QUESTION ONE

(a) Explain the term "bank reconciliation" and state the reasons for
its preparation.
(6 marks)
(b) Ssemakula, a sole trader received his bank statement for the
month of June 2001. At that date the bank balance was
Sh.706,500 whereas his cash book balance was Sh.2,366,500.
His accountant investigated the matter and discovered the
following discrepancies:
1. Bank charges of Sh.3, 000 had not been entered in the
cashbook.
2. Cheques drawn by Ssemakula totaling Sh.22,500 had not yet
been presented to the bank
3. He had not entered receipts of Sh.26,500 in his cashbook.
4. The bank had not credited Mr. Ssemakula with receipts of
Sh.98, 500 paid into the bank on 30 June 2001.
5. Standing order payments amounting to Sh.62, 000 had not been
entered into the cashbook.
6. In the cash book Ssemakula had entered a payment of Sh.74,
900 as Sh.79, 400.
7. A cheque for Sh. 15,000 from a debtor had been returned by
the bank marked "refer to drawer" but had not been written
back into the cashbook.
8. Ssemakula had brought forward the opening cash balance of
Sh.329, 250 as a debit balance instead of a credit balance.
9. An old cheque payment amounting to Sh.44, 000 had been
written back in the cashbook but the bank had already
honoured it.
[Link] of Ssemakula's customers had agreed to settle their
debts by paying directly into his bank account. Unfortunately,
the bank had credited some deposits amounting to Sh.832,500
to another customer's account. However, acting on information
from his customers, Ssemakula had actually entered the
expected receipts from the debtors in his cashbook.
Required:
(i) A statement showing Ssemakula's adjusted cash book balance
as at 30 June 2001.
(9 marks)
(ii) A bank reconciliation statement as at 30 June 2001. (5
marks)
 (Total: 20 marks)
QUESTION TWO
(a) Differentiate between a petty cashbook and a three-column cashbook.
(5 marks)
(b) Briefly explain why it is important for a business entity to prepare a
bank reconciliation statement.
(3 marks)
(c) You have recently been employed in a medium size company and
deployed in the accounts department. Your head of section has
given you the following extract from the cashbook for the month of
April 2003:

Sh. Sh.

Receipts during the 2,938,000 Balance brought 1,522,000

month forward (1.4.2003)

Balance carried 1,108,000 Payments during the 2,524,000

forward (30.4.2003) month

4,046,000 4,046,000

The head of section further informs you that all receipts are banked
intact and all payments are made by cheque. On investigation, you
discover the following:
1. Bank charges and commissions amounting to Sh. 272,000 entered
on the bank statement had not been entered in the cashbook.
2. Cheques drawn amounting to Sh. 534,000 had not been presented
to the bank for payment.
3. Cheques received totaling Sh. 1,524,000 had been entered in the
cashbook and paid into the bank, but had not been credited by the
bank until May 2003.
4. A cheque for Sh. 44,000 had been entered as a receipt in the
cashbook instead of a payment.
5. A cheque for Sh. 50,000 had been debited by the bank by mistake.
6. A cheque received for Sh. 160,000 had been returned unpaid. No
adjustment had been made in the cashbook.
7. All dividends receivable are credited direct to the bank account.
During the month of April 2003. Dividends totaling Sh. 124,000
were credited by the bank and no entries had been made in the
cashbook.
8. A cheque drawn for Sh. 12,000 had been incorrectly entered in the
cash book as Sh. 132,000.
9. The balance brought forward should have been Sh. 1,422,000.
10. The bank statement as at 30 April 2003 showed on overdraft of Sh.
2,324,000.
Required:
(i) The adjusted cashbook as at 30 April 2003. (6
marks)
(ii) Bank reconciliation statement as at 30 April 2003.
(6 marks)
(Total: 20 marks)
QUESTION THREE
(a) The bank statement and cashbook balances should agree, but
sometimes these balances may not agree:
Required:
Discuss this statement and explain why it is important to prepare a
bank reconciliation statement. (8
marks)
(b) On 31 October 2004, the cashbook of Mwea Enterprises Ltd. Showed
a debit balance of Sh.1,710,000. This did not agree with the balance
shown in the bank statement.
Upon investigation, the accountant discovered the following errors:

