Chapter 10 - Reconciliations

Question 1

What is a dishonoured cheque?

Answer 1

A customer cheque that bounces

Question 2

What is a contra?

Answer 2

An amount to cancel out opposing balances.

Question 3

When is a contra used?

Answer 3

When a customer is also a supplier.

If the business owes them as a supplier and the business is owed money from the customer, a contra is used to cancel the balances.

Question 4

What is a bank reconciliation?

Answer 4

A statement agreeing the balance on the bank statement to the balance on the cash account.

Question 5

What is the bank reconciliation process?

Answer 5

1. Confirm opening balance of the cash account
2. Tick off cash receipts in cash book to bank statement
3. Tick off cash payments in cash book to bank statement
4. Any items not ticked off on the bank statement should be included in the cash account, e.g. bank charges
5. Any items not ticked off in the cash account should be included in the reconciliation, e.g. uncleared lodgements

Question 6

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

Answer 6

• Unrecorded items in cash ledger - e.g. bank charges
• Timing differences - e.g. unpresented cheques (cheques sent to suppliers but not yet cleared by the bank)
• Errors