There may be deposits that were made to the bank account near the end of the month that are not yet reflected on the bank statement, but are properly recorded on the general ledger.

Example

ABC Clothing has a general ledger cash balance of 1,300,000 RWF. The bank statement reflects a balance of 1,000,000 RWF.

Upon comparison of the general ledger and the bank statement, the accountant notices that a deposit of 300,000 RWF for cash sales made on the last day of the month was not yet reflected on the bank statement.

Qs: What is an unpresented or outstanding cheque?

Do we need to record a journal entry?

We do not need to record a journal entry because the general ledger reflects the appropriate balance. 

ASK: Why do we adjust the bank as opposed to the ledger?

-We need to adjust the bank because this has already been recorded in the ledger, through our normal cash receipts process

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Qs: Do we need a journal entry?

-No we do not, the journal entry has already been recorded

Qs: What are the three criteria for an asset? How do they apply here?

1. Controlled by the entity – yes we control the cash
2. Resulting from past events
3. Has future economic benefits (can be converted to cash) – we have the future benefit, we can spend the cash however we want

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Qs: What would happen if we adjusted the ledger?

-If we adjusted the ledger, we would understate our cash. Even though the supplier has not received the cash yet, it is no longer an asset for us.