GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMMEACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES) TOPIC: BANK RECONCILIATION 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 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 (3) What advice would you provide in order to avoid interest on the overdraft? Explain briefly. (2) 1.6 Refer to information 4 below Explain why the internal auditor should be concerned about the outstanding deposit of R23 456 (3) 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) Page 1 of 12 2. On 31August 2009 the Bank Statement reflected unfavourable balance of R17 087 [42] Page 2 of 12 .R19 700 Outstanding cheques: No. A deposit of R19 700 appeared on the bank statement on 1 August 2009. R989 Debit order in favour of Safeway insurance Co.213 (Dated 1 April 2009).415 for repairs was shown in the CPJ as R1 779 but on the August bank statement as R1 997. 001(Dated 12 February 2009). R3 400 Bank charges. T. R6 325 Favourable balance on the bank statement. R2 575 Outstanding deposit(dated 31 July 2009. R5 678 No. The following cheques appeared in the August CPJ but not on the Bank Statement: No.313 (Dated 28 August 2009). R7 860 Note: Only cheque No. On 31 August 2009.R656 Interest on fixed deposit for August (10%p. 31 July 2009 . the provisional totals in the Journals were: Cash receipts journal R87 000 Cash payments journal R109 000 3. A deposit of R23 456 dated 27 August 2009 appeared in the August CRJ but not on the August bank statement.a) R900 Interest on overdraft for August. but did not appear in the August CRJ. R2 600 4. The following items were reflected on the Bank Statement but not in the journals for August 2009: Direct deposit by a debtor.313 appeared on the Bank Statement in August 2009. C.GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES) INFORMATION 1. 555(Dated 23 August 2009). R3 400 No. R4 999 5.Cheat. At the end of the previous month.599 (Dated 31 December2009). R8 900 No. The following differences were noticed: Cheque no.Twala.The bank statement is correct. R770 Dishonoured cheque on 31 August 2009. originally presented by a debtor. the following items were reflected in the Bank Reconciliation Statement: Favourable balance in the ledger of Happy Traders. 1 It appears that Top Dog Traders will not be able to recover all amounts. 3.1 Why does a business prepare a Bank Reconciliation Statement each month? (2) 2. You are required to assist as internal auditor.2 Calculate the correct totals in the Cash Receipts Journal (CRJ) and Cash Payments Journal (CPJ) for October 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 30 000 Dated 30 September 2010 12 400 Outstanding cheques: 502 (dated 19 April 2010) 6 200 613 (dated 24 September 2010) 13 400 614 (dated 27 September 2010) 9 100 Balance per bank account 30 700 2. 2.4. 30 September 2010. (10) 2.3 Explain what was wrong with the procedures in the accounting department which led to this type of fraudulent activity.4 Refer to Information numbers 4 and 8 below. (3) INFORMATION: 1. or part of the amounts. lost due to the fraudulent activities of Joe Cryme. REQUIRED: 2. If you were the owner of this business. At the end of the previous month.3 Prepare the Bank Reconciliation Statement on 31 October 2010. (10) 2. The balance on the Bank Statement is R40 092 (favourable) on 31 October 2010. The provisional totals in the journals for October 2010 before reconciling to the bank statement are: CRJ – R510 000 and CPJ – R463 600 Page 3 of 12 .GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES) QUESTION 2: 30 marks 20 minutes BANK RECONCILIATION AND INTERNAL CONTROL Top Dog Traders employs Joe Cryme to write up the books.2 Explain why the rule of prudence will be used in accounting for the fraudulent activities in the books and the financial statements.4. (2) 2. (3) 2. do the bank deposits and issue cheques.4. what steps would you take against Joe Cryme? Provide TWO steps. Joe Cryme. From the bank reconciliation for September 2010 only the outstanding deposit of R12 400 and cheque No. R1 700. 633 was reflected in the CPJ as R2 630. 5. The following items appeared in the October CRJ and CPJ. 9. The amount on the Bank Statement is correct.GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES) 4. dated 28 September. 