book

On 31st December 2025, the Cash Book of Folake Traders showed an overdraft balance of ₦14,200\text{₦}14,200. On comparing the Cash Book with the Bank Statement, the following details were discovered:

- Direct credit transfer by a customer: ₦6,500\text{₦}6,500
- Standing order payment for insurance: ₦2,800\text{₦}2,800
- Bank charges debited by the bank: ₦1,500\text{₦}1,500
- Customer's cheque dishonoured by the bank: ₦4,000\text{₦}4,000
- Unpresented cheques: ₦8,200\text{₦}8,200
- Uncredited lodgements: ₦5,400\text{₦}5,400

What is the correct balance to be shown in the Adjusted Cash Book?

  1. Overdraft of ₦16,000Answer
  2. B
    Overdraft of ₦13,200
  3. C
    Overdraft of ₦21,000
  4. D
    Favourable balance of ��12,400

Answer

Overdraft of ₦16,000
The Adjusted Cash Book only incorporates items recorded by the bank but omitted from the cash book. Starting with an overdraft balance of −₦14,200-\text{₦}14,200, adding the direct customer deposit (+₦6,500+\text{₦}6,500) and deducting standing orders (−₦2,800-\text{₦}2,800), bank charges (−₦1,500-\text{₦}1,500), and dishonoured cheques (−₦4,000-\text{₦}4,000) results in an adjusted credit balance (overdraft) of ₦16,000\text{₦}16,000. Unpresented cheques and uncredited lodgements are timing differences and are excluded from the cash book adjustment.

Step-by-Step Solution

1
Identify starting balance condition
Cash Book Overdraft balance = −₦14,200-\text{₦}14,200 (Credit balance)
An overdraft represents a credit (negative) balance in the cash book.
2
Classify items between Adjusted Cash Book and Bank Reconciliation Statement
Adjusted Cash Book items: Direct credit (+₦6,500+\text{₦}6,500), Standing order (−₦2,800-\text{₦}2,800), Bank charges (−₦1,500-\text{₦}1,500), Dishonoured cheque (−₦4,000-\text{₦}4,000). BRS items: Unpresented cheques and Uncredited lodgements.
Only items unrecorded in the cash book or actual cash book errors belong in the Adjusted Cash Book. Timing differences (unpresented/uncredited cheques) belong only in the BRS.
3
Calculate the updated cash book balance
−₦14,200+₦6,500−₦2,800−₦1,500−₦4,000=−₦16,000-\text{₦}14,200 + \text{₦}6,500 - \text{₦}2,800 - \text{₦}1,500 - \text{₦}4,000 = -\text{₦}16,000
Receipts increase cash balance (reduce overdraft) while payments and dishonoured deposits increase overdraft.

Key Concept

Adjusted Cash Book preparation under Bank Overdraft conditions
Rate this question

Topics

Preparation of Adjusted Cash Book

More questions from this topic