cash and bank reconciliation statement Flashcards
trade discount
a reduction of list price
why is a trade discount given
- to encourage customers to buy in bulk
- to encourage customer patronage and loyalty
cash discount
a reduction invoiced price
why is a cash discount given
to encourage customers to pay early within a specified
what is a difference of a cash discount and trade discount in terms of recording?
cash discounts are not recorded in ledger account, trade discounts are recorded in the ledger account as discount allowed or received.
reasons/causes for dishonoured cheques
- cheque expired (>6 months)
- cheques is post-dated
- insufficient funds in the payer’s bank account
- information on the cheque is incomplete (i.e. missing signature or date)
- information on the cheque is inconsistent (i.e. amount written in numbers does not match amount written in words
when cheque is dishonoured,
cash at bank decreases
purpose of internal controls
- safeguard assets of business
- ensure business transactions recorded accurately
- to comply with laws and regulations
internal control way 1: segregation of duties
separate cash handling and cash recording duties among different employees so that no single person has control over the entire cash process
internal control way 2: custody of cash
secure cash and cheques in a locked storage and limit access of cash to authorised personnel
internal control way 3: authorisation
proper approvals for all payments must be obtained from authorised personnel
internal control way 4: bank reconciliation
compare the business’ records with the bank’s records to identify items that caused the differences between the ending balances of the cash at bank account and bank statement
purpose of preparing bank reconciliation
- to check the cash at bank balance of business against balance on bank statement and account for the differences
- identify errors in cash at bank and bank statement
- update the cash at bank account
- help discover fraud
explain the cause of differences between cash at bank account balance and bank statement balance
differences between cash at bank balance and bank statement balance are caused by:
timing differences in recording by business and bank
or
errors in recording by any of the two parties
what are the types of differences between the cash at bank account balance and the bank statement balance
direct deposits
direct payments
dishonoured cheques
cheques not yet presented
deposits in transit
errors made by the business or the bank
direct deposits
the customer deposits money with the bank directly or transfer funds directly into the business bank account
direct payments
payments made directly by the bank on behalf of the business
dishonoured cheques
cheques rejected by the bank
cheques not yet presented
business had issued a cheque to its supplier but the supplier had not presented the cheque to the bank for payment yet
deposits in transit
the business had deposited the cheque with the bank but the bank had not processed the cheque yet
journal entries for received $A cheque from customer after giving a cash discount of $B
dr cash at bank/cash in hand A
dr discount allowed B
cr TR A+B
journal entries for paid $A to credit supplier after receiving cash discount of $B
dr TP A+B
cr cash at bank/cash in hand A
cr discount received B
journal entries for dishonored cheque
dr TR-name
cr cash at bank
steps for bank reconciliation statement
- check opening balance of c.a.b and bank statement, cancel item that caused difference (if any)
- tick similar items
- highlight/circle items
- items not ticked in bank statement, record in c.a.b account on opposite sides starting with ending balance b/d
- items not ticked in c.a.b., cr show as cheques not yet presented. dr show as deposits in transit
