Question

QUESTION 5 Amankwah Enterprise has been in business for so many years and has developed a very good relationship with its banker as a result of trust and excellent satisfactory services the bank offers. Due to this, the proprietor reconciliation is waste of time since his banker is honest and has proved that all his business money is safe. As a business advisor, do you agree or disagree with him? (6 marks) Mr Amankwah is of the opin ion that preparation of bank On 31st December, 2008 Amankwah Enterprise received the monthly bank statement of December 2008 which contained the following transactions Bank Statement December, 2008 DR CR BALANCE 1 Balance b/d 2 Cash 12 Cash 14 Cheque (41002)30,500 14 Sundries 15 Cheque (41003) 60,000 19 Cash 26 Cash 29 Cheque (41005) 48,000 30 Bank charges 31 Credit transfer 494,240 CR 557,040CR 632,040CR 601,540CR 614,100CR 554,100CR 589,100CR 674,100CR 626,100CR 621,550CR 634,350CR 62,800 75,000 12,560 35,000 85,000 4,550 12,800 The cash book for the same period also contained the following Cash Book DR CR December, 2008 1 Balance b/d 5 Sales 12 Sales 14 Ache 19 Sales 26 Sales 31 Anas 494,240 62,800 75,000 12,560 35,000 85,000 14.940 779,540 December. 2008 2 A. Ali 13 Way Ltd 15 Cash (41003) 29 B. Simons (4100) 31 Francis (41005) 31 Bal c/d 71,650 30,500 60,000 120,000 48,000 449390 779,540 Jan., 2009 Bal b/d 449,390 You are required to prepare i). Adjusted cash book (5 marks) ii). Bank reconciliation statement for the month of December, 2008. (5 marks) iii) Bank reconciliation is needed to identify and account for the differences between the cash book and the bank statement These differences fall into three categories. Identify and explain them. (4 marks)

Answer 1

Answer: As a business advisor I do not agree with proprietor. Bank reconciliation is necessary to detect any discrepancies between account maintained by bank and cash book maintained by entity apart from those which are due normal timing differences. There are possibilities of errors or omissions which must be detected periodically so that necessary corrective actions can be taken well in time.

Answer (i):

Adjustment entries to cash book as follows:

JOURNAL POST. REF. DEBITCREDIT DATE DESCRIPTION December. 31 Cash Account Receivable $12,800 (to record receivables credited by bank) Miscellaneous Expense (to record bank service charges) $4,550 Casi $4,550

Answer ii):

Answer (iii):

Three categories of differences identified in bank reconciliation are:

1. Items recorded in cash book, but not on the bank statement (timing differences)

Examples are Deposits in transit, Outstanding checks

2. Items on the bank statement, but not in cash book

Examples are Bank charges, Interest charges, Direct transfer to bank by customers, Collection of notes receivables by bank etc

3. Cash book errors or bank errors

Errors in recording like errors in recording amounts or errors in recording account title etc