Pg Iab Iilustation 2 if buildin had beew revolued to 20,000 Buildg 10K | Ret-Dep Sie Trf to P]L 5K Revelation Loss = Fy -¢V 2 WK -~ HK = (5K) Pit % oc! SFP 5K wK (5K)KAPLAN) FINANCIAL Part of Kaplan Learning Institute BANK RECONCILIATIONKAPLAN) FINANCIAL Paper F3/FFA Page, | 156 es ringtoageenene os gourds, BSP Reon Bank Reconciliation py¢ books, cada Bork , Lede Bank Statements L te De Abet te 1, Bank statement + _ _ + 2. Process of bank reconciliation drew! Deposit. i 1, Bank statement Each month the bank sends the depositor a bank statement detailing the activities that have taken piace in the account during the month. The statement shows the balance in the account at the beginning of the month the individual deposits received cheques that have been presented and paid during the month any other adjustments made, e.g. bank charges, bank interest account balance at month-end The balance in the account represents a liability on the part of the bank and is therefore reflected on the bank statement by a credit balance. A debit month-end balance on the bank statement thus represents an overdraft position. 2. Process of bank reconciliation Comparing Bank Statement with Cash Book Our cash book and the bank statement as on a particular date will seldom agree. To prove the accuracy of both records, therefore, itis necessary to compare them, jsolate factors that cause @ variance in the balances, and satisfy ourselves that if these factors “are taken into account, the two sets of records will be in agreement. To formalise this process of reconciliation, a bank reconciliation statement is prepared. Types of Differences Between Cash Book and Bank Statement Differences: Unrecorded items & Hams notyetin CB A 41) Receipts that are estes into our bank account directly Update our rewords * Deposits (credit transfers) made directly to our bank by ct) account e.g. dividend receipts Interest Receipts 2) Payments that are deducted from our bank account directly Update our resords + Bank charges and interest by (-) © Cost of issuing a new cheque book + Withdrawals (direct debits or standing orders) made . Biokoveuren chenees (eatomers) y bounced chey..; returned. oh, + unpaid Wy. pp vs SO. ing ava - Fixed amt. recipient initiate payer initiateKAPLAN) FINANCIAL Paper F3/FFA retiree pr iteone not yet in ane, Peas 1157 Differences: Timing Differences - Action a eeenet deposits or lodgements / Deposits in transit ‘© We may show cheque deposits on the last day of the bak Revoneitiation month but these cheques are held over by our bank to Statement the following day as cheques take 1 or 2 days to clear. ) 4) Unpresented/Outstanding cheques Such cheques drawn by us have been recorded as, . payments in our cash book, but our creditors (to whom, ) these cheques are issued) have not presented the cheque to our paying bank. Differences: Errors: 5) Book Errors + Errors made by the book-keeper in our cash book Update/correct CB 6) Bank Errors BRS * Error made by the bank as shown in the bank statement Step| - update c& Step2_— Prepare BRS Start mth-end CB bal Start W miend BS Bal - + CBLBauk Column) — 8 RS a at bla bld ceedit tronster | Bank charges BS Bal Direct uredit | DD Add : Unceedited deposits $0 Less: unpresented ch Sarterut imc | Enterest exp Add/less ! Bank error Dishonoured Dishonoured . —— a4, (ourdees) | che ( cstomess ) Adj. cB Bal aX Book ermr Book error ofd kx | ef xx “Nn J adjusted bal - “> 18 -» SEPKAPLAN) FINANCIAL Question 4 - Peter Paper F3/FFA Page | 158 Peter's bank statement for December 2009 is shown below together with his cash book for the same month. Bank Statement — + Date Description Debit Credit Balance 2009 $ $ $ Dec 1 Balance 2 Sundries 2,0007 ,000 3 0009 Lastmatl's unpresented — 78 Lig) ignore 3,922 4 0010 Oy 103 3,819 10 0011 2507 3,569 14 0012 1007 3,469 15. Sundries 4000¥ 7,469 17 0014 4,500V7 5,969 18 0013 200 7 5,769 20 Charges 630 5,706 21 Standing Order 1150 5,591 22 0013 (Refer to drawer} 200 5,791 e unttworded ite —? update Cb ‘Cash Book $- Beginning Balance Wages (0011) 250" Sales Post Office (0012) 1007 Sales Supplies (0014) 1.5007 Sales Wages (0013 2007 Postage (0015) 150 # LEB (0016) 200 # Balance c/d 6,219 679 Balance b/d. Required Update the Cash Bock and prepare the bank reconciliation statement as at 34 December 2009, mie 1314 = 18\ wn presented joaPg 158- Peter + CBC Bamk lolunur) — bf 6,219 old 100 $-0. 5 Courdichonowedclg) | id 6,241 1 — — bla. 6, 241 A aajusted 08 Bab BRS aso 31 De... BS bal 5,741 Add: uncredited depos 800 Less} Unpresented chg - 0015 (iso) - O01 (200) Kdjusted CB Bal 6,241 Cetonciled —=AND FINANCIAL Paper F3/FFA To tease Page | 159 Question 2 - Kay Rogan ©) ceéal Kay Rogan's cash book at 30 November 2005 showed an. overdrawn position of $3,630. although her bank statement showed only($2,1 18)overdrawn. Detailed examination of these two records revealed the following: A(t) (a) The of side of the cash book had been undercast by $300. Book error RS (-) (0) A cheque for $1,560 in favour of Z eps had been omitted by the bank from its B@Mk error ‘statement. Upon discussion with fhe bank official, it was discovered that tf cheque had been debited to another bank customer's account. + B- B(-) (c} A cheque for $182 drawn in payment of the telephone account had'been entered in 128x the cash book as $129 but was shown correctly on the bank statement. Book error customer CB (-) (0) A cheque for $210 from A Brooks having been paid into the bank was dishonoured and shown as such on the bank statement but no entry relating to the dishonoured ‘cheque had been made in the cash book. =) BRS ()(e) The bank had cobich a cheque for $126 to Kay's account in error. It should have been debited to Ray Rogan’s account Bamkerr CB(+) ( Adividend of $90 arising from Key Rogan’s investment in ABC Ltd had been paid directly 70 the bank account but no entry had been made in the cash book BRS{-) (9) Cheques totaling $1,260 drawn on 29 November had:not been presented for payment, BRS(#)(h) A todgement of $1,080 on 30 November had not been credited by the bank (-) ( Itterestamcuning to $228 ho Boon debe bythe bank bu not entered inthe a cash book. > Required: (a) Make any necessary entries in the cash book to bring it up to date. (b) Prepare a statement reconciling Kay Rogan’s correct cash book with her bank statement at 30 November 2005.+ Updatdeoah Book — Nov 90 bgt - Dr vide 300 '| — bid 3, 640. ) undenast Err Tebesp 5H Ce) pudend (F) 40 understated pishonoured =D Cd) od 3, 19 on_- A-Brwoks : Sete «228 Ui) bld 4,792 “BRS 00. at 40 Nov wos BS bal ” (2,18) : Eror = b Aad Bank. Gane Cheque 1b Ce) wien} Uneredired Lodged, 40K0 Ch) : Env - 2 Suppl lew: Bank suppl (1,560) Cb) npresarted dneques (1,260) Cz) Adjusted. @# bal (43,192)ND FINANCIAL Paper F3/FFA tenet Page | 163 EXAM STYLE MCQ Dec 2001 1. In reconciling a business cash book with the bank statement, which of the following items could require @ subsequent entry in the cash book? . Cheques presented after date, . A cheque from a customer which was dishonoured, . An error by the bank, . Bank charges. Deposits credited after date. . Standing order entered in bank statement. PaRene 2,3,4.and6 1,2,5and6 2,4and6 1,3.and 5 cvom> 2. The following bank reconciliation statement has been prepared for Omega by @ junior clerk: § Overdraft per bank statement 68,100 ‘Add: Deposits not credited 441.200 209,300 Less outstanding cheques 41,800 Overdraft per cash book 167.500 Which of the following should be the correct balance per the cash book? A $167,500 overdrawn as stated, B_ $31,300 overdrawn © $31,300 cash at bank D_ $114,900 overdrawnPaper F3/FFA Page | 164 Dec 2004 3. Which of the following statements about bank reconciliations are correct? 