1. Reconciling to External Documents Flashcards
What is the trade receivables account?
In the nominal ledger, the trade receivables account is used to record transactions relating to credit customers in total. The balance of the trade receivables account at any time will be the total amount due to the business from all its credit customers.
What is the receivables ledger?
The receivables ledger is a listing of all transactions with each individual credit customer. The receivables ledger is divided into individual (personal) accounts, one for each credit customer, and shows the total balance due from that customer at any point in time. The receivables ledger is separate to the nominal ledger and does not form part of the double entry system. It is used for record-keeping purposes only and is therefore often referred to as a memorandum ledger.
What is the trade payables account?
In the nominal ledger, the trade payables account is used to record transactions involving credit suppliers in total, and the balance on this account at any time will be the total amount owed by the business to all its credit suppliers.
What is the payables ledger?
The payables ledger: The payables ledger is a listing of all transactions with each individual credit supplier. Consistent with the receivables ledger, the payables ledger includes a personal account for each credit supplier which shows the total amount owed to that supplier at any point in time. Consistent with the receivables ledger, the payables ledger is separate to the nominal ledger, does not form part of the double-entry system and is maintained for record-keeping purposes only.
Why is it important in a manual system of accounting to reconcile the receivables ledger with the trade receivables account in the nominal ledger?
How does this apply for businesses that use a computerised accounting system?
In a manual system of accounting, the personal accounts in the receivables ledger are updated independently of the trade receivables account in the nominal ledger. This means that differences between the two could arise.
Reconciling the trade receivables account to the receivables ledger is therefore an important part of ensuring the accounting records are accurate.
Despite the risk of error being much reduced in a computerised accounting system, it is still useful to verify that records are complete and accurate by reconciling certain information to external documents.
How are bank statements used in accounting? (2)
Electronic banking now means that businesses are able to access their bank information and download transaction reports at any time. Bank statements are used:
1. as a source document for entries into the accounting system
2. as an external record against which the accounting records of a business can be checked.
The lines have blurred between using the bank statement for recording transactions and for checking the accuracy of accounting records.
What is a supplier statement reconciliation?
Supplier statements are prepared by credit suppliers and sent to their customers on a regular basis, usually at the end of each month or each quarter, and list all the transactions (invoices, returns, discounts and payments) that have occurred since the date of the previous supplier statement.
A business receiving a supplier statement will reconcile the transactions and closing balance on the statement to the payables ledger and any omissions or errors identified in the accounting records can be corrected.
How is the supplier statement prepared?
The supplier statement is prepared from the point of view of the supplier. Balances owed by a customer, to the supplier, are shown as debit balances on the statement because they are receivables balances from the suppliers point of view point of view.
What is a customer statement?
Customer statements also form part of the reconciliation process. They are produced by the business and sent to all credit customers.
They are not external documents as they are produced by the business, but they can be a useful check as to the accuracy of trade receivables as the credit customer may respond to the business to alert it to any discrepancies or inconsistencies in the statement. This is less useful than the supplier statement reconciliation as the business will not know if the credit customer has identified discrepancies or just not communicated them.
From who’s point of view is the supplier statement prepared?
What does this mean for the balances?
The supplier statement is prepared from the point of view of the supplier.
Balances owed to the supplier are shown as debit balances on the statement because they are receivables balances from the supplier’s point of view.
