Question

The Income Statement of Adom Enterprise for the year ended 31stMarch,2020as prepared by an Accounts Assistant indicated a net profit of GHS 148,080. Though, the cash book on 31stMarch, 2020 showed a balance at bank to be GHS 13,460. Your attention is however drawn to the following:

i) Cheques from customers totalling GHS 14,940which were recorded in the cash book on March 25,2020 were not credited by the bank until April2, 2020. ii)Cheques issued on March 13, 2020totallingGHS 22,260in favour of suppliers were not paid by the bank until after the end of the year (that is after March31,2020

)iii) On 22 February2020, the bank paid an amount of GHS 10,800with respect to a standing order from Adom Enterprise for rent of business premises for the three months to April 30, 2020but unfortunately, no entry for this payment had been made in the cash book. Additionally, no provision of this outstanding rent had been made in the income statement for the period.

iv) On March31, a customer known as Mr. Kwarteng had paid GHS 7,020 into Adom Enterprise bank account through a standing order to his bankers in full settlement of a debit balance of GHS 7,200in Adom Enterprise sale ledger, but no entry had been made in the books.

v) On 30thMarch 2020, a cheque for GHS 1,440 was received from a customer in settlement of sales invoice for the same amount. The cheques were lodged into Adom Enterprise bank account. Both sale of goods and the cheque were entered in Adom Enterprise’s books. However, on 31stMarch 2020, the customer returned the goods and instructed her bankers not to pay the cheque (This instruction was carried out the same day) but no entries in respect of these latter developments have been made in Adom Enterprise’s books. The cost of these goods amounting to GHS 960 were not actually included in the closing inventories.

vi) Cheques received from two customers:Madam Adwoa Nyarkoa GHS2,150 and Papa Kwame Ayisi of GHS 1,520 were recorded at the wrong side of the cash book

.vii) A cheque for GHS 2,520 from an insurance company in settlement of claim for fire damage to inventory had been paid into the bank and credited by the bank on 21stMarch 2020, but an estimated amount of GHS 2,400had been entered in Adom Enterprise’s income statement.

viii) During a review of the financial records, it was discovered that the receipts side of the cash book was overstated by GHS 1,480. This has not been corrected.

Required:

a) Prepare a statement on March31,2020, clearly indicating the cash book balance.

)b) Prepare the bank reconciliation statement for Adom Enterprise

)c) Prepare a statement of corrected net profit of Adom Enterprise on 31stMarch, 2020

Answer 1