1. difference between the cash book and the bank statement must be corrected by means of a journal entry, 2. in preparing a bank reconciliation, lodgements recorded before date in the ‘cash book but credited by the bank after date should reduce an overdrawn balance in the bank statement. 3. Bank charges not yet entered in the cash book should be dealt with by an adjustment in the bank reconciliation. 4. fa cheque received from a customer is dishonoured after date, a credit entry in the cash book is required. Zand 4 and 4 2and3 qand 3 com> 4. Which of the following statements about bank reconciliations are correct? 1 In preparing a bank reconciliation, unpresented cheques must be deducted from a balance of cash at bank shown in the bank statement. 2 Acheque from a customer paid into the bank but dishonoured must be corrected by making a debit entry in the cash book. 3. An error by the bank must be corrected by an entry in the cash book. 4 An overdraft is a debit balance in the bank statement. A tand3 B 2and3 © tand4 D 2and4 Examiner's report Jun 2014 ‘A company has prepared its bank reconciliation at 31 March 2014 taking the following Information into account: $ Outstanding lodgements 5,000 j BRS Unpresented cheques 2,800 Bank charges shown in the bank statement but not recorded in the cash book 125 The adjusted cash book balance per the bank reconciliation was a debit balance of $1,06 What was the balance as shown on the bank statement at 31 March 2014? $1,140 debit va sirup eed ce ORS $1,265 debit Bs Bal [iLin)| $1265 creat bd. chi 25 a Add: 51000 If, es a eld 1060 ese: (2,800) aktor — — priae fo recnsiliation 7 ye TORT — Adj. Ba 10604\ whatwas the CB Bal befare revonsilirtion APLAND FINANCIAL Bat is te adjusted CBBOL- ecg Proteases: Page | 165 Practice MCQ 1. At31 August 2000 the balance on the company’s cashbook was $3,600 Cr. Examination of the bank statements revealed the following: ‘+ Standing orders amounting to $180 had not been recorded in the cash book OB © Cheques paid to suppliers of $1,420 did not appear on the bank statements, BRS-Unpresented (© What was the balance on the bank statement at 31 August 2000? BRS A $5,200 old B $5.020 ol BS ba = [- (23609? 32,360 ofd : D $3,780 old Vess:unpresente (120) Ady. C6 Bal (3180) 2. An organisation’s cashbook has an operating balance in the bank column of $485 credit. The following transactions then took place: cash sales $1,450 including GST of $150 receipts from customers of debts of $2,400 payments to creditors of debts of $1,800 less 5% cash discount dishonoured cheques from customers amounting to $250 The resulting balance in the bank column of the cash book should be A $1,255 debit * B $1,405 debit © $1,905 credit D $2,375 credit 3. The cashbook shows a bank balance of $5,675 overdrawn at 31 March 2001. itis subsequently discovered that a standing order for $125 has been entered twice and that @ dishonoured cheque for $450 has been debited in the cashbook instead of credited ‘The correct bank balance should be A. $5,100 overdrawn B_ $6,000 overdrawn © $6,250 overdrawn D $6,450 overdrawnKAPLAN) FINANCIAL Part of