Day 4 - Chapter 11 Flashcards
Reconciliation
example of internal control for a business
they check that the systems are working properly
they help to identify errors and to correct them
What do you do if there’s a contra?
DR payables
CR receivables
When doing adjustments on the ledger to fix incorrect adjustments, what must you do?
need to double the amount
1 to reset the ledger to zero
x2 to record the amount
What is a bank reconciliation?
reconcile balance per bank statement (which is a 3rd party document) to business cash at bank balance/cash book
What’s a key thing to note when working with bank statements?
debits and credits are reversed in the bank statement since the bank is recording transactions from its point of view
What does a bank credit mean?
we have money
the bank has liabilty to us
What does a bank debit mean?
we owe money
the bank has an asset as we owe the money back
What causes differences between bank statements and balance on cash ledger?
- unrecorded items in the cash at bank ledger
eg. interest, bank charges, dishonoured receipts, standing orders and direct debts and unmatched items
- need to be recorded to the cash at bank ledger account
- timing differences
eg. uncleared payments and outstanding/uncleared lodgements
- need to be put on bank rec statement
- errors
if we made a mistake - need to adjust the cash at bank ledger account
if bank makes a mistake - need to record on the bank reconciliation
What is a bank change entry on a cash at bank ledger account?
credit
it decreases the cash at bank
What is direct debits/standing orders on a cash at bank ledger account?
credit
it decreases the cash at bank
What is direct credits on the cash at bank ledger account?
debit
it increases the cash at bank
What is dishonoured receipts on the cash at bank ledger account?
credit
it decreases the cash at bank
What is the bank interest received on the cash at bank ledger account?
debit
it increases the cash at bank
What happens if the balance on cash at bank b/f is on the credit side?
overdrawn - in over draft
What is the bank reconciliation statement?
balance per bank statement x/(x)
uncleared payments (x)
outstanding/uncleared lodgements x
bank errors x/(x)
= balance per cash at bank account - revised
What are the two steps in clearing bank rec?
- cash at bank t-account
- bank rec statement
