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Tiêu đề Accruals And Prepayments
Trường học Đại học mở hà nội
Chuyên ngành Kế toán
Thể loại Lesson
Định dạng
Số trang 98
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CONTENTS LESSON 1 ACCRUALS AND PREPAYMENTS The objectives: After studying this unit, students are expected to - Understand: + Expense accruals + Expense prepayments + Income accrual + Income prepayment - Know how to make necessary adjustments in each case INTRODUCTION Introduction I Accrual of expenses II Prepayment of expenses III Accruals and prepayments in final accounts IV Income accrual V Income prepayment Summary Exercises Glossary 2 2 4 5 7 9 10 11 12E-learning training center Learning opportunity for All Anh văn 2 chuyên ngành Kế toán – Unit 1 Page 2 In preparing ‘final accounts’ so far, you have included income and expense items as they appear in the trial balance. In reality, at the end of the financial year, some expenses will be outstanding and others will have been paid in advance for the next year. In the same way, some income might have been received in advance of the next year, while other income is yet to be received. To give a ‘truer’ picture of the affairs of the business, you need to make adjustments. In other words, you need to include the expenditure and income items that relate to the accounting year, whether or not you have paid or received cash for them.

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LESSON 1 ACCRUALS AND PREPAYMENTS

CONTENTS

The objectives: After studying this unit, students are expected to

- Understand: + Expense accruals

+ Expense prepayments + Income accrual

Trang 2

In preparing ‘final accounts’ so far, you have included income and expense items as they appear in the trial balance In reality, at the end of the financial year, some expenses will be outstanding and others will have been paid in advance for the next year In the same way, some income might have been received

in advance of the next year, while other income is yet to be received To give a ‘truer’ picture of the affairs of the business, you need to make adjustments In other words, you need to include the expenditure and income items that relate to the accounting year, whether or not you have paid or received cash for them

I ACCRUAL OF EXPENSES

Definition: An accrual is an amount due in respect of an accounting period which remains unpaid at the end of that period

Example: John Turner started his business on 1 January Year 4 and rent on the business premises is paid

in arrears at the end of each quarter Rent for Year 4, at the rate of £1,000 per quarter, was paid on 28 March, 29 June, 3 October and 7 January Year 5

The rent account will show the following payments for the year ending 31 December Year 4

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4 quarters at £ 1,000 per quarter = £4,000 Therefore, £4,000 should be shown in the profit and loss account for Year 4 At the same time, at 31 December Year 4 £1,000 remains as a liability

4,000 Year 5

Jan1 Balance b/d 1,000

The £4,000 credited to rent account will be matched by a debit entry for £4,000 in the profit and loss account The ‘balance c/d £1,000’ entry at 31 December Year 4 is matched by a credit balance b/d

£1,000 entry at 1 January Year 5 This £1,000 credit balance will appear in John Turner’s balance sheet

at 31 December Year 4 as ‘an amount due within 12 months’.In the early stages of Year 5, John

Turner’s rent account would appear like this:

Rent

Jan7 Bank 1,000

Year 4 £ Jan1 Balance c/d 1,000

The liability is cleared by the payment on 7 January

In conclusion:

- An accrual of expenses is added to the amount of that expense shown in the trial balance before including in the profit and loss account

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II PREPAYMENT OF EXPENSES

Definition: A prepayment of expenses is a payment made in advance of the accounting period to which

it refers

Example: We will suppose that the trial balance of John Turner at 31 December Year 4 shows the

insurance account to have a debit balance of 560 This includes 120 paid in advance for Year 5 The insurance account at 31 December Year 4 will appear as follows:

Insurance

Year 4 £

Dec31 Sundries 560

560

Year 5 Jan1 Balance b/d 120

Year 4 £

Jan 1 P/L 440

“ Balance c/d 120

560

The credit entry ‘profit and loss £440’ will be matched by the debit – as an expense – to the profit and loss account itself

The debit balance of £120 will appear as a current asset in the balance sheet of John Turner at 31 December Year 4

In conclusion:

- A prepayment of expenses is deducted from the amount of that expense shown in the trial balance before including the item in the profit and loss account

- A prepayment of expenses is included in the balance sheet as a current asset

III ACCRUALS AND PREPAYMENTS IN FINAL ACCOUNTS

In this part, we will see the effect of both types of adjustment upon the final accounts of W Trent

W Trent Trial Balance at 31 December Year 8

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Purchases Sales Carriage inwards Debtors

Creditors Rent payable Office expenses Lighting and heating Advertising

Rent receivable Returns inwards Returns outwards Carriage outwards Furniture and fittings Motor vehicle

