Question 2

The Bank Statement and Cash Book (bank columns only) for Aragorn Elfin for the month of October 2014 are as follows.

Bank Statement
		Debit	Credit	Balance
2014		$	$	$
Oct 01	Balance			900
Oct 03	T. Simeon		150	1,050
Oct 07	Cash sales deposit		850	1,900
Oct 13	Vehicle loan	1,700		200
Oct 15	Standing order	1,000		(800)	O/D
Oct 21	Debit transfer	825		(1,625)	O/D
Oct 29	Rent	2,300		(3,925)	O/D
Oct 29	Credit transfer		4,000	75
Oct 30	Bank charges	400		(325)	O/D

Cash Book (bank columns only)
2014		$	2014		$
Oct 01	Balance b/f	900	Oct 10	Light & Power Company	180
Oct 03	T. Simeon	150	Oct 13	Vehicle loan	1,700
Oct 07	Cash sales	850	Oct 29	Rent	2,300
Oct 24	D. Elwin	500
Oct 31	Balance c/d	1,780
		4,180			4,180
			Nov 1	Balance	1,780

1. Prepare the updated Cash book to show the adjusted balance.

1. Starting with the updated cash book balance, draw up a bank reconciliation statement for Aragorn Elfin for the month of October 2014.

Explain why it is necessary to prepare a bank reconciliation statement.