Preparation of Amended Cash Book

A statement that demonstrates every item of difference among the cashbook and bank record column and the bank balance represented in the pass book on a specific date and for a specific timeframe is called the bank reconciliation statement. This statement is formed on a certain date for the reconciliation of the bank balance of the cash book of the company with the balance as per the bank statement or vice versa.

Plenty of variations can be found because of several reasons in the cash book and bank statement. It is advised to record these entries on the first hand and then discover the adjusted balance, also referred to as the amended balance, after which the bank reconciliation statement is produced. This will guarantee that there are fewer items, that the discrepancies are likewise fewer, and that the balance in the balance sheet is accurately reported.

Following is the step-wise process for the preparation of an amended cash book:

Step 1: Initial Setup

Initiate with the new cash book that only involves bank columns. Transfer the current balance from the original cashbook to the newly amended one.

Step 2: Necessary Entries

It is important to add up the transactions that have occurred but have not yet shown up in the cash book. This can be differentiated into the two main categories:

A. Bank Transactions Not Recorded in Cash Book:

Interest Allowed by the Bank: Any interest that is provided by the bank to the bank account of yours that is not yet recorded in the cash book.

Interest Charged on Overdraft: Interest fees that is charged by the bank on the overdraft.

Dividend Collection: In case the bank receives the dividends directly as a representative of the business.

Bank Charges: Fees or charges imposed by the bank.

Standing Orders: Payments that are initiated by the bank for recurring payments according to the account holder’s standing orders.

Dishonor of Cheques: Bounced cheques or bill receivables that are not recorded but are required to be recorded.

B. Errors in Cash Book:

Overcasting/Undercasting: Errors found while totaling the debit or credit columns of the cash book.

Double Entry: Any amounts that have been recorded more than once in the cash book.

Wrong Entries: Errors in the recorded amounts that need correction.

Omitted Amounts: Transactions that are required to be recorded but neglected.

Step 3: Balancing the Amended Cash Book

Calculate the new balance by balancing the updated cash book after making all the necessary modifications from the previous step.

Step 4: Preparing the Bank Reconciliation Statement

·         In the bank reconciliation statement, calculate the new balance by balancing the updated cash book after making all the necessary modifications from the previous step.

·         Excluding items that have already been adjusted in the amended cash book.

·         It is to be noted that certain items should not occur in the amended cash book, and these are:

1.       Cheques released but not yet displayed in the bank.

2.       Cheques deposited but still not credited from the bank.

3.       Any erroneous entries in the bank’s passbook.

By following these steps, you ensure that both your cash book and bank records are accurate, reflecting the true financial position of your business.

Questions to Understand your ability

Que.1 What’s the main goal of a bank reconciliation statement?

A) To quickly write down new transactions

B) To match the cash book balance with the bank statement (Correct Answer)

C) To create financial statements

D) To figure out taxes

Que.2 Which of these should NOT go into the amended cash book?

A) Interest charged on overdraft

B) Cheques issued but not yet presented

C) Cash sales made during the month (Correct Answer)

D) Bank charges from the bank

Que.3 In which step do you add transactions missing from the cash book?

A) Initial Setup

B) Necessary Entries (Correct Answer)

C) Balancing the Amended Cash Book

D) Preparing the Bank Reconciliation Statement

Que.4 What should you leave out of the amended cash book when making a bank reconciliation?

A) Bank charges

B) Cheques deposited but not yet credited (Correct Answer)

C) Interest allowed by the bank

D) Errors in cash book entries

Que.5 What does “overcasting” mean in cash book errors?

A) Writing an amount that’s too high (Correct Answer)

B) Writing an amount that’s too low

C) Recording a transaction twice

D) Forgetting to record a transaction

Conclusion

Financial records are required bank reconciliation statements to be more accurate. This statement is vital to finding the disparities between the cash book and bank statement. By making adjustments for unrecorded transactions and errors, you get a sharp depiction of your finances. By meticulously adjusting entries and ensuring accuracy, businesses can maintain reliable financial records, which ultimately supports effective financial management and reporting.