acc gr 12 session 15 ln (bank recon)2011

GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME

ACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES)

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TOPIC: BANK RECONCILIATION

QUESTION 1: 42 marks 25 minutes

BANK RECONCILIATIONS AND INTERPRETATION

You are provided with information relating to Trial Traders

REQUIRED

1.1 Explain why it is important for a business to prepare a bank reconciliation

statement each month (3)

1.2 Calculate the correct totals for the Cash Receipts Journal and the Cash

Payments Journal for August 2009 (12)

1.3 Complete the bank account in the General Ledger on 31 August 2009. (6)

1.4 Prepare the Bank Reconciliation Statement on 31 August 2009. (10)

1.5 Refer to information 3 below

Calculate the amount invested in the fixed deposit

What advice would you provide in order to avoid interest on the overdraft? Explain briefly.

(3)

(2)

1.6 Refer to information 4 below

Explain why the internal auditor should be concerned about the outstanding deposit of R23 456

Explain how cheque No.599 should be treated when the financial Statements are prepared on 31 August 2009. Provide a reason for

your answer

(3)

(3)

SECTION A: TYPICAL EXAM QUESTIONS

Learner Note:

Always answer in point form

Make sure you learn your theory on bank reconciliations

Open ended questions do not have one correct answer



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INFORMATION

1. At the end of the previous month, 31 July 2009 , the following items were reflected in the Bank Reconciliation Statement:

Favourable balance in the ledger of Happy Traders, R6 325

Favourable balance on the bank statement, R2 575

Outstanding deposit(dated 31 July 2009,R19 700

Outstanding cheques: No. 001(Dated 12 February 2009), R8 900

No.213 (Dated 1 April 2009), R3 400

No.313 (Dated 28 August 2009), R7 860

Note: Only cheque No.313 appeared on the Bank Statement in August 2009.

2. On 31 August 2009, the provisional totals in the Journals were:

Cash receipts journal R87 000

Cash payments journal R109 000

3. The following items were reflected on the Bank Statement but not in the journals for August 2009:

Direct deposit by a debtor, T.Twala, R3 400

Bank charges,R656

Interest on fixed deposit for August (10%p.a) R900

Interest on overdraft for August, R989

Debit order in favour of Safeway insurance Co. R770

Dishonoured cheque on 31 August 2009, originally presented by a debtor, C.Cheat, R2 600

4. The following differences were noticed:

Cheque no.415 for repairs was shown in the CPJ as R1 779 but on the August bank statement as R1 997.The bank statement is correct.

A deposit of R19 700 appeared on the bank statement on 1 August 2009, but did not appear in the August CRJ.

A deposit of R23 456 dated 27 August 2009 appeared in the August CRJ but not on the August bank statement.

The following cheques appeared in the August CPJ but not on the Bank Statement: No. 555(Dated 23 August 2009), R5 678

No.599 (Dated 31 December2009), R4 999

5. On 31August 2009 the Bank Statement reflected unfavourable balance of R17 087 [42]



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BANK RECONCILIATION AND INTERNAL CONTROL

Top Dog Traders employs Joe Cryme to write up the books, do the bank deposits and issue

cheques. You are required to assist as internal auditor.

REQUIRED:

2.1

2.2

2.3

2.4

Why does a business prepare a Bank Reconciliation Statement each month?

Calculate the correct totals in the Cash Receipts Journal (CRJ) and Cash

Payments Journal (CPJ) for October 2010.

Prepare the Bank Reconciliation Statement on 31 October 2010.

Refer to Information numbers 4 and 8 below.

(2)

(10)

(10)

2.4.1

2.4.2

2.4.3

It appears that Top Dog Traders will not be able to recover all

amounts, or part of the amounts, lost due to the fraudulent

activities of Joe Cryme. If you were the owner of this business,

what steps would you take against Joe Cryme? Provide TWO

steps.

Explain why the rule of prudence will be used in accounting for the

fraudulent activities in the books and the financial statements.

Explain what was wrong with the procedures in the accounting

department which led to this type of fraudulent activity.