1. A cheque paid to Kindaruma for Sh.306,000 had been entered

in the cashbook as Sh.387,000
2. Cash paid into the bank by a customer for Sh.90,000 had been
entered in the cashbook as Sh.81,000
3. A transfer of Sh.1,110,000 to Central Savings Bank had not
been posted to the cash book.
4. A receipt of Sh.9,000 shown in the bank statement had not been
posted in the cashbook.
5. Cheques drawn amounting to Sh.36,000 had not been paid into
the bank.
6. The cash book balance had been incorrectly brought down at 1
November 2003 as a debit balance of Sh.1,080,000 instead of a
debit balance of Sh.990,000
7. Bank charges of Sh.18,000 do not appear in the cash book.
8. A receipt of Sh.810,000 paid into the bank on 31 October 2004
appeared in the bank statement on 1 November 2004.
 9. A standing order of Sh.27,000 had not been recorded in the
cash book.
10.A cheque for Sh.45,000 previously received and paid into the
bank had been returned by the customer’s bank marked
“account closed”.
[Link] bank received a direct debit of Sh.90,000 from an
anonymous customer.
[Link] banked had been totaled at Sh.135,000 instead of
Sh.153,000.
13.A cheque drawn in favour of Nyaga for Sh.120,000 had been
entered on the debit side of the cashbook.
Required;
(i) Adjusted cash book as at 31 October 2004. (6 marks)
(ii) A bank reconciliation statement as at 31 October 2004. (6
marks)
(Total: 20 marks)

QUESTION ONE
Sijui is having difficulty in preparing a bank reconciliation statement as at
31 December 2001. He provides a summarized cashbook and a bank
statement for the month of December as shown below. Although the bank
statement is correct his cashbook has several errors.

Cashbook

Shs. Shs.
January Total payments
made
Opening 385,006.60 1,925,018.70
overdraft Excluding
660,018.70
December
Total received
2,200,030.80 2,585,037.40
Balance c/d
Excluding
2,585,037.40
December

660,018.70
9,800.45 8081 2,042.70
Receipts Payments
 Deposit 6,669.85 Oloo Ltd 8082 10,603.45
Deposit 820.60 Wages 8083 275,000.00
Deposit 928.40 C Supplies 8084 6,789.75
Deposit 170,500.00 M M 8085 37,339.50
Construction
Deposit 9,417.65 8086 80.85
K Ltd
Deposit 65,899.35 8087 1,091.20
Local council
Deposit 8088 586.30
S Services
________ 590,411.25
XYZ Ltd
924,055.00 924,055.00
Balance c/d

Bank Statement - December 2001

Dr Cr Balance

1 Dec Balance b/f 44,000.00 (44,000.00)

8074 16,500.00 (60,500.00)
8080 10,555.05 (71,055.05)
Deposit 9,800.45 (61,254.60)
8081 2,042.70 (63,297.30)
Deposit 6,669.85 (56,627.45)
Deposit 820.60 (55,806.85)
8079 61,111.05 (116,917.90
)
Deposit 928.40
(115,989.50
8083 275,000.00
)
Standing 2,750.00
(390,989.50
order
170,500.00 )
Deposit
9,417.65 (393,739.50
Deposit )
65,899.35
Deposit (223,239.50
6,488.90 )
Deposit
8086 80.85 (213,821.85
8088 586.30 )

8082 7,138.45 (147,922.50

 8085 37,339.50 )
4,400.00 (141,433.60
)
Bank
Charges (141,514.45
)
(142,100.75
)
(149,239.20
)
(186,578.70
)
(190,978.70
)

Required:
a) Prepare a corrected cashbook
b) A bank reconciliation as at 31 December and
c) A brief explanation as to the likely cause of the remaining difference.