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

A, The opening balance 35000 is credit balance in Bank statement.Because Debit and credit balance of bank and company is different for example

ABC Ltd company received R1000 from customers,That time Debit the cash But in the banking sector ,cash deposits are Credited.

The Credit /debit balance of bank and company is vise versa so we use contra option for bank related payments and receipts.

B) Outstanding Cheques means ,a cheque payment that has been recorded by the issuing entity, but which has not yet cleared its bank account as a deduction from its cash balance. The concept is used in the derivation of the month-end bank reconciliation.So The cheque (9753) is paid to bank and record our books but bank has not clered the cheque so that cheque amount also shown a difference in the closing balance of bank statement and our book balance.So need to Add the cheque amount in bank reconciliation statement,that also helpful to maintain a control in bank payments and receipts.

C)

R 12900	The receipt recorded by the company but not deposit in to bank until the end of the financial year	Deposit the receipts in the company bank account.dont keep these receipt into office more than two days
R 10000	The receipt recorded by the company but not deposit in to bank until the end of the financial year	Deposit the receipts in the company bank account.dont keep these receipt into office more than two days
R 1800	The cheque receipt recorded by the company but not deposit in to bank until the end of the financial year	Deposit the receipts in the company bank account.dont keep these receipt into office more than two days

The three errors is outstanding deposits,Such R 12900,R 10000 and R 1800.An outstanding refers to a company receipts which have been recorded by company,but the amount will appear on its bank statement at a later date or will not appear in bank statement.

For Example-: let's assume that on October 31 a company received cash and checks from customers in the amount of R800. Clearly the company should report the R800 as part of its cash as of October 31. However, the company did not deposit the R800 into its bank account until after October 31. Since the R800 is not on its bank statement as of October 31, the R800 is described as an outstanding deposit or deposit in transit as of October 31.

So in the case of Veggie Stores ,They recorded the three amounts but not deposit these amounts in to bank so this is a error of accounts so next time deposit the receipts to the bank at time ,dont lag

D)

Debit Credit

Bank Over draft as per Bank statement    R 35000

Add-Outstanding Deposits

* 10 January 2020    R 12900

* 28 January 2020 R 10000

* Cheque received From B, Dated 24 February 2020 R 1800  

Less-: Outstanding Cheques

* No 1642 Dated 20 July 2019 R 7000

* No 9172 dated 25 January 2020 R 9800

*No 9753 dated 3 March 2020 R 4800

Bank charges R 570

Balance as per bank account in the General ledger R 37530/-

E) The Reason for "Why he is concerned about  the outstanding amount R 12900" is that amount is received from a party so it is a receipt of the Veggie Store but the general ledger shows that amount is deposited in bank at the same time the amount is not reflected in bank statement.Therefor the owner is concerned the about the missing amount.then R 12900 is huge amount is compared to another outstanding deposits so this is the second reason for he is concerned only for the R 12900.

F) Two steps for Prevent Outstanding deposits

1,Monthly Bank reconciliation-:As a small business owner, you are in charge of making sure you close your books correctly. Knowing your outstanding deposits allows you to maintain correct financial records. Reconciling your bank account helps you avoid accounting issues. Bank statement reconciliation lets you double-check that your bank statement and books add up. If you don’t reconcile your accounts, you’ll spend more time and money fixing mistakes.

You can also use bank statement reconciliation to track your business’s progress. Using your outstanding deposits to balance the accounts, you can measure profitability and project cash flow

2) Dont hold cash receipts and Cheque receipts in the office ,try to deposit that on same day. so it helps to avoid such things