Kaplan Learning Institute CONTROL ACCOUNTS AND RECONCILIATIONKAPLAN) FINANCIAL Paper FS/FFA ete Page | 171 Control Accounts and Reconciliation Control account 2. Advantages of control accounts 3. Contra entries 4, Control accounts with two balances 5. Format of control accounts and their sources of entries 6. Reconciling control accounts and ledger accounts 41, Control account It is an account which records the fotal value of @ number of similar but individual accounts. it is used mainly for trade receivables and trade payablos and will appear in the General Ledger. When a company maintains Control Accounts for its receivables and payables, the sales ledger and purchases ledger becomes a subsidiary ledger. sub-systera The control accounts must be reconciled to the subsidiary ledgers on a periodic basis. 2. Advantages of a system with control accounts The advantages of maintaining beth individual and control accounts are: Individual accounts provide details with regards to the emounts owing by each 5 Subsidion receivable or amounts owing to each payable as on a particular date. ‘+The control accounts provide a convenient total which can be used immediately in extracting a trial balance or when preparing final accounts. * A reconciliation between the two may feveal errors, thus providing important controlAPLAR) FINANCIAL Paper F3/FFA Tw hina Page | 172 3. Contra entries / Transters [set off against These are entries that are offset between the trade receivables and the trade payables Such entries occurs when customer of a company is also a supplier of the company Double Entry would be : Dr Purchases Ledger = Payable L~ eneral Gr Sales Ledger = Recty A- oumol SL + Reev- Sohn — lect the bla 1,000 | wntra 1,000 (eelea saler sent) PL — Payoble -John + wntra ——*1,000 bfA 1,090 Bank 50 4, Control accounts with two balances tis possible for either the Sales Ledger Control A/c or the Purchases Ledger Control Alc to have 2 balances at the end of the accounting period. This is due to :~ % Goods retuned after it had been paid for > Payment mace in excess which will be used to offset future balances Recly— M, bld 1,000 od woKAPLAN) FINANCIAL Poper FS/FFA Peta ty i Page | 173 5. Format of control accounts and their sources of entries Account Sales Le ‘ontrol tr The sources of entries for the contro! account are: (1) Total sales from the sales day book (2) Total sales returns from sales returns day book (3) Total bad debts written off and total contras set off from the general journal (4) Total receipts from receivables and discount allowed from the cash book Total Recty éger Control Account $ sated L Balance bia ¥,, 0M? Credit Sales W x Balance b/d (if any) x Dishonouyed ‘ChequeW x x x x Bank / Cash W x Discounts Allowed ~V~ x Sales Retums VW x Bad Debts ¥ x Contrayy # x Balance c/d Refund W Interest ( for Late p>ymenh ) Balance c/d (if any) Purchases Ledger Control / Payables Control Account The sources of entries for the control account are: (1} Total purchases from the purchase day (2) Total purchases returns outwards from purchases returns day book (3) Total payments to creditors and discount received from the cash book ‘al Pays: = Purcraedst ty hot Account + Balance b/d x Credit Purchases x Balance bid (if any) Bank / Cash Discounts Received Purchases Returns Contrai/ Balance cid Balance o/d (if any) xKAPLAN) FINANCIAL Paper F3/FFA TareEmeon temp se Page | 174 Question 1 — Steadfast Ltd A sales ledger control account and a purchases ledger contro! account are maintained as integral part of the accounting records of Steadfast Ltd. The following information is relevant