Cash at bank Cash in office Stock at 1 Jan Year 8 Capital

Drawings

Dr

£ 6,430

230 1,080

50 1,200

900 15,550

Cr

£ 9,620 1,630

300

180

3,820 15,550

You are now told that we are required to note the following points concerning the balances shown in the trial balance at 31 December Year 8:

 Lighting and heating accrued £70

 Advertising prepaid £110

Trading and profit and loss account

There is no effect on the gross profit so you do not need to include here the trading account

W Trent Profit and Loss Account For year ended 31 December Year 8

Office expenses 390 Rent receivable 300

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The effect in this instance is to increase the net profit:

Net profit before adjustment (£1,880) + advertising prepaid (£110) – lighting and heating accrued (£70)

= £1,920

Balance sheet

W Trent Balance Sheet at 31 December Year 8

Capital – balance at 1 January Year 7

Add net profit

Less drawings

£1,630 £70

£

2,300 1,080

110 1,100

50 4,640 1,700

1,920

900

£

600 1,300 1,900

2,940 4,840

3,820 1,020 4,840

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IV INCOME ACCRUAL

Definition: Accrual of income means that income due for the financial year has not been received by the

end of the year

The income you are now concerned with is such as rent receivable or commission receivable

As the income has been earned in a given year, it should be included as income for that year, even though payment has not yet been received

Example: John Turner sub-lets part of his business premises for an annual rental of £1,200 (payable

quarterly) He has received payment as follows:

Year 4 payment for quarter ending £

April 10 31 March Year 4 300

July 8 30 June Year 4 300

Oct 12 30 September Year 4 300

The amount due for the last quarter of the year was received on 9 January Year 5

The account for year 4 appears as follows:

Trang 8

In Conclusion, an income accrual should be:

- added to the amount of that income shown in the trial balance before including in the profit and loss account

- included in the balance sheet as a current asset

V INCOME PREPAYMENT

Definition: An income prepayment has been received in advance of the next financial year

Example: in Year 3, AB receives payment on sub-let premises as follows:

Year 3 payment for quarter ending £

Jan 9 31 March Year 3 100

Jun 28 30 September Year 3 100

Sep 25 31 December Year 3 100

The unadjusted income for Year 3 is 5 x 100 = 500 The true income is 4 x 100 = 400 The fifth quarterly payment correctly relates to Year 4 and should be carried down for that year

The rent receivable account for year 3 appears as follows:

Rent Receivable

Year 4 £

Dec 31 P/L 400

“ 31 Balance c/d 100

500

Year 3 £

Jan 9 Bank 100

Apr 3 Bank 100

Jun 28 Bank 100

Sep 25 Bank 100

Dec 20 Bank 100

500 Year 4

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Jan 1 Balance b/d 100

In conclusion, an income prepayment should be:

- deducted from the amount of income for the year before being included in the profit and loss account

- carried down as ‘amount due within 1 year’ in the balance sheet

SUMMARY

Important points to remember from this chapter:

1 Expenses and incomes need to be matched to the correct accounting period

2 Expenses and incomes may be accrued or prepaid at the end of accounting period

3 To adjust for an expense accrual, the accrued amount is added to the figure shown in the trial balance when including the item in the profit and loss account The amount is then shown as a current liability in the balance sheet

4 To adjust for an expense prepayment, the prepaid amount is subtracted from the figure shown in the trial balance when including the item in the profit and loss account The amount is then shown as a current asset in the balance sheet

5 To adjust for an income accrual, the accrued amount is added to the figure shown in the trial balance when including the item in the profit and loss account The amount is then shown as a current asset in the balance sheet

6 To adjust for an income prepayment, the prepaid amount is subtracted from the figure shown in the trial balance when including the item in the profit and loss account The amount is then shown as a current liability in the balance sheet

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EXERCISES

1 From the following details prepare K Laport’s rent account for the year ended 31 December Year

5 Balance the account at the year-end, showing the transfer to profit and loss account

Year 5

Jan 1 Balance on the account 240, representing one quarter’s rent paid in advance

Mar 25 Paid by cheque 480, rent for the half-year ended 30 September Year 5

Oct 2 Paid by cheque 540, rent for the half-year ended 31 March Year 6

2 From the following information prepare T Swinton’s office stationery account for the two years ended 31 December Yearr 3 and 31 December Year 4 respectively

