Bank Reconciliation and Suspense Account

This assignment discusses the process of bank reconciliation, including outstanding checks and NSF (Not Sufficient Funds) conditions. It also explains how to reconcile suspense and control accounts to determine accurate financial results. The document covers various examples and references from books and online resources.

Financial Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Question 1 Producing final accounts of the Bamber Sharpe for the year ended 31 April 2018. 1
Question 2 Producing final accounts for Saunders Worsley Ltd for the year ended 30 August
2018........................................................................................................................................3
Question 3 Bank reconciliation statement and relevant terms...............................................6
Question 4 Discussing how control and suspense account are reconciled.............................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................7

INTRODUCTION
Financial accounting is the branch which deals with accounting records in effectual
manner. Present report deals with preparation of final accounts of Bamber Sharpe and Saunders
Worsley Ltd which are sole trader and organization respectively. Moreover, bank reconciliation
statement are prepared with terms related to it. Furthermore, control and suspense accounts are
discussed on how they are reconciled. Hence, financials are vital in assessing performance of
business in effectual manner.
Question 1 Producing final accounts of the Bamber Sharpe for the year ended 31 April 2018
Income statement for the year ended 31 April 2018
Particulars Amount
Revenue 140000
Less: Cost of Goods Sold (COGS) 80000
Gross profit 60000
Operating expenses
Sundry expenses 3600
Add: Prepaid rent 4400 8000
Wages 44000
Wages Outstanding 6400
Gas payment 800
Heat and light expenses 8000
Depreciation on fixtures and fittings 4800
Total operating expenses 72000
Operating income
EBT -12000
Add: Depreciation
Tax
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Net loss -12000
Balance sheet as at 30 August 2017 Amount
Current assets
Trade receivables 16000
Inventories 20000
Prepaid rent 4400
Total current assets 40400
Furniture and fixtures 48000
Less: Depreciation 4800 43200
Short-term investment 8800
Total assets 92400
Liabilities and stockholders equity
Liabilities
Current liabilities
Wages Outstanding 6400
Gas payment 800
Bank overdraft 8000
Total current liabilities 15200
Total liabilities 30400
stockholders' equity
Share capital 74000
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Net loss -12000
Accumulated Expenses
Total liabilities and stockholders' equity 92400
Workings
Opening inventory 16000
Purchases 84000
Less: Closing inventory 20000
COGS 80000
The financial statements are required to be ascertain clarifying health of business in the
best possible manner. It is needed in order to determine financial performance of firm in
effective way. It can be said that financials such as income statement and balance sheet are
crucial part of company highlighting its performance quite effectually. The above income
statement and balance sheet is drawn for the sole trader as per the provisions of Companies Act
which governs how to prepare such financials exhibiting true information about the firm
(Introduction to Financial Accounting. 2018). It can be assessed from the income statement that
firm has incurred a loss of 12000 in the past financial year. The activities or elements can be
explained in a better way. It can be analysed that sales revenue garnered is 140000 and purchases
made in the year was 84000. Moreover, to ascertain Cost of goods sold, formula is applied such
as opening stock + Purchases – Closing stock and thus, 80000 is obtained and it is then deducted
from sales revenue, thus, gross profit of 60000 is attained which is remarkable for the business.
On the other hand, all operational expenses are applied such as sundry expenses of 3600
and prepaid rent of 4400. Wages outstanding amounting to 44000 is applied. Moreover, other
expenses such as gas payment of 800, heat and lighting expenditure of 8000 and depreciation is
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allowed of 4800 and thus, total operational expenditures are 72000. Thus, by deducting gross
profit from operating expenses, net loss of 12000 is arrived which means that expenses are
increased leading to decreased profits. Balance sheet is also prepared which shows total
liabilities and stockholders' equity and total assets held in particular year. Both the figures are
matched (Macve, 2015). Thus, it is required to initiate reduction on the expenditures so that
profits can be attained in the best possible manner.
Question 2 Producing final accounts for Saunders Worsley Ltd for the year ended 30 August
2018
Income statement for the year ended 30
August 2018
Particulars Amount
Revenue 616000
Less: Cost of Goods Sold (COGS) 246000
Gross profit 370000
Operating expenses
Distribution costs 84000
Administration costs 68000
Depreciation on Plant and equipment 19200
Depreciation on office equipment 4800
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Total operating expenses 176000
Operating income
EBT 194000
Tax 15000
Net profit 179000
Balance sheet as at 30 August 2017 Amount (000)
Current assets
Bank 8000
Trade receivables 152000
Inventories 34000