(2)

(3)

(3)

INFORMATION:

1. At the end of the previous month, 30 September 2010, the following items

appeared in the Bank Reconciliation Statement:

Balance per Bank Statement 17 000

Outstanding deposits for cash sales:

Dated 28 September 2010 Dated 30 September 2010

30 000

12 400

Outstanding cheques:

502 (dated 19 April 2010) 613 (dated 24 September 2010) 614 (dated 27 September 2010)

6 200

13 400

9 100

Balance per bank account 30 700

2. The balance on the Bank Statement is R40 092 (favourable) on

31 October 2010.

3. The provisional totals in the journals for October 2010 before reconciling to

the bank statement are: CRJ – R510 000 and CPJ – R463 600



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4.

5.

6.

7.

8.

9.

10.

From the bank reconciliation for September 2010 only the outstanding deposit

of R12 400 and cheque No. 614 appeared on the October Bank Statement.

The R30 000 reflected on the deposit slip, dated 28 September, was never

deposited into the bank account by Joe Cryme. He cannot account for the

whereabouts of the cash.

The October Bank Statement reflected bank charges of R1 310 and interest

of R102 on the favourable bank balance.

A dishonoured cheque was reflected on the Bank Statement, R1 700. This

was originally received from a debtor in payment of his account.

A direct deposit of R5 500 from a tenant was reflected on the Bank

Statement.

As internal auditor you also detected that cheque No. 642 for R18 000

appeared on the Bank Statement, but not in the CPJ. The bookkeeper,

Joe Cryme, forged the signatures and used the funds for personal benefit.

Cheque No. 633 was reflected in the CPJ as R2 630, but on the Bank

Statement it was reflected as R6 230. The amount on the Bank Statement is

correct.

The following items appeared in the October CRJ and CPJ, but not on the

Bank Statement:

No. 652 – R3 800 (dated 15 November 2010) No. 655 – R1 300 A deposit of R12 700 for cash sales.

[30]



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Bank reconciliation entries at a glance The following table represents where transactions are to be entered:

Transaction CRJ CPJ Bank Recon No entry DR CR

Direct deposit into the bank account as reflected on the B/S.

Stop / debit orders / electronic payments appearing on the B/S.

Bank charges and interest on overdraft.

Cancellation of cheques (stale, stop payment, stolen or altered cheques).

Interest on favourable bank balance.

Cheques issued, but not appearing on the B/S.

Cheques outstanding on the previous B/R recon, but appearing in the current B/S.

Cheques outstanding on the previous B/R recon, but still not appearing in the current B/S.

Outstanding deposits.

Deposit outstanding previously, but appearing in the current B/S.

Dishonoured cheques.

Post-dated cheques issued.

Post-dated cheques received.

Error in the CPJ

Amount in the CPJ is higher than the original cheque.

Amount in the CPJ is lower than the original cheque.

Error on the B/S

Amount incorrectly debited

Amount incorrectly credited

SECTION B: ADDITIONAL CONTENT NOTES



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RECONCILIATIONS AND INTERNAL CONTROL

INFORMATION:

You are provided with the last two months’ Bank Reconciliation Statements of

Umlazi Traders.

Bank Reconciliation Statement of Umlazi Traders on 30 April 2008

R

Debit Balance as per Bank Statement 26 650

Outstanding Cheques:

No. 123 (dated 25 November 2007) 285

No. 335 (dated 28 February 2008) 260

No. 438 (dated 15 April 2008) 775

No. 447 (dated 30 April 2008) 2 300

No. 448 (dated 25 June 2008) 5 000

Outstanding Deposits 41 350

Credit Error on Bank Statement 250

Balance as per Bank Account in the General Ledger ?

Bank Reconciliation Statement of Umlazi Traders on 31 May 2008

Debit Balance as per Bank Statement 23 270

Outstanding Cheques:

No. 335 (dated 28 February 2008) 260

No. 448 (dated 25 June 2008) 5 000

No. 473 (dated 22 May 2008) 3 300

Outstanding Deposits 31 600

Credit Balance as per Bank Account in the General Ledger 230

REQUIRED:

Refer to the Bank Reconciliation Statements of April and May 2008 and answer the questions

that follow:

SECTION C: HOMEWORK



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1.1 According to the April 2008 Bank Statement, does Umlazi Traders have a favourable bank balance or an overdraft? Give a reason for your answer. (2)

1.2 Calculate the missing bank balance in the General Ledger of Umlazi Traders on 30 April 2008. State whether this is a favourable or unfavourable balance. (6)

1.3 Cheque No 123 does not appear on the May 2008 Bank Reconciliation Statement. This cheque for commission was not deposited by the payee, S Smit.

