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Bank Reconciliation The information below relates to Woodroffe Stores on 31 May 2016, the financial year-end - NSC Accounting - Question 1 - 2016 - Paper 1
Question 1
Bank Reconciliation The information below relates to Woodroffe Stores on 31 May 2016, the financial year-end. The bookkeeper is Jimmy Brown. REQUIRED: 1.1.1 Calcu... show full transcript
Worked Solution & Example Answer:Bank Reconciliation The information below relates to Woodroffe Stores on 31 May 2016, the financial year-end - NSC Accounting - Question 1 - 2016 - Paper 1
Step 1
1.1.1 Calculate the balance as per the Bank Account in the General Ledger
Answer
To calculate the balance as per the Bank Account in the General Ledger, we need to start with the favourable bank statement balance: R9,410.
Next, we will add the deposits not recorded by the bank:
- 12 May 2016: R5,000
- 27 May 2016: R15,300
Total deposits: R5,000 + R15,300 = R20,300
Now, we subtract the outstanding cheques:
- No. 882: R2,400
- No. 996: R15,300
Total outstanding cheques: R2,400 + R15,300 = R17,700
Lastly, we also account for the incorrect debit entry of R7,600:
a) Using the formula:
Balance = Favourable bank balance + Deposits - Outstanding cheques - Incorrect debit entry
Balance = R9,410 + R20,300 - R17,700 - R7,600 = -R8,590
This results in an unfavourable balance of R8,590.
Step 2
1.1.2 Provide a reason why Cheque No. 882 should not appear as an outstanding cheque
Answer
Cheque No. 882 should not appear as an outstanding cheque because it was dated 30 October 2015, which implies it is significantly overdue. Typically, a cheque that is outstanding for over six months is considered stale and should be investigated, as it may have either been cashed or lost. This transaction must be corrected by writing a note or adjusting entry to remove it from the outstanding cheques.
Step 3
1.1.3 How must this cheque be treated at the end of the financial year?
Answer
Cheque No. 1234, being post-dated, must be treated as a future liability, and it should not be included in the outstanding cheques during the bank reconciliation. It should be recorded in the accounting records but held until the date specified in the cheque. Therefore, it will only impact the cash balance once the date of the cheque is reached.
Step 4
1.1.4 List the accounting entries that must be made
Answer
The following accounting entries must be made for the outstanding deposit of R5,000 that was stolen:
- Debit: Loss on Theft (or similar loss account) R5,000
- Credit: Bank Account R5,000
This entry reflects the loss incurred due to the theft.
To prevent future incidents, one effective control measure could be:
- Implementation of dual control over cash handling and deposits, ensuring that more than one person is involved in cash transactions to reduce risks.