ICANFinancial AccountingDouble Entry and Books of Prime Entry2024

Okonkwo & Sons Limited maintains a three-column cash book. On 1 March 2024, the bank column showed a credit balance of ₦750,000. During March, the following transactions occurred: cheques received from customers totalling ₦2,100,000; payments to suppliers by bank transfer totalling ₦1,380,000; bank charges of ₦15,000 debited by the bank; and a dishonoured cheque of ₦95,000 previously received from a customer. What is the closing bank balance as at 31 March 2024?

A₦140,000 Credit (overdraft)CORRECT
B₦860,000 Debit
C₦140,000 Debit
D₦955,000 Debit
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Why the answer is A, and why the others tempt you.
Opening balance is ₦750,000 Cr (overdraft). Receipts (Dr): ₦2,100,000. Payments (Cr): suppliers ₦1,380,000 + bank charges ₦15,000 + dishonoured cheque ₦95,000 = ₦1,490,000. Net movement = ₦2,100,000 − ₦1,490,000 = ₦610,000 Dr. Opening overdraft of ₦750,000 Cr plus net Dr movement of ₦610,000 = ₦140,000 Cr (still an overdraft). A dishonoured cheque reverses the original receipt, so it is credited in the cash book, reducing the bank balance.
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