Question

Question 4 [27]

The following bank reconciliation statement was prepared by the bookkeeper of Veggie Stores for January 2020. The financial year of the business ends in January each year.

Bank overdraft as per bank statement	R35 000
Outstanding deposit on 10 January 2020	R12 900
28 January 2020	R10 000
Outstanding deposit: Cheque received from B Brother dated 24 February 2020	R1 800
Outstanding cheques:
No. 1642 (dated 20 July 2019)	R7 000
No. 9172 (dated 25 January 2020)	R9 800
No. 9753 (dated 3 March 2020)	R4 800
Bank charges	R570
Balance as per bank account in the General Ledger	?

Required:

1. Is the opening balance of R35 000 as per the bank statement a debit or a credit balance on the bank statement? Explain your answer.                                                                         (2)
2. Explain why the business has entered cheque no. 9753 in the bank reconciliation statement.                                                                                                                                       (3)
3. The business has made three other errors. Identify the amounts relating to these errors and explain why they are errors. Specify the corrective action that should be taken to correct these errors.                                                                                                                            (9)
4. Prepare a corrected bank reconciliation statement for January 2020.                         (7)
5. The owner is concerned about the outstanding deposit of R12 900. Explain why he is concerned.                                                                                                                     (2)
6. Propose TWO steps the owner should take to prevent things such as those described in Question 4.5 above from occurring again in the future.                                                (4)

Complete question 4.3 and 4.4 specifically in format below

4.3

Amount	Error	Corrective action

                                                                                                                                                        (9)

4.4

	Debit	Credit

                                                                                                                                                        (7)

Answer 1

Answer 1 - It is a liability for veggie store since it is overdraft. Hence it is a debit balance.

Answer 2 - This is post dated cheque which can be cleared only after 3rd March. However since veggie store has issued a cheque. Cheque payment entry has to be made in the books of accounts and it can not be deferred to 3rd march due to prudene concept of accounting. Hence it has to be reported in bank reconciliation.

Answer 3 - Three Errors in Bank Reconciliation

Cheque/Entry Error	Error Description
Cheque Received from B Brother amounting to R1800	It is post dated cheque and can not be accounted for due to concept of prudence.
Cheque No. 1642 amounting to R7000	It is a Stale cheque and should be revered off in ledger.
Bank Charges amounting to R570	This should be entered in bank payment due to which it will have no impact in reconciliation.

Answer 4 - Correct Bank Reconciliation Statement

Description	Amount
Balance as per Bank Statement as on January 2020 (Debit Balance in bracket)	(R35,000)
+ Outstanding Deposits
on 10th January	R12,900
on 28th January	R10,000
- Outstanding Cheques
No. 9172	(R9,800)
No. 9753	(R4,800)
Balance as per Bank Statement (Credit Balance overdraft in books)	R26,700

Answer 5 - Owner is concerned because is not cleared/deposited since January 10. This is a long time which can lead to theft.

Steps he can take to avoid any such issue:-

1. Owner can take help of reputed cash collection company.

2. Ensure that only two people are involved in receipting and depositing money.