Question

The owner of Harry’s Garden Supplies has completed a bank reconciliation and cannot get the bank’s records to agree with the cash records of his business. He concludes that internal control has somehow failed and cash is being misappropriated. He asks you to check the records and confirm or otherwise his suspicions. He supplies the reconciliation statement at the end of last month, his cash records, and the most recent bank statement.

Last month’s reconciliation statement is presented below.

Harry’s Garden Supplies Bank Reconciliation as at 31 May 2020
Balance as per bank statement	$ 42,328.90	Cr
Add: Outstanding deposits	1,224.50
	5,553.40
Less: Unpresented cheques	223.70
Balance as per Cash at Bank account	5,329.70	Dr

The total of the cash receipts journal for June is $64,776.30 and the total of the cash payments journal is $63,265.60. The current bank statement shows that cheques presented and paid amount to $59,725.10, and total deposits amount to $64,780.60. There are also additional debits on the statement for a dishonoured cheque for $210, and account fees for $20.

An examination of the records reveals that all reconciling items at 31 May 2020 appear in the bank statement for June, unpresented cheques at 30 June total $7,154.40, and the 30 June deposit of $1,950.40 has not been credited by the bank. Your check of the cash journals reveals that addition errors have been made by the clerks responsible. Receipts should total $65,766.30 and payments should total $63,185.60.

Required:

1. Recalculate and present the general ledger Cash at Bank account balance as it should be at 30 June 2020.

2. Prepare the bank reconciliation statement at 30 June 2020.

3. Advise the owner of Harry’s Garden Supplies whether cash is being misappropriated, assuming that the records maintained by the bank are accurate. (150 words)

4. ‘Although the process of bank reconciliation provides a measure of control over cash in a business entity, bank reconciliation is useless unless it operates within a framework that incorporates essential elements of a good internal control system.’ Discuss this statement.

Answer 1

a)	Balacnce as on 31-May-2020(Cash at Bank Account)	5329.7
	Add: Total Receipts during the month of June	65776.3
	Less:Total Payments during the month of june	(63,185.60)
	Balacnce as on 30th-June-2020(Cash at Bank Account)	7920.4
	Balance as per Bank statement as on 30th june 2020
	Balance as on 31-05-2020	42328.9
	Add:Total deposits for June	64780.6
	Less:Cheque Presented and Paid	(59,725)
	Less: Bank Charges	(20)
	Less:Cheque dishonoured	(210)
	Balance as on 30 june 2020	47154.4

b)	Bank Reconciliation Statement for the month of June 2020
	Balacnce as per Bank statement	47154.4
	Add: Outstanding Deposits	1950.4
	Less:unpresented Cheques	(7,154)
	Less:Account fee	(20)
	Less:Dishonoured Cheque debited	(210)
	Balance as per Cash at Bank account should be	41720.4
	Balacnce as on 30th-June-2020(Cash at Bank Account)	7920.4
	Misappropriation of Cash	33800

c). Since the accounts maintained by the bank are correct while preparing the bank reconcilition statements its found that the Cash Account is misapropriated by $.33800 during the period. The cash at Bank account is showing a difference of the same while comparing the statements.

d).Whether there established a strong internal control or not its better to prepare the bank reconciliation statements at a regular intervals to know the accuracy of the cash accounts maintained. The bank reconciliation statemeng is a tool which can be used by the entities to get a control over the cash and bank account.We cant say that its a useless tool when there is a strong internal control system, an entity reuires both the internal control as well as a system of preparing bank reconciliation to ensure the correctness of the cash at bank account.from the bank reconciliation statement we can identify the mistakes in our cash book entry.