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Difficulty: MediumPreparation of Adjusted Cash Book

Match each bank-related transaction on the left to its correct accounting treatment on the right during the preparation of an Adjusted Cash Book and Bank Reconciliation Statement.

  • Standing order payment for monthly insurance premiumCredited to the Adjusted Cash Book as an unrecorded bank payment
  • Direct transfer into the bank account by a customerDebited to the Adjusted Cash Book as an unrecorded bank receipt
  • Cheque drawn and issued to a supplier but not yet cleared by the bankIncluded in the Bank Reconciliation Statement as an unpresented cheque
  • Customer cheque deposited into the bank but not yet credited on the bank statementIncluded in the Bank Reconciliation Statement as an uncredited deposit

Answer

Standing order payments are credited to the Adjusted Cash Book; direct customer deposits are debited to the Adjusted Cash Book; issued cheques not yet cleared are treated as unpresented cheques in the Bank Reconciliation Statement; and deposited cheques not yet credited are treated as uncredited deposits in the Bank Reconciliation Statement.
Standing orders represent unrecorded cash payments and are credited to the Adjusted Cash Book. Direct customer deposits represent unrecorded cash receipts and are debited to the Adjusted Cash Book. Unpresented cheques and uncredited deposits are timing differences and are placed in the Bank Reconciliation Statement.

Step-by-Step Solution

1
Identify items that require Cash Book adjustment
Standing orders and direct deposits are unrecorded bank transactions that must be entered into the Cash Book before reconciliation.
The Cash Book must reflect all actual bank transactions (charges, interest, direct debits, standing orders, and credit transfers) prior to reconciling timing differences.
2
Determine debit/credit entries for Adjusted Cash Book items
Direct customer deposits increase cash (debit entry); standing order insurance payments decrease cash (credit entry).
Cash Book follows double-entry rules where cash receipts are debited and cash payments are credited.
3
Identify timing differences for the Bank Reconciliation Statement
Unpresented cheques and uncredited deposits are placed directly into the Bank Reconciliation Statement.
Timing differences occur due to time lags in bank processing and are already recorded in the Cash Book, so they do not alter the Adjusted Cash Book balance.

Key Concept

Distinguishing between items that adjust the Cash Book (unrecorded transactions and cash book errors) and items that belong in the Bank Reconciliation Statement (timing differences such as unpresented cheques and uncredited lodgements).
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Topics

Preparation of Adjusted Cash Book

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