a) Explain the term "bank reconciliation" and state the reasons for its preparation.

(b) Makula, 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:

11. Bank charges of Sh.3, 000 had not been entered in the cashbook.

12. Cheques drawn by Makula totaling Sh.22, 500 had not yet been presented to

the bank.

13. He had not entered receipts of Sh.26, 500 in his cashbook.

14. The bank had not credited Mr Makula with receipts of Sh.98, 500 paid into

the bank on 30 June 2001.

15. Standing order payments amounting to Sh.62, 000 had not been entered into

the cashbook.

16. In the cashbook Makula had entered a payment of Sh.74, 900 as Sh.79, 400.

17. 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.

18. Makula had brought forward the opening cash balance of Sh.329, 250 as a

debit balance instead of a credit balance.

19. An old cheque payment amounting to Sh.44, 000 had been written back in the

cashbook but the bank had already honored it.

20. Some of Makula'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

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Required:

ii. A statement showing Makula's adjusted cashbook balance as at 30 June 2001.

iii. A bank reconciliation statement as at 30 June 2001. ( 20 marks)

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