7. but on the Bank Statement it was reflected as R6 230. but not on the Bank Statement: No. was never deposited into the bank account by Joe Cryme. forged the signatures and used the funds for personal benefit. The R30 000 reflected on the deposit slip. 6. 10. Cheque No. 652 – R3 800 (dated 15 November 2010) No. This was originally received from a debtor in payment of his account. but not in the CPJ. The bookkeeper. He cannot account for the whereabouts of the cash. A dishonoured cheque was reflected on the Bank Statement. 655 – R1 300 A deposit of R12 700 for cash sales. 8. 642 for R18 000 appeared on the Bank Statement. The October Bank Statement reflected bank charges of R1 310 and interest of R102 on the favourable bank balance. As internal auditor you also detected that cheque No. A direct deposit of R5 500 from a tenant was reflected on the Bank Statement. 614 appeared on the October Bank Statement. [30] Page 4 of 12 . Post-dated cheques received. Cheques issued. but appearing in the current B/S. Bank charges and interest on overdraft. Dishonoured cheques. Deposit outstanding previously. Stop / debit orders / electronic payments appearing on the B/S. Outstanding deposits. Cancellation of cheques (stale. Post-dated cheques issued. but appearing in the current B/S.GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES) SECTION B: ADDITIONAL CONTENT NOTES Bank reconciliation entries at a glance The following table represents where transactions are to be entered: Transaction CRJ CPJ Bank Recon No DR CR entry Direct deposit into the bank account as reflected on the B/S. but still not appearing in the current B/S. Error on the B/S Amount incorrectly debited Amount incorrectly credited Page 5 of 12 . Error in the CPJ Amount in the CPJ is higher than the original cheque. but not appearing on the B/S. Cheques outstanding on the previous B/R recon. stop payment. Amount in the CPJ is lower than the original cheque. Cheques outstanding on the previous B/R recon. stolen or altered cheques). Interest on favourable bank balance. 335 (dated 28 February 2008) 260 No. 335 (dated 28 February 2008) 260 No. 448 (dated 25 June 2008) 5 000 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.GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES) SECTION C: HOMEWORK QUESTION 1: 40 marks 25 minutes RECONCILIATIONS AND INTERNAL CONTROL INFORMATION: You are provided with the last two months’ Bank Reconciliation Statements of Umlazi Traders. 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: Page 6 of 12 . 123 (dated 25 November 2007) 285 No. Bank Reconciliation Statement of Umlazi Traders on 30 April 2008 R Debit Balance as per Bank Statement 26 650 Outstanding Cheques: No. 447 (dated 30 April 2008) 2 300 No. 438 (dated 15 April 2008) 775 No. (6) 1. (3) 1. State whether this is a favourable or unfavourable balance.7.GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES) 1.7.5.2 Give an example of the type of error that the bank could have made.1 According to the April 2008 Bank Statement. 1.5 The Bank Reconciliation on 30 April 2008 shows the item: “Credit Error on Bank Statement. You must provide a different reason for each cheque (4) PROBLEM SOLVING 1. (2) 1. 1.) (4) 1. S Smit.3.1 What you suspect the cashier is doing illegally which is resulting in these very large outstanding deposits.6 Explain why cheques 335 and 448 appear on both the April and May 2008 Bank Reconciliation Statements. 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.3 Discuss two steps that could be taken should your suspicions of illegal actions by the cashier be confirmed.2 Calculate the missing bank balance in the General Ledger of Umlazi Traders on 30 April 2008.2 What entries would the bookkeeper have to make during May 2008 to deal with cheque 123.4 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) Page 7 of 12 . This cheque for commission was not deposited by the payee. 123 (3) 1.3 Cheque No 123 does not appear on the May 2008 Bank Reconciliation Statement. R 250”. 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. (6) 1. you have noticed that both the April and May 2008 Bank Reconciliations reflect very large outstanding deposits.1 Briefly explain what the problem is with cheque No.3.2 Discuss three internal control measures that could be implemented within the accounting department to avoid any further problems of this type occurring. (3) 1.5.1 Was this error corrected by the bank during May 2008? Give a reason for your answer (3) 1.7. 