The financial year of John Company, a sole trader, ends on 30 September 2017. On

Question

The financial year of John Company, a sole trader, ends on 30 September 2017. On 30 September 2017, his bank account in the ledger showed a debit balance of $59,204. This did not agree with the balance as shown on the bank statement.

An investigation of the records disclosed the following:

i) Direct debit of $7,100 to the electricity company and overdraft interest of $600 had been omitted in the company’s bank account.
ii) A cheque for $17,000 from a customer was wrongly recorded as $17,800.
iii) A cheque for $16,000 received from a customer had been recorded in the bank account on 13 September 2017. It was subsequently dishonoured and returned by the bank. This transaction had not yet been recorded in the books.
iv) Cheques issued to suppliers amounting to $10,000 had not yet been presented to the bank for payment.
v) The bank statement showed that a customer had settled his debt of $45,300 to the firm by paying directly into the bank. No entries have yet been made in the company’s bank account.
vi) A cheque for $46,000 was banked on 30 September 2017 but recorded by the bank on 3 October 2017.
vii) The bank statement revealed that the bank had mistakenly deducted a bank charge of $1,000 on 28 September 2017.

Required
a) Prepare a bank reconciliation statement for Steve Company as at 30 September 2017.
b) Explain the importance of preparing a bank reconciliation statement.

Explanation / Answer

ans a Bank Reconcilition As on Sep 30 Cash balance according to bank statement (80004-47000+10000) 43004 Add: Deposit in transit 46000 Error by bank 1000 47000 Less: Outstanding checks 10000 Adjusted Baalnce 80004 Cash balance according to company records 59204 Add: Direct deposit by customer 45300 45300 Less: Check incorrectly recorded as $17800 instaed of 17000 800 Direc Payment to electricity payment 7100 NSF 16000 Overdraft Interest 600 24500 Adjusted balance 80004 ans b BRS is importanst as it provides the accuracy in the bank balance as per company records and the balance in the bank statement. There can be differnece in both due to timimg differences such as few transactions are recorded by company like checks issued but if it is not cleared with bank on the same day than there can be difference in balances. BRS not only helps in reconcilaition but also helps in identifying error in books or bank. It also provides a control mechanism to protect valuable resources such as unauthorized bank withdrawals. It also helps in regular monitoring of business.

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