11: Reconciliations

Question 1

What are reconciliations used for, and what are the types?

Answer 1

They are a method for verifying particular balances in the accounts:

• Supplier statement reconciliations
• Customer statement reconciliations
• Bank reconciliations

Question 2

What can be included in a receivable or payable account?

Answer 2

See photo!

Question 3

What’s the double entry for contra?

Answer 3

Dr Payables
Cr Receivables

Essentially reducing both accounts by the same amount

Question 4

What happens when a cheque is dishonoured? (Bouncing back)

Answer 4

It means the funds are not sufficient in the customer’s account for the transfer of funds to be complete

Need to reverse the receipt of money that was recorded

Cr Cash
Dr Recievables

Question 5

What are discounts allowed/received entries?

Answer 5

Represent prompt payment discounts which had not been expected to be taken at the time of the original sale/purchase, but which subsequently require processing if discount is then applied

Cr Receivables or
Dr Payables, whichever is relevant

Question 6

The double entry for interest charged FROM us?

Answer 6

Dr Receivables
Cr Interest Income

Question 7

What are the four steps to a supplier/customer reconciliation?

Answer 7

1. Match invoices and credit notes from the statements to the ledgers
2. Investigate any unmatched amounts
3. Consider if differences are due to errors in the supplier statement (them!) or the ledger (us!)
4. Consider whether differences are due to timing, which is not an error.

Customer statement is less useful as, if the customer doesn’t communicate issues, this could mean anything!

Question 8

What are the three main reasons for differences between the bank statement and our ledger?

Answer 8

1. Unrecorded items in our ledger account - US PROBLEM
   - interest
   - bank charges
   - dishonoured cheques/receipts
   - standing orders and direct debits
   unmatched items
2. Timing differences - THEM PROBLEM
   - cheques sent to suppliers but not yet cleared by bank
   - outstanding/uncleared lodgements (cheques received by business but not cleared by bank)
3. Errors - could be either of us!

Question 9

What are the steps to doing a bank rec?

Answer 9

1. Write out the info you are given
2. Go through errors! If it’s an us mistake, adjust the cash at bank ledger account, but if it’s a them mistake, adjust the statement
3. Balance off the new balance per ledger and the ledger account, will match

Question 10

What are cheques drawn and cheques receipt, and what are they called?

Answer 10

Cheques drawn - cheques we have made to pay money OUT
Called ‘unpresented cheques/uncleared payments’

Cheques receipt - cheques who have been presented to us money IN
Called ‘outstanding/uncleared lodgements’