7 As internal auditor of Umlazi Traders. (2) 1. does Umlazi Traders have a favourable bank balance or an overdraft? Give a reason for your answer. 2 CASH RECEIPTS CASH PAYMENTS Provisional total 87 000 Provisional total 109 000 T.GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES) SECTION D: SOLUTIONS AND HINTS TO SECTION A QUESTION 1: 42 marks 25 minutes BANK RECONCILIATION AND INTERPRETATION 1. Incorrect=0 Expected response Improves internal control-minimise fraud or error because records are (3) checked to an external source 1.1 Explain why it is important for a business to prepare a bank reconciliation statement each month Good explanation=3 MARKS.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. (6) Page 8 of 12 .3 LEDGER OF HAPPY TRADERS BANK May1 Balance B/d 6 325 May Sundry 31 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 . Satisfactory=2. the cashier.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.213 (Dated 1 April 2009) 3 400 No. Provide a reason for your answer.599 should be treated when the financial Statements are prepared on 31 August 2009. E. 555(Dated 23 August 2009) 5 678 No. rolling of cash by the cashier Explain how cheque No.599 (Dated 31 December2009) 4 999 Credit balance as per Bank account 7 708 31 164 31 164 (10) 1. Reduce the bank overdraftand increase the creditors The funds have not yet been lost at the Balance Sheet date as the cheque is (6) post dated TOTAL MARKS: 42 Page 9 of 12 .GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES) 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.g.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 (5) 10% of the fixed deposit 1. 2 Calculate the correct totals in the CRJ and CPJ for October 2010. Satisfactory =1. CRJ CPJ Provisional totals 510 000 463 600 # Be alert to 6 200 30 000 R2 630 in CRJ & 102 1 310 R6 230 in CPJ = 5 500 1 700 R3 600 net effect: 18 000 1 mark Foreign items -1 # 3 600 max -2 Operation if one 521 802 518 210 part correct (10) Page 10 of 12 .GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES) QUESTION 2 2.1 Why does a business prepare a Bank Reconciliation Statement each month? Good explanation = 2 marks. 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. 4. 655 1 300 Outstanding deposits 12 700 Balance as per bank account operation if 34 292 one part correct 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 Inspect – may be used treatment of No. 655 if Add/Less 1 300 Add outstanding deposit not reflected 12 700 Balance as per bank account Operation if one part 34 292 correct . 652 3 800 No.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. 613 13 400 No. 652 award marks 3 800 No. 613 figures to 13 400 No.GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES) 2.1 foreign entries max -2 (10) 2. (2) Page 11 of 12 .3 BANK RECONCILIATION STATEMENT AS AT 31 OCTOBER 2010 Debit Credit Balance as per Bank Statement 40 092 Outstanding cheques: No. 2 Any valid explanation which indicates understanding of the rule of prudence Excellent explanation = 3 marks. 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. incorrect explanation = 0 marks Any aspects listed / mentioned without explanation = 1 mark each Expected response for 3 marks: Joe Cryme is responsible for all the vital activities relating to receipts.3 Any valid explanation mentioning division of duties Full explanation of one aspect = 3 marks Good explanation = 3 marks. Expected response for 2 marks: The rule of prudence dictates a conservative approach in reporting profits.GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING GRADE 12 SESSION 15 (LEARNER NOTES) 2. 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. The SSIP is supported by Page 12 of 12 . Good = 2 marks. you need to ensure that you are able to answer the questions in the allocated time frames.4. Satisfactory =1. As you attempt the homework.4. Expected response for 1 mark: Pessimistic approach Conservative approach (3) 2. poor explanation = 1 mark. If you have problems. you should refer either to the additional notes or your class teacher. satisfactory explanation = 2 marks. Duties should be divided amongst employees in the business so that one employee serves as a check on another. deposits and payments.