Question
At October 31, 2026 Lindenfold Hardware's bank statement shows $24,610 and its cash account shows $22,530.
- Deposits in transit total $3,150; outstanding cheques total $4,380.
- Cheque #512 for October rent was written correctly for $1,470 but recorded in the books as $1,740.
- The bank charged a $600 cheque written by another business, Lindenmark Supplies, to Lindenfold's account in error.
- A customer paid $1,200 on account by electronic transfer; Lindenfold has not recorded it.
- The bank credited $40 of interest and deducted $60 of charges.
Required:
- Adjusted Balance — the correct cash balance at October 31.
- Effect on the Books — before Lindenfold records anything from the reconciliation, how are the October figures in its books misstated?
- Journal Entries — the entries Lindenfold must record. Use Cash, Rent Expense, Accounts Receivable, Interest Revenue and Bank Service Charge Expense.
Statements in this challenge
- Adjusted BalanceNumeric Answer
- Effect on the BooksStatement Impact
- Journal EntriesJournal Entry
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors
A prior-period error is corrected retrospectively: restate the comparatives and adjust the opening balance of retained earnings, rather than running the correction through the current year's profit. Establish first whether the error is prior-period or current-period, because that decides everything that follows.
Common mistakes
- Putting a prior-period correction through current profit or loss instead of opening retained earnings.
- Correcting only one side of a two-sided error, or correcting an error that has already counterbalanced itself.
- Confusing an error with a change in estimate — estimates are adjusted prospectively and are never restated.
Further readingIAS 8: policies vs estimates vs errors