Short-term investments 4200
Total current assets 194000
Premises 308000
Plant and equipment at cost 192000
office equipment 48000
Add: Depreciation -24000
Total assets 916200
Liabilities and stockholders equity
Liabilities
Current liabilities
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Dividend payable 11600
Trade payables 160000
Corporation tax 15000
Total current liabilities 186600
Long term borrowings 132000
Total liabilities 505200
stockholders' equity
Share capital 232000
Net profit 179000
Accumulated Expenses
Total liabilities and stockholders' equity 916200
Workings
Opening inventory 24000
Purchases 256000
Less: Closing
inventory
34000
COGS 246000
The balance sheet and income statement both are prepared for the company in effectual
manner. The financial position of Saunders Worsley Ltd is good enough as it is depicted by the
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financial statement in the best possible manner. It can be analysed from the income statement
that firm has earned good net income amounting to 179000 in the past financial year which is
quite good as it is able to initiate control upon expenditures in effective way. This is evident from
the fact that sales made in the year were amounting to 616000. The COGS are arrived by using
the formula as purchases and closing and opening inventory were given. The formula is opening
stock + Purchases – Closing stock, thus, COGS is 246000.
From this, sales are deducted from COGS and gross profit of 370000 is being arrived
with much ease. After that operational expenditures are applied amounting to 176000. Thus, by
reducing gross profit from these expenses, operating income is arrived is 194000. From this,
corporation tax is deducted of 15000 and net income arrived is 179000. The balance sheet is
drawn clarifying fact that assets and liabilities are good enough of the company. Thus, it can be
said that overall financial position of Saunders Worsley Ltd is good and is earning profits quite
effectually.
Question 3 Bank reconciliation statement and relevant terms
Use of deposit in transit: It occurs when a deposit arrives too late in bank and to be
recorded that day. A deposit in transit is cash and checks that have been recorded by an entity,
which have not been yet recorded of the bank where the funds are deposited (Demerjian, 2017).
If it occurs at month end the deposit will not appear in bank statement issued by bank and
become reconcile in the bank reconciliation prepared by entity.
Out standing cheques: It is a cheque that is written by company, but not yet cleared by
bank account on which it is drawn. In the bank reconciliation process, total amount of
outstanding checks is subtracted from the end balance on the bank statement when calculating
the adjusted balance per bank.
Not sufficient funds: It is a condition where bank does not honour a check because the
account holder does not have sufficient fund.
Question 4 Discussing how control and suspense account are reconciled
A suspense account is an account in the general ledger that temporarily stores any
transaction for which there is not having sufficient details to create an entry to correct account,
otherwise larger unreported transactions may not be recorded by the end of reporting period
which result in inaccurate financial results (Warren and Jones, 2018). Once, user clarifies the
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purpose of this type of transaction it shifts the transaction out of suspense account into the
correct account. On the other side control account is a summary account in general ledger. It is
done to have correct balance for the financial statement. It is help to know the exact position of
bank like total transaction for the day, total sales on account for the day etc. It is mostly used in
large organization because their transaction value is quite high and the balance should be match
the total for the related subsidiary ledger.
This is necessary to reconcile suspense account and control account to know the exact
position of business and by using these both tools, individual can know the day to day
transaction and sales during a period and if the user does not have all the information related to
sales then he can use suspense account to transfer the amount and when the purpose of account is
clarified then it can shift the transaction out of suspense account into the correct account (Warren
and Jones, 2018).
For example: Customers send in a payment for $5000 but does not specify which open
invoices it intends to pay. Then staff temporarily parks $5000 in suspense account and in this
case the entry to place the funds in suspense account is cash account debit to $5000 and suspense
account credit to $5000 and when invoice is identified then reverse entry should be shown. And
for control account, example is accounts receivable general ledger account. Either summary or
detail posting are made to the accounts and the total of customer account balances must equal to
the total balance of control, they are used for cash, account payable, inventory and fixed asset
account.
CONCLUSION
Hereby it can be concluded that financials plays crucial role in the company determining
financial health in the best possible manner. Moreover, Bank reconciliation statement is also
useful in assessing discrepancies observed in passbook and accounting records of company.
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