Bank Reconciliation Question.?

Question

I have an accounting question regarding final accounts. One of the adjustments is:-
The bank reconciliation of 31 December 1998 shows two reconciling items.
-Dishonoured cheque $2000
-Mark-up Charges $1200

What will be the effect of this in final accounts? (i.e in trading and profit and loss a/c and balance sheet?)

Als0, one adjustment is
Bank reconciliation show the following adj.
- Direct deposit by customer $4000
-Standing order payment for subscription $ 5000

I really need to understand bank reconciliation adjustments, therefore i will be waiting for good replies plus 10 points for best answer ! thanks in advance.

Answer 1

The bank reconciliation of 31 December 1998 shows two reconciling items.
-Dishonoured cheque $2000
If this was a cheque from a customer and it bounced, the effect is your cash at bank is overstated and your income is overstated if it's become a bad debt, but this is not necessarily so. If it's a technical hitch and the customer very willingly gives you a replacement cheque, all will be well.
-Mark-up Charges $1200
If you didn't have this in your a/cs but it appears in the bank statement as a withdrawal, the effect is you've overstated your cash at bank and overstated income.

Bank reconciliation show the following adj.
- Direct deposit by customer $4000
If you haven't recorded this in your a/cs, your AR would be overstated and your cash at bank understated, but once you record this, all will be well.
-Standing order payment for subscription $ 5000
If you haven't recorded this in your a/cs, your cash at bank would be overstated and your income overstated. If it involves prepaid subscriptions, then your prepayments could also be understated. It depends on which period the subscription is meant for.