Expert Advisory Committee
ICAI-Expert Advisory Committee
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1.16     Query

 

Whether the bank balance on the balance sheet date can be adjusted for a cheque

adjustedcancelled after that date but before the finalisation of accounts.

 

1.A limited company closes its accounts on 31st March every year. It issued a cheque in favour of one of its customers towards the refund of advance in December, 1981. In April, 1982 the cheque was returned to the company by the customer without presentation to the bank while accounts of the company for that year were being finalised. Since the cheque was cancelled, the reversal entry was passed in the books of accounts as on 31-3-1982 with a view to disclose the correct balance as on that date, instead of showing the bank balance lower by treating the cheque as the one “issued but not encased as on 31-3-1982.”

 

2.In this context, the opinion of the Expert Advisory Committee has been sought whether the reversal entry passed in the books of account of the company as on 31-3-1982 was proper since the cheque was cancelled before closing of the accounts for the year.

 

Opinion                                                                             August 8, 1983

 

1. The Committee presumes that the cheque was issued in the normal course of business. The Committee notes that Accounting Standard 4 of the Institute of Chartered Accountants of India on “contingencies and Events Occurring After the Balance Sheet Date” states as below:

 

“13.Assets and liabilities should be adjusted for events occurring after the balance sheet date that provide additional evidence to assist the estimation of amounts relating to conditions existing at the balance sheet date.

 

“15.Assets and liabilities should not be adjusted for but disclosure should be made in the report of the approving authority of events occurring after the balance sheet date that represent material changes and commitments affecting the financial position of enterprise.”

 

2. On the basis of the above, the Committee is of the opinion that bank balance as on the date of balance sheet should not be adjusted by passing a reversal entry since the event of cancellation of cheque after the balance sheet date did not relate to conditions existing at the balance sheet date. However, if the amount of the cheque is material enough to affect the financial position of the company, it disclosure should be made in the report of the approving authority.

 

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