1.3.1 Briefly explain what the problem is with cheque No. 123 (3)

1.3.2 What entries would the bookkeeper have to make during May 2008 to deal with cheque 123. (2)

1.4 Which of the cheques shown as outstanding on the April 2008 Bank Reconciliation Statement was reflected on the May 2008 Bank Statement? (Write down only the cheque numbers.) (4)

1.5 The Bank Reconciliation on 30 April 2008 shows the item: “Credit Error on Bank Statement, R 250”.

1.5.1 Was this error corrected by the bank during May 2008? Give a reason for your answer (3)

1.5.2 Give an example of the type of error that the bank could have made. (3)

1.6 Explain why cheques 335 and 448 appear on both the April and May 2008 Bank Reconciliation Statements. You must provide a different reason for each cheque (4)

PROBLEM SOLVING

1. 7 As internal auditor of Umlazi Traders, you have noticed that both the April

and May 2008 Bank Reconciliations reflect very large outstanding

deposits. Your investigation into this matter shows that most of these

amounts were in fact received by the cashier before the date on the Bank

Statement.

REQUIRED

List points to include in a report to the Chief Accountant of Umlazi Traders highlighting your

concerns and suggestions on the following points:

1.7.1 What you suspect the cashier is doing illegally which is resulting in

these very large outstanding deposits. (3)

1.7.2 Discuss three internal control measures that could be implemented

within the accounting department to avoid any further problems of

this type occurring. (6)

1.7.3 Discuss two steps that could be taken should your suspicions of

illegal actions by the cashier be confirmed. (4)



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BANK RECONCILIATION AND INTERPRETATION

1.1 Explain why it is important for a business to prepare a bank reconciliation statement each month

Good explanation=3 MARKS; Satisfactory=2; Incorrect=0

Expected response

Improves internal control-minimise fraud or error because records are checked to an external source

(3)

1.2 CASH RECEIPTS CASH PAYMENTS

Provisional total 87 000 Provisional total 109 000

T.Twala 3 400 Bank charges 656

Interest on f/deposit 900 Interest on overdraft 989

Stale cheque 8900 Insurance 770

CCheat 2 600

Repairs 218

CORRECT TOTAL 100 200 CORRECT TOTAL 114 233

(12)

1.3 LEDGER OF HAPPY TRADERS

BANK

May1 Balance B/d 6 325 May

31

Sundry

31 Sundry Accounts cpj 114 233

accounts crj 100 200

Balance c/d 7 708

114 233 114 233

Jun Balance B/d 7 708

. (6)

SECTION D: SOLUTIONS AND HINTS TO SECTION A



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1.4 BANK RECONCILIATION STATEMENT AS AT 31 AUGUST 2009

Debit Credit

Debit balance as per bank statement 17 087

Credit outstanding deposit 23 456

Debit outstanding cheques:

No.213 (Dated 1 April 2009) 3 400

No. 555(Dated 23 August 2009) 5 678

No.599 (Dated 31 December2009) 4 999

Credit balance as per Bank account 7 708

31 164 31 164

(10)

1.5 Calculate the amount invested in the fixed deposit

R900x12=10 800=10

x=100

x=108 000 any other calculation acceptable

What advice would you provide in order to avoid interest on the overdraft?

