Financial Accounting: Bank Reconciliation and Control Accounts

This financial accounting assignment solution, submitted by a student, is divided into two parts. Part A focuses on preparing a bank reconciliation statement and adjusting entries for Lighter Company, based on provided bank transaction information. The solution includes the bank reconciliation statement, along with the necessary debit and credit memoranda, and the corrected balance. Part B delves into control accounts and suspense accounts, explaining their purposes and the process of reconciliation. The solution details the steps to reconcile control accounts and clear suspense accounts, using the example of Sky's financial records. It provides a detailed analysis of the adjustments required, including journal entries, and presents the unadjusted and adjusted trial balances, along with the statement of profit or loss, statement of retained earnings, and statement of financial position. This comprehensive solution provides a clear understanding of the financial accounting principles and practices involved.

FINANCIAL ACCOUNTING
Contents
1

Part A – From the information of bank transactions given below you are required to prepare bank reconciliation statement
and adjusting entries for Lighter Company..........................................................................................................................................3
Part B – The balance extracted from the records of Sky at 31 August 2018 were as follows:..........................................................7
Reference.................................................................................................................................................................................................20
Part A – From the information of bank transactions given below you are required to prepare bank
reconciliation statement and adjusting entries for Lighter Company.
2

Bank Reconciliation Statement
Lighter Company ended December 31, 2018
£ £
Original Balance per Bank Statement
5,7
18.28
Add: Outstanding lodgement
8
96.50
6,6
14.78
Less: Unpresented cheques
Check
No. Date
661 01/12/2018
(108
.15)
667 14/12/2018
(15
.50)
669 16/12/2018
(19
.00)
671 17/12/2018
(121
.50)
674 18/12/2018
(168
.75)
(4
32.90)
Corrected Balance
6,1
81.88
£ £
Original Balance per LB
5,4
77.52
Add: Credit Memoranda (CM)
Date Explanation
22/12/2018 Collection a receivable from
customer BRG.
768
.00
3

25/12/2018 Dividends received from MSN
Plc.
305
.38
31/12/2018 Interest earned on average
account balance during
December.
45
.98
1,1
19.36
6,5
96.88
Less: Debit Memoranda (DM)
Date Explanation
22/12/2018 Fee charged by bank for
handing collection of receivable
(99
.00)
30/12/2018 A cheque for 250 from
customer (was paid into bank on
27 Dec, but has bee dishoured
on 31 Dec)
(250
.00)
31/12/2018 Service charge by bank for
month of December
(30
.00)
(3
79.00)
Less: Check No. 673
(
36.00)
Corrected Balance
6,1
81.88
4

No. Date Narrative Affected Account Debit (£) Credit (£)
Cash 768.00
Receivable Control Account 768.00
Cash 305.38
Dividend Received 305.38
Cash 45.98
Interest Income 45.98
Bank Service Expense 99.00
Cash 99.00
Receivable Control Account 250.00
Cash 250.00
Bank Service Expense 30.00
Cash 30.00
Telecom Expense 36.00
Cash 36.00
Addition Adjusting Entries
Lighter Company ended December 31, 2018
1 22/12/2018 Collection a receivable from customer BRG
Service charge by bank for the month of
December
Error of Check No.673 (amount of £61 but
recorded in cash book payments as £26)
5 30/12/2018
6 31/12/2018
7 22/12/2018
Dividends received from MSN Plc
Interest earned on average account balance
during December
Fee charged by bank for handing collection
of receivable
A cheque for £250 from customer, which
was paid into the bank on 27 Dec, has been
dishonoured on 31 Dec
2 25/12/2018
3 31/12/2018
4 22/12/2018
General Ledger: Cash
Date Description Dr (£) Cr (£) Balance (£)
31/12/2018 Balance 5,477.52
22/12/2018 Collection a receivable from customer BRG 768.00 6,245.52
25/12/2018 Dividends received from MSN Plc 305.38 6,550.90
5

31/12/2018 Interest earned on average account balance during
December 45.98 6,596.88
22/12/2018 Fee charged by bank for handing collection of receivable 99.00 6,497.88
30/12/2018 A cheque for £250 from customer, which was paid into the
bank on 27 Dec, has been dishonoured on 31 Dec 250.00 6,247.88
31/12/2018 Service charge by bank for the month of December 30.00 6,217.88
22/12/2018 Error of Check No.673 (amount of £61 but recorded in
cash book payments as £26) 36.00 6,181.88
Part B – The balance extracted from the records of Sky at 31 August 2018 were as follows:
I – Explain the purposes of using control account and suspense account? Explain the process taken to reconcile control
account and clear suspense accounts as well as how and why they are reconciled, using the given account example.
Control Account is an account in the main ledger (general ledger) which aggregates and combines the ledger of the ledger of the
subsidiaries into it. This also helps subsidiaries keep track of account transactions in a particular way and in more detail. (YouTube,
2017).
According to (Cameron, 2017), suspense account is an account in the general ledger, hold on to funds, unclassified transactions
during the company (i.e. it will hold off items to wait for classification and it also contains information different in the date collection
process).
6

