Match each cause of discrepancy between the Cash Book and Bank Statement on the left with its corresponding effect on the unadjusted Cash Book balance relative to the Bank Statement balance on the right.
- Unpresented cheques issued to suppliersCash Book balance is lower than Bank Statement balance because the bank has not yet debited the payment.
- Uncredited lodgements deposited by the businessCash Book balance is higher than Bank Statement balance because the bank has not yet credited the deposit.
- Direct debit for insurance debited by the bankCash Book balance is higher than Bank Statement balance because the payment has not yet been credited in the Cash Book.
- Credit transfer received directly from a customer into the bankCash Book balance is lower than Bank Statement balance because the receipt has not yet been debited in the Cash Book.
Answer
Unpresented cheques result in a lower Cash Book balance than Bank Statement balance; Uncredited lodgements result in a higher Cash Book balance than Bank Statement balance; Direct debits result in a higher Cash Book balance than Bank Statement balance until recorded; Credit transfers result in a lower Cash Book balance than Bank Statement balance until recorded.
Unpresented cheques lower the Cash Book balance relative to the Bank Statement because the firm has already recorded the payout. Uncredited lodgements raise the Cash Book balance relative to the Bank Statement because the firm has recorded the deposit before bank clearance. Direct debits reduce the Bank Statement balance first, leaving the unadjusted Cash Book balance higher. Credit transfers increase the Bank Statement balance first, leaving the unadjusted Cash Book balance lower.
Step-by-Step Solution
Key Concept
Impact of Timing Differences on Unadjusted Cash Book and Bank Statement Balances