Verifying Accounting Records Flashcards
What does the bank balance in the cash book need to agree with?
The balance on the bank statement
What if the bank balance in the cash book isn’t equal to the bank statement balance?
If the two balances aren’t equal check for errors or reasons why
What is a big reason the bank balance in cash book would not be equal to the bank statement balance?
Timing
What needs to be done to check the cash book?
A bank reconciliation
What is the first step of a bank reconciliation?
Tick off all the items that appear on both the bank statement and cash book.
## Footnote
Tick on both
What is the second step of a bank reconciliation?
Add any items from bank statement that aren’t present on the cash book to the cash book.
##Footnote
Then tick them off when they appear on both
What is the third step of a bank reconciliation?
Circle items that aren’t ticked off on cash book
##Footnote
They’re needed for the reconciliation
What is the fourth step of a bank reconciliation?
Balance off the cash book now it’s been updated
What if the fifth step of a bank reconciliation?
Produce a reconciliation
What is the equation for the reconciliation?
Balance from updated balance
Add unpresented cheques
Subtract lodgements not yet credited
Equals balance for bank statement
Unpresented cheques
Items that aren’t ticked off in the cash book on the CREDIT SIDE
Why are unpresented cheques added to the updated balance?
They’re added as they haven’t come out of the bank yet.
Lodgements not yet credited
These are payments into the bank that aren’t on the bank statement due to timing.
What if there are errors made by the bank?
Any errors made from the bank should be taken off but don’t adjust the cash book as it’s correct.
What is the Trial Balance extracted from?
Detailed accounts in ledgers that are usually done at the end of the financial period.
Why is the Trial Balance important in the accounting process?
It acts as an accuracy check on the ledgers account balance.
What does the Trial Balance give?
Figures needed to prepare the financial statement.
What does the Trial Balance consist of?
Headings from general ledgers accounts
Credit and debit columns
Main Errors in Trial Balance
Addition errors
Partial Omnission
Partial Transposition
Unequal Posting
Partial Omnission
Where a ledger balance has been left out
Partial Transposition
Where the numbers have been transposed
e.g. 86 instead of 68 on one side of the account only
Unequal Posting
Where a debit and credit entry where entered incorrectly into the ledger accounts
e.g. Dr bank £300 Cr sales £200
What is the first step of identifying errors in the Trial Balance?
Add up the columns to ensure it isn’t just a simple addition error.
What is the second step in identifying errors within the Trial Balance?
If there is no addition errors then find the difference between the 2 columns.
Check for this number in the list of balances to ensure it’s not missed out.
What is the third step of identifying errors in the Trial Balance?
If the difference isn’t in the list of balances then divide it by 2. See if this number is in the trial balance. If it is it’s most likely in the wrong column.
What is the fourth step of finding errors within the Trial Balance?
If this number isn’t there divide the difference from before by 9. This will show us if the number has been transposed.
What are the Errors not revealed in the Trial Balance?
Commision
Reversal
Compensating
Omission
Original entry
Principle
Commission
an entry is made into the incorrect account.
Reversal
a debit entry is made as a credit entry and the credit entry is made as a debit entry.
Compensating
two completely different errors have occurred but for the same amount, so one error has compensated the other.
Omission
neither a debit or credit entry is made.
For instance, a cash purchase was made, but no entry has been made in any of the accounting records.
Original entry
the original transaction was entered incorrectly into the books of prime entry.
What do you open when the Trial Balance doesn’t equal the balance?
Open a Suspense Account
What does the Suspense Account hold?
The difference until the error is found
What is a key aspect of the Suspense Account?
It is temporary and once all the errors are corrected the balance of it is 0