According to (Gikonyo, 2015), process to reconcile the control account:
 Step 1: Identify the errors.
For Receivables Control Account:
o No entry had been made in the control account in respect of the debts written off as bad
o No entry has been made in the control account for a cheque paid by debtor £235.
o Sales on credit of £189 to Jack had been correctly entered in his account but nothing had been entered in the
control account.
o No corresponding entry had appeared in the control account about discount allowed from Marry (£195).
o Cash receipts £200 from receivables treatment as a cash sale.
For Payables Control Account:
o No entry had been made in Harper’s account (for £105 and is only recorded on ledger, not TB).
o A purchase invoice for £625 had been entered incorrectly in control account £652 (but correctly in purchase
account).
o Two credit balances of £58 and £68 had been omitted from the list extracted from payable ledger.
7

o A payable ledger contra of £175 had been entered in Cloud’s account in the receivable ledger but no other entry had
been made.
o The purchase day book had ben undercast by £1,460.
 Step 2: Revise the total balance quoted from memorandum ledger.
Receivable Control a/c Receivable Ledger
Original Balance 1,873 Original Balance 1,619
Add:
Dishonoured Account 235
Sales on credit 189
424
Less:
Discount Allowed (195)
Cash Received (200)
Bad Debts Expense (108)
Contra with payables
ledger (175)
(678)
Corrected Balance 1,619 Corrected Balance 1,619
Payable Control Account Payable Ledger
Original Balance 2,03
0 Original Balance 1,807
Add:
8

Credit Blances 58
Less: 68
Purchase Invoice (27) 126
Contra with receivable ledger (175) Less:
Goods returned to Harper (105)
(202)
Corrected Balance 1,82
8 Corrected Balance 1,828
 Step 3: Bring down the balance on the control account and adjust accounts to the correcting entries.
Receivable Control Account
Orginal balnance 1,873 Cash Received 200
Dishonoured
Account 235 Discounts Allowed 195
Sales on credit 189 Bad Debts Expense 108
Contra with
payable ledger 175
Corrected Balance 1,619
2,297 2,297
Payable Control Account
Purchase Invoice 27 Original Balance 2,030
Contra with receivable 175
9

ledger
Corrected Balance 1,828
2,030 2,030
According to (Acccountingandfinance.blogspot.com, 2015), process to clear the suspense account:
 Step 1: Open a suspense account with the amount of the imbalance.
o Debts written off as bad.
DR Irrevocable Debts Expense: (£)108.
CR Suspense Account: (£)108.
o Cheque dishonored by bank (for (£)235).
DR Suspense Account: (£)235.
CR Cash at bank: (£)235.
o Sales on credit of (£)189 to Jack.
DR Suspense Account: (£)189.
CR : (£)189.
o Marry had been allowed a cash discount of (£)195.
10

DR Discount Allowed: (£)195.
CR Suspense Account: (£)195.
o A purchase invoice of (£)625 had been entered incorrectly in control account as (£)652.
CR Payables Control Account: (£)652
DR Purchase Account: (£)625.
DR Suspense Account: (£)27
o Discount received had been debited to the discount allowed account.
DR Payables Control Account: (£)200.
DR Discount Allowed: (£)200.
CR Suspense Account: (£)400.
 Step 2: Using journal entries to clear suspense account and correct the error.
SKY
Adjusting Entries at 31 August 2018
No. Narrative Affected A/C Debit (£) Credit (£)
1
a) No entry had been made in the control account in
respect of the decbts written off as bad
Suspense Account 108
Receivable Control A/c 108
b) Dishournor cheque for 235 from customers
Receivable Control A/c 235
Suspense Account 235
c) Sales on credit to 189 to Jack had been correctly Receivable Control A/c
11

entered in his account but nothing had been entered in the
control account.
189
Suspense Account 189
d) Marry had been allowed a cash discount of 195, but no
corresponding entry had appeared in the control account.
Suspense Account 195
Receivable Control A/c 195
e) Cash recepts 200 from receivables treated as a cash
sale.
Sales 200
Receivable Control A/c 200
2 a) Goods returned to Harper costing 105 had been
entered correctly in the control account, but no entry had
been made in Harper's account.
Payable Control a/c 105
Purchase a/c 105
b) A purchase invoice for 625 had been incorrectly
entered in the control account as 652, but correctly in the
purchase account.
Payable Control a/c 27
Suspense Account 27
c) Two credit balances of 58 and 68 had been omitted
from the list extracted from the payable ledger
Suspense Account 126
Payble Ledger A/c 126
d) A payable ledger contra of 175 has been entered in
Cloud's account in the receivables ledger but no entry had
been made.
Payable Control a/c 175
Receivable Control A/c 175
e) Discount received 200 had been debited to the discount
allowed account.
Suspense Account 400
Discount Allowed 200
Discount Received 200
f) The purchase day book had been undercast by 1,460. Purchase a/c
1,460
12