A business has the following cash and bank transactions during the year ended 31/12/X1. Opening balance: Cash £1,000, Bank £2,000 overdrawn
Cash receipts: £25,200
Cash paid: £6,400
Cash paid to bank: £11,000
Cheque payments: £16,400
Closing balance: Cash £1,200, Bank £12,400 overdrawn. What are the total cash and bank drawings?

Question

Quizplus · Accepted Answer

To find the total cash and bank drawings, we need to calculate the net movement in cash and bank balances and then adjust for any known receipts or payments. The opening cash balance is £1,000, and the closing cash balance is £1,200, indicating a net increase in cash of £200 (£1,200 - £1,000). The opening bank balance is £2,000 overdrawn, and the closing bank balance is £12,400 overdrawn, indicating a net increase in the overdraft (or a net decrease in bank balance) of £10,400 (£12,400 - £2,000). The total net decrease in cash and bank balances is £10,200 (£10,400 increase in overdraft minus £200 increase in cash). However, this does not directly give us the drawings. We need to consider the cash movements: Cash receipts of £25,200 and cash paid to the bank of £11,000 would increase the bank balance, while cash paid of £6,400 and cheque payments of £16,400 would decrease it. The net effect on the bank from these transactions is an increase of £1,400 (£25,200 + £11,000 - £6,400 - £16,400), which means the drawings must account for the difference needed to reach the actual decrease in bank balance. Therefore, the total drawings must be the difference needed to reconcile the net decrease in cash and bank balances with the transactions recorded, which is £12,600. This accounts for the unexplained decrease in the bank balance and the slight increase in cash, after considering all known transactions.

A Business Has the Following Cash and Bank Transactions During