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Difficulty: Very hardPreparation of Adjusted Cash Book

On 30th June 2026, the Cash Book of Adebayo Enterprise showed a bank overdraft balance of ₦28,400\text{₦}28,400. Upon comparing the Cash Book with the Bank Statement, the following items were discovered:

- Bank charges of ₦1,850\text{₦}1,850 and interest on overdraft of ₦3,200\text{₦}3,200 appeared on the bank statement only.
- A customer's cheque for ₦4,600\text{₦}4,600 previously deposited was returned dishonoured by the bank, but no entry had been made in the cash book.
- Direct credit from a debtor of ₦12,500\text{₦}12,500 and dividend of ₦5,400\text{₦}5,400 collected by the bank were credited in the bank statement only.
- Cheques drawn amounting to ₦15,200\text{₦}15,200 had not been presented to the bank for payment.
- Cheques received and lodged into the bank amounting to ₦9,800\text{₦}9,800 had not been credited by the bank.

What is the adjusted Cash Book balance as at 30th June 2026?

  1. Overdraft of ₦20,150\text{₦}20,150Answer
  2. B
    Overdraft of ₦25,550\text{₦}25,550
  3. C
    Overdraft of ₦36,650\text{₦}36,650
  4. D
    Favorable balance of ₦36,650\text{₦}36,650

Answer

An overdraft balance of ₦20,150\text{₦}20,150
The correct answer is an overdraft balance of ₦20,150\text{₦}20,150. When preparing an Adjusted Cash Book, only unrecorded bank items (bank charges, interest, direct credits, dividends, and dishonoured cheques) are posted. Unpresented cheques and uncredited deposits are timing differences and are excluded. Starting with an overdraft balance of −₦28,400-\text{₦}28,400, adding direct credit (₦12,500\text{₦}12,500) and dividend (₦5,400\text{₦}5,400), and subtracting bank charges (₦1,850\text{₦}1,850), overdraft interest (₦3,200\text{₦}3,200), and dishonoured cheque (₦4,600\text{₦}4,600) gives −₦20,150-\text{₦}20,150, which signifies an overdraft of ₦20,150\text{₦}20,150.

Step-by-Step Solution

1
Identify the unadjusted starting balance and its position.
Cash Book starting balance is an overdraft (Credit balance) of −₦28,400-\text{₦}28,400.
An overdraft is a credit balance in the cash book.
2
Sum all additions (Debit adjustments) to the Cash Book.
Direct credit (₦12,500\text{₦}12,500) + Dividend collected (₦5,400\text{₦}5,400) = +₦17,900+\text{₦}17,900.
Direct receipts increase the cash book balance and reduce overdraft.
3
Sum all deductions (Credit adjustments) to the Cash Book.
Bank charges (₦1,850\text{₦}1,850) + Overdraft interest (₦3,200\text{₦}3,200) + Dishonoured cheque (₦4,600\text{₦}4,600) = −₦9,650-\text{₦}9,650.
Bank fees, charges, interest, and returned cheques decrease the cash book balance and increase overdraft.
4
Filter out timing differences.
Unpresented cheques (₦15,200\text{₦}15,200) and uncredited cheques (₦9,800\text{₦}9,800) are excluded from the Adjusted Cash Book.
Timing differences between the cash book and bank statement are adjusted in the Bank Reconciliation Statement, not the cash book itself.
5
Calculate the final adjusted balance.
−₦28,400+₦17,900−₦9,650=−₦20,150-\text{₦}28,400 + \text{₦}17,900 - \text{₦}9,650 = -\text{₦}20,150 (Overdraft of ₦20,150\text{₦}20,150).
Combining initial balance with net debit and credit adjustments yields the true cash balance.

Key Concept

Preparation of Adjusted Cash Book
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Topics

Preparation of Adjusted Cash Book

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