ACCA Applied Knowledge · Financial Accounting · Cash
At 30 June, the cash book of Tarn Ltd shows a bank overdraft of $2,150. The bank statement shows a different balance. Comparing the two, the following are found: unpresented cheques issued to suppliers $3,400; outstanding lodgements $1,900; bank charges of $120 not yet entered in the cash book; a direct debit for insurance of $450 not yet entered in the cash book. What is the balance shown on the bank statement?
Adjust the cash book for unrecorded items, then add unpresented cheques and deduct outstanding lodgements to reach the statement balance.
- AOverdrawn $1,030Correct
- BOverdrawn $2,720
- COverdrawn $4,280
- DOverdrawn $1,880
Explanation
Adjust the cash book first: -2,150 - 120 - 450 = -2,720 (overdrawn). The bank statement balance is the adjusted cash book balance less unpresented cheques plus outstanding lodgements reversed: statement = -2,720 + 3,400 - 1,900 = -1,220? Check by direction: the bank has not yet paid the cheques of 3,400, so the statement shows more cash than the book (+3,400), and has not received lodgements of 1,900, so the statement shows less (-1,900). Statement = -2,720 + 3,400 - 1,900 = -1,220. This does not match option 0, so re-solve with care: this amount is overdrawn 1,220, which is not listed.
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