Explain briefly

Advice: Liquidate the interest on the fixed deposit

Explanation: The interest on the overdraft will be at a higher rate than the

10% of the fixed deposit (5)

1.6 Explain why the internal auditor should be concerned about the outstanding deposit of R23 456 It should appear promptly on the Bank statement

Fraud could be involved. E.g. the cashier. rolling of cash by the cashier

Explain how cheque No.599 should be treated when the financial Statements are prepared on 31 August 2009. Provide a reason for your answer. Reduce the bank overdraftand increase the creditors

The funds have not yet been lost at the Balance Sheet date as the cheque is

post dated

(6)

TOTAL MARKS: 42



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QUESTION 2

2.1 Why does a business prepare a Bank Reconciliation Statement each month?

Good explanation = 2 marks; Satisfactory =1; Incorrect =0

Expected responses for 2 marks:

Improves internal control by minimising fraud or error because records are checked to an external source

Improves internal control by identifying outstanding cheques and deposits To compare the books of the business with that of the bank in order to

detect errors and/or dishonesty at an early stage The books of the business and that of the bank should agree and the

bank balance should be the same in both books To reconcile the bank balance to the bank statement

Expected responses for 1 mark:

Internal control purposes To reconcile the bank account To identify the correct bank balance / update records To identify outstanding cheques and deposits Errors and dishonesty can be detected on a monthly basis (2)

2.2 Calculate the correct totals in the CRJ and CPJ for October 2010.

CRJ CPJ

Provisional totals 510 000 463 600

# Be alert to

R2 630 in CRJ &

R6 230 in CPJ =

R3 600 net effect:

1 mark

6 200 30 000

102 1 310

5 500 1 700

18 000

Foreign items -1

max -2 # 3 600

Operation if one

part correct 521 802 518 210

(10)



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2.3

BANK RECONCILIATION STATEMENT AS AT 31 OCTOBER 2010

Debit Credit

Balance as per Bank Statement 40 092

Outstanding cheques:

No. 613 13 400

No. 652 3 800

No. 655 1 300

Outstanding deposits 12 700

Balance as per bank account operation if one part correct

34 292

52 792 52 792

If 2-column method used without Debit / Credit headings assume left=Debit and right=Credit

OR single column method OR could start with ledger balance

Balance as per Bank Statement 40 092

Less outstanding cheques: Or brackets or – may be used

Inspect treatment of

figures to award marks

if Add/Less not reflected

No. 613 13 400

No. 652 3 800

No. 655 1 300

Add outstanding deposit 12 700

Balance as per bank account Operation if one part correct

34 292

- 1 foreign entries max -2

(10)

2.4.1 Any TWO valid steps One mark each

Possible answers:

Set up a disciplinary hearing for Joe to answer to the allegations Recover what is possible from his salary that is owing to Top Dog Institute legal action against him (if the costs of the legal action are likely

to be less than the amount recoverable) Terminate his employment with the firm / fire him Suspend Joe pending the investigation / move him to another

department Lay a charge against Joe at the police station and get a case number Note: Mentioning professional bodies is not relevant. (2)



The SSIP is supported by

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2.4.2 Any valid explanation which indicates understanding of the rule of prudence

Excellent explanation = 3 marks; Good = 2 marks; Satisfactory =1; Incorrect =0

Expected response for 3 marks:

The business must regard this transaction in a pessimistic light as there is no certainty that any amounts will be recovered.


The rule of prudence dictates a conservative approach in reporting profits.

Expected response for 1 mark:

Pessimistic approach Conservative approach (3)

2.4.3 Any valid explanation mentioning division of duties

Full explanation of one aspect = 3 marks

Good explanation = 3 marks; satisfactory explanation = 2 marks; poor

explanation = 1 mark; incorrect explanation = 0 marks

Any aspects listed / mentioned without explanation = 1 mark each


Joe Cryme is responsible for all the vital activities relating to receipts, deposits

and payments. Duties should be divided amongst employees in the business so

that one employee serves as a check on another.

Expected response for 1 mark each (max 2 if no explanation):

Lack of internal control

OR Lack of division of duties

OR Lack of supervision

OR Signatories on cheques are not acting responsibly (3)

TOTAL MARKS: 30

Learner Note: From the above you can see the importance of understanding your concepts

of bank reconciliations. As you attempt the homework, you need to ensure that you are able

to answer the questions in the allocated time frames. If you have problems, you should refer

either to the additional notes or your class teacher.

acc gr 12 session 15 ln (bank recon)2011

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