Possible answer:

Mistake in Recording Cheque Amount in Cash Book

When a cheque is issued for payment, the amount is usually recorded in the cash book as a cash outflow and a bank balance is reduced. However, if the amount recorded in the cash book does not match the actual amount of the cheque, there could be an error or fraud involved. In this case, a cheque for Rs 172 drawn for payment of telephone bill was recorded in the cash book as Rs 127, which is Rs 45 less than the actual amount.

Effects of Recording Error

The recording error of Rs 45 has several consequences for the cash book and the bank statement. Here are some possible scenarios:

- If the cheque was not yet presented to the bank for payment, the error would not affect the bank balance but would create a difference between the cash book balance and the actual cash balance available for payments.
- If the cheque was presented to the bank, but the bank did not detect the error, the bank statement would show the correct amount of Rs 172 but the cash book would still show Rs 127, resulting in a bank balance that is higher than the actual cash balance.
- If the cheque was presented to the bank and the bank did detect the error, it would return the cheque unpaid and charge a penalty or fee for insufficient funds or signature verification. The cash book and the bank statement would not match, and the bank balance would be lower than the cash book balance.

Possible Causes of Recording Error

The recording error of Rs 45 could be caused by various factors, such as:

- Human error: The person who recorded the cheque amount in the cash book might have misread or misheard the amount, or might have written it down incorrectly due to distraction, fatigue, or carelessness.
- System error: The accounting software used to record the cheque amount might have a bug or glitch that caused it to display the wrong amount or to round off the amount incorrectly.
- Fraud: The person who recorded the cheque amount in the cash book might have intentionally reduced the amount to embezzle or divert funds for personal use or to cover up other irregularities.

Preventive Measures and Corrective Actions

To prevent and detect recording errors in the cash book, the following measures can be taken:

- Use a standardized form or template for recording cheque details, such as date, payee, amount, and purpose, and double-check the entries before submitting them for approval.
- Use an accounting software that has built-in error-checking features, such as data validation, reconciliation, and audit trails, and update it regularly to fix any bugs or vulnerabilities.
- Implement a segregation of duties policy that separates the functions of recording, approving, and reconciling transactions among different persons to minimize the risk of collusion or fraud.
- Conduct periodic audits or reviews of the cash book and the bank statement to identify any discrepancies or anomalies and investigate them promptly.

To correct a recording error in the cash book, the following actions can be taken:

- Make a correcting entry in the cash book that reflects the correct amount of the cheque and explains the reason for the correction, such as "Error in recording cheque amount, actual amount Rs 172, not Rs 127."
- Adjust the bank balance in the cash book to match the actual bank balance shown in the bank statement, by adding or subtracting the difference caused by the error.
- Notify the person who made the error and the approving authority, if