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Difficulty: Very hardPreparation of Bank Reconciliation Statement

As at 31st December 2025, the bank statement of Oluwaseun Trading Company showed an overdraft balance of NGN 32,400\text{NGN } 32,400. An investigation of the financial records revealed the following information:

1. Direct credit transfer by a customer of NGN 14,800\text{NGN } 14,800 was credited by the bank but not recorded in the cash book.
2. Bank charges of NGN 3,200\text{NGN } 3,200 and a standing order payment for insurance of NGN 5,500\text{NGN } 5,500 were reflected only on the bank statement.
3. A cheque of NGN 8,900\text{NGN } 8,900 received from a customer and deposited was dishonoured by the bank, with no entry yet made in the cash book.
4. A cheque of NGN 7,800\text{NGN } 7,800 paid to a trade creditor was mistakenly entered in the cash book as NGN 8,700\text{NGN } 8,700.
5. Unpresented cheques totaled NGN 21,500\text{NGN } 21,500, while uncredited lodgements amounted to NGN 16,300\text{NGN } 16,300.

What was the original unadjusted balance per the cash book prior to these discoveries?

  1. Overdraft of NGN 35,700\text{NGN } 35,700Answer
  2. B
    Overdraft of NGN 33,900\text{NGN } 33,900
  3. C
    Overdraft of NGN 25,300\text{NGN } 25,300
  4. D
    Overdraft of NGN 23,900\text{NGN } 23,900

Answer

Overdraft of NGN 35,700\text{NGN } 35,700
To find the initial unadjusted cash book balance, we first establish the adjusted cash book balance using the bank reconciliation starting from the bank statement overdraft of NGN 32,400\text{NGN } 32,400. Subtracting unpresented cheques (NGN 21,500\text{NGN } 21,500) and adding uncredited lodgements (NGN 16,300\text{NGN } 16,300) yields an adjusted cash book overdraft of NGN 37,600\text{NGN } 37,600. Next, we set up the cash book adjustments: Direct credit (+NGN 14,800+\text{NGN } 14,800), error correction for payment overstatement (+NGN 900+\text{NGN } 900), bank charges (−NGN 3,200-\text{NGN } 3,200), standing order (−NGN 5,500-\text{NGN } 5,500), and dishonoured cheque (−NGN 8,900-\text{NGN } 8,900), giving a net adjustment of −NGN 1,900-\text{NGN } 1,900. Reversing this net adjustment from the adjusted overdraft of NGN 37,600\text{NGN } 37,600 gives the initial unadjusted overdraft of NGN 35,700\text{NGN } 35,700.

Step-by-Step Solution

1
Determine the Adjusted Cash Book Balance using the Bank Reconciliation Statement starting from the Bank Statement Overdraft
Adjusted Cash Book Overdraft = NGN 37,600\text{NGN } 37,600
Starting with Bank Statement Overdraft (−NGN 32,400-\text{NGN } 32,400), subtract unpresented cheques (NGN 21,500\text{NGN } 21,500) and add uncredited lodgements (NGN 16,300\text{NGN } 16,300), giving an adjusted cash book balance of −NGN 32,400−NGN 21,500+NGN 16,300=−NGN 37,600-\text{NGN } 32,400 - \text{NGN } 21,500 + \text{NGN } 16,300 = -\text{NGN } 37,600 (Overdraft).
2
Calculate the net effect of cash book adjustments
Net Adjustment = −NGN 1,900-\text{NGN } 1,900
Direct credit (+NGN 14,800+\text{NGN } 14,800) + Overstated payment error correction (+NGN 900+\text{NGN } 900) - Bank charges (−NGN 3,200-\text{NGN } 3,200) - Standing order (−NGN 5,500-\text{NGN } 5,500) - Dishonoured cheque (−NGN 8,900-\text{NGN } 8,900) = −NGN 1,900-\text{NGN } 1,900.
3
Solve for the initial unadjusted Cash Book balance
Unadjusted Cash Book Overdraft = NGN 35,700\text{NGN } 35,700
Unadjusted Cash Book Balance +(−NGN 1,900)=−NGN 37,600  ⟹  Unadjusted Cash Book Balance=−NGN 37,600+NGN 1,900=−NGN 35,700+ (-\text{NGN } 1,900) = -\text{NGN } 37,600 \implies \text{Unadjusted Cash Book Balance} = -\text{NGN } 37,600 + \text{NGN } 1,900 = -\text{NGN } 35,700 (Overdraft).

Key Concept

Two-stage bank reconciliation involving cash book adjustments and bank statement reconciliation under overdraft conditions
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Topics

Preparation of Bank Reconciliation Statement

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