to the business of Steadfast Ltd for the year ended 30 November 2008:- Dr Cash/6a Cr BDD a) Balances at 1 December 2004 Sales Ledger $10,687 (OR) $ 452 (CR) Purchases Ledger $ 1,630 (DR) $ 9,536 (CR) b) Sales amounted to $130,382 while sales retums amounted to $1,810. ©) $127,900 was received from receivables in settlerhent of accounts amounting to $130,680, In addition, $1,200 was received for a debt, which had been written off as irrecoverabl the year ended 30 November 2004. Rewwven < 4) A debt of $350 due from HEAY was transferred to the purchases ledger and Scholl against a debt of $1,100 due to Henry.payeble ) An amount of $560 due to Steadfast Ltd for goods supplied to Tom was written off as bad in November 2005. f) Purchases amounted to $99,000 as list prices and purchases returns amounted to $600 at list prices. All purchases were subject fo a trade discount of 10%. 9) $83,500 was paid to suppliers in settlement of débts due of $85,000. h) Balances at 30 November 2005 included : bf position t — | abnormal ba! Sales Ledger $1,008 (CR) & Purchases Ledger $ 760(DR) Required Prepare, for the year ended 30 November 2005, (1) Sales Ledger Control Account (2) Purchases Ledger Control AccountPg 114 - Steadfast Total Ree'v Contre] + SUA - ook ¢ oy pect Bal Bd 10,087 | Dect Bal bid 4h wes wos Nov30 Sales 130382 [Noy30 Salca Refunee {,810 Baleld 1, 008 Ceh[Bovk 121,400 Disc. All. 2,150 Contra, 350 gpd 60 Bal efd Case —— Bal bd Bal ld 108 egy w Be! Total Pay Me Lote! given ~ Pita + wo $ | 200% 4 Dect Bal bid 1,630 {pect Bal b/d = 9,536 pos wos net Nov30 Purchases 84,100 (407% 44,000) Bal odd 160 Nov30 Comtra net 350 Retuma (40%, x 600) tosh]|bonk 83,500 prise. Re'd 1, 500 Balefd 11,876 Bal bid 1, 876 — bat bid 160KAPLAN) FINANCIAL Paper F3/FFA laonegtastae Page | 175 Question 2— Queen and Square - Homework The trial balance of Queen and Square revealed a difference in the book. In order that the error(s) could be located it was decided to prepare purchases and sales ledger control accounts. 2005 $ Jan Purchases ledger balances 11,874 Sales ledger balances 19,744 Totals for the year 2005 Purchases day book 154,562 Sales day book 199,662 Retums outwards day book 2,648 Returns inwards day book 4,556 Cheques paid to suppliers for credit purchases 146,100 Cash paid to suppliers for credit purchases 78 Cheques and cash received from credit customers 185,960 Discount allowed 5,830 Discount received 2,134 Balances on the sales ledger set off against balances in the 4,036 purchases ledger Dec 31 The list of balances from the purchases ledger shows a total of $14,530. and that from the sales ledger a total of $22,024 Required: From the above, prepare the controt accounts and show where an error may have been made:001 / 004¢ ~ War -yveg + age a ms H O0€ aad Pea ua [eusnor (exav85 00€ 000# unyry Wes + 5185 = fang nang - meapshs wey — ob-p21 1eIMlON ~ BEPSTTERTIS L 1 ‘O0Er. | ____005 [002 | oor L. asia L_Sadiao8y sea (4) 44.008 (-) 001 avenng (4) 4d oor mer [007 pus pn CAiyre aibuis) maysRs-ang — RpsT seprsans L6L | 0604 was/ed Jedog ramsey ee. awonvais Gav Rava Wig Jo J00gx ‘aot 714 | : aon obs —+ + porgsid — = weg + aaa'é po aot aaby . *0064 00t om aes + yd - + Sunyry 4 oxeyainy onion TEST RTOS, aah 714 _ a 7a * 12.0006 = = |= i a Kar as Ph| aoe & 40 04 eyed 009 00% 06 G@ a4a +OMDM, + hag rer — 0001 npnes (Hx act ma oan ~ — = = ~ —~ | 6eaT pp act 0081 o0ot | cas + MOM ~ + hnpueg ~ vas/eyedog on (lor Fal ToRaeg oz npueg 2510 Sivawhea yee aol Po wane euinoy suinoy Seseiping ieveL Aa wopueig UaNIaM npueg nhyn saseyan ~ TRPSTATEIPSGAS Z6L | oB0g Tewinor seseyaung WONvN (VIVRE