The statement of financial position and statement of profit and loss of Faults
Ltd show the following two items:
Bank balance- over drown......................................£3,620
Statement of profit and loss - profit for year...............£23,175
However, the balance as shown on the bank statement does not agree with the balance as shown in the cash book. Your investigation of this matter reveals the following differences, and additional information:
1. Cheque payments entered in the cash book but not presented to the bank until after the year end - £3,138.
2. Bankings entered in the cash book but not credited by the bank until after the year end - £425.
3. Cheques for £35 and £140 received from customers were returned by the bank as dishonoured, but no entries concerning these events have been made in the cash book.
4. Items shown on bank statements but not entered in the cash book:
• Bank charges, £425.
• Standing order - hire purchase repayments on purchase of motor car, 12 @ £36.
• Standing order - being quarterly rent of warehouse, £125, due on each quarter day.
• Dividend received on investment, £90.
5. The cheques were returned by the bank for the following reasons: the £35 cheque requires an additional signature and should be honoured in due course; the £140 cheque was unpaid due to the bankruptcy of the drawer and should be treated as a bad debt.
6. The hire purchase repayments of £36 represent £30 capital and £6 interest.
7. A cheque for £45 received from a customer in settlement of his account had been entered in the cash book as £450 on the payments side, analysed to the purchases ledger column and later posted.
Required
a. Prepare a statement reconciling the cash book balance with the bank statement.
b. A statement showing the effect of the alterations on the profit for the period.