Bank & Creditors Recons (Chapter 3 & 4) [P2] Flashcards
What are bank recons?
Comparing business’s records of transactions and balances to the bank’s record of transactions and balances to ensure that they are the same
Why are bank recons important?
- People may be stealing from the business
- The bank may have made an error
What is the accounting procedure when money is received?
A source document (receipt, till slip, cash invoice) is issued and recorded in CRJ. At the end of the day, all the amounts in the Analysis of Receipts column are added up and added to the bank column to then be deposited
What is the accounting procedure when money is paid?
Cheque, debit or credit, and EFTs are recorded in the CPJ. There are very strict internal control measures in place for payments
Services offered by the bank
- Look after business’s money
- Lend money to business
How does the bank look after a business’s money?
- The owner of the business opens an account at the commercial bank in which to store money
- Money received by the business is deposited into the current bank account
- The business makes payments against the banking account
- The business pays for the services offered by commercial banks
Definition of bank charges
The fees that banks charge their customers for the services they provide
Explain how the business makes payments against the banking account
- When the business needs to make payments, they can withdraw money as cash either by going into a branch of their bank, doing an EFT, withdrawing money from an ATM machine, or writing out a cheque
- The bank may give the business a plastic card called a debit card. When the card is used to make a payment, the money is deducted directly from the bank account.
- The business can arrange for their bank to pay accounts and regular sums of money by debit or stop order. This means the business gives the bank permits to make a number of payments on their behalf without the business having to authorize each payment. Many businesses (cellphone and insurance) prefer this
- Some businesses may opt for cellphone banking as an option. By using a pin code, the owners can access the bank account via their cellphone. They can find out what their daily balance is on a particular account or activate payments from their cellphone
What services do banks charge for?
- every transaction (deposit, withdrawal, payment)
- generating a bank statement
- balance inquiries
What is a credit balance on a bank statement?
Favourable
What is a debit balance on a bank statement?
Unfavorable/ overdrawn
What is a debit balance in a bank account?
Favourable
What is a credit balance in a bank account?
Unfavorable/ overdrawn
Deposits and withdrawals with regards to an overdraft
- all deposits decrease the overdraft (decrease what business owes bank)
- all withdrawals increase the overdraft (increase what business owes bank)
What happens if too little is entered into a journal
Correct in same journal
What happens if too much is entered into a journal
Correct in opposite journal
Where is a direct deposit into a bank account recorded?
CRJ
Where is interest on favourable bank balance recorded?
CRJ
Where are debit orders, stop orders, and electronic payments recorded?
CPJ
Where are bank charges and interest on overdraft recorded?
CPJ
Where is an amount incorrectly credited on BS recorded?
Debit side of bank reconciliation statement
Where are outstanding deposits recorded?
Credit side of bank reconciliation statement
Where are the amounts incorrectly debited on BS recorded?
Credit side of bank reconciliation statement
Where are deposits outstanding on previous BRS but appearing on current BS recorded?
No entry
Why is it important for businesses to maintain control of their creditors?
- creditors clerk does his job efficiently to prevent errors from occurring
- procurement policy is being adhered to, in that purchases are authorized
- correct amount of items that were ordered from creditors are received and in good condition
- creditors are paid on time so that business qualifies for the necessary discounts
- full use is made of the credit terms (60-90 days) to maintain good cash flow
- there is division of duties among employees so that one person checks another’s work
- balance in creditors control account is reconciled to total creditors list to ensure that records are accurately updated
- statement received from individual creditors is reconciled with accounts in creditors ledger
- internal audits are conducted to minimize the possibility of fraud or error
What is a creditors list
A summary of all individual creditors’ balances in Creditors Ledger
Possible mistakes and omissions in the Creditors Ledger
- creditor may have closed off statement on different date to date that business closed off creditors ledger account
- invoices, credit notes, discounts, interest could have been omitted or entered incorrectly in the Creditors Ledger account
- invoices, receipts, debit notes, discounts, interest could have been omitted or entered incorrectly on statement
- posting errors could have occurred
- addition or subtraction errors could have occurred
- fraud could have been committed