Stock of office stationery valued at 490

Office stationery purchased by cheque during the year 1,960

Stock of office stationery valued at 580

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Nói quá, phóng đại

Sự trả trước, tiền trả trước Đại diện

Chi phí tích lại Chi phí trả trước Thu nhập tích lại (chưa nhận khi đến hạn) Thu nhập trả trước (nhận được trước hạn) Chưa chi trả (nợ)

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LESSON 2 DEPRECIATION OF FIXED ASSETS

CONTENTS

Introduction

I Methods of calculating depreciation of fixed assets

I.1 Straight line method

I.2 Reducing balance method

II Book-keeping entries for depreciation

III Depreciation and final accounts

III.1 Profit and Loss account

III.2 Balance sheet

IV Sale of fixed assets

The objectives: After studying this unit, students are expected to

- understand the need to allow for fixed asset depreciation;

- calculate depreciation and show accounts by each of the two methods: the straight line method and the reducing balance method

- show accounts for the disposal of a depreciation fixed asset

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 The value of assets in the balance sheet is over-stated

 The annual profit figures are over-stated

The problem is how you take account of this fall in asset value Depreciation is the estimate of the fall in value of fixed assets over a period of time

Original cost of asset - estimated disposal amount = amount of depreciation

£10,000 – £1,000 = £ 9,000

A key word here is estimate

 First, you are estimating the working life of the asset, e.g the number of years of use

 Secondly, you are estimating the amount to be received on disposal

Only by disposing of the asset do you know the actual amount of the fall in value So allowing for depreciation is an approximation In the example above, it is supposed that the asset will have a working life of 4 years So annual depreciation may be calculated as:

£9000 ÷ 4 = £2,250

I METHODS OF CALCULATING DEPRECIATION

I.1 Straight line method

This is also termed the fixed instalment method This method uses the basis outlined above

(i) The number of years of use (working life) is estimated

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(ii) The eventual disposal value is estimated

(iii) Original cost less disposal value = total amount to be written down

(iv) Total amount to be written down ÷ number of years = annual depreciation charge

Example: a machine which is bought for 40,000 is reckoned to have a life of 4 years and a disposal value

at the end of that time of 4,000 The annual depreciation charge would be:

(£40,000 – £4,000) ÷ 4 = £9,000

If the asset were reckoned to have zero scrap value, then the original cost becomes the total amount to

be written down, ie using the above figures

£40,000 ÷ 4 = £10,000

I.2 Reducing balance method

This is also termed the diminishing balance method With this method, a fixed percentage is written off the reduced balance each year The reduced balance is the cost of the asset less depreciation to date

Example: a machine is bought for £20,000 and depreciation is to be provided for, at 40% This

calculation for the first four years would be as follows:

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II BOOK-KEEPING ENTRIES FOR DEPRECIATION

A number of years ago, it was usual to show the depreciation in the fixed asset account You will concentrate on the method now widely in use which:

 Shows the fixed asset account at cost price, without any adjustment for depreciation

 Has a separate provision for depreciation account, which accumulates year-by-year the amount of the depreciation

Example: the vehicle was purchased by cheque on 1 January Year 1 The financial year in this case ends

Example: a vehicle, purchased for 40,000 is expected to have a working life of 4 years and then to be

disposed of for 2,500 Using the straight line method, annual depreciation is calculated as follows: (£40,000 – £ 2,500) ÷ 4 = £9,375 per year

Provision for Depreciation on Vehicle

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28,125

Dec 31 P/L 9,375

28,125 Year 4 Jan 1 Balance b/d 28,125 Dec 31 P/L 9,375

It is only necessary to bring down the credit balance once two entries have been made, it is at the end of Year 2

Note that

 The provision for depreciation account builds up the amounts of depreciation year by year

 The asset account has a debit balance (unchanged in amount)

 Provision for depreciation has a credit balance

 The difference between the two balances represents the ‘book value’ or ‘net book value’ of the asset

III DEPRECIATION AND FINAL ACCOUNTS

III.1 Profit and loss account

As shown in the provision for depreciation accounts above, the matching debit entry is in the profit and loss account So, the double entry for depreciation is:

 Debit profit and loss account

 Credit provision for depreciation account

III.2 Balance sheet

Normally each fixed asset is shown at cost less total depreciation to date, resulting in a net book value The following is a typical layout:

depreciation

Net

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Buildings

Machinery

Motor vehicles

£ 80,000 30,000 15,000 125,000

£

16,000 7,000 23,000

£ 80,000 14,000 8,000 102,000

The 102,000 would be added to the remainder of the assets in the balance sheet

IV SALE OF FIXED ASSETS

When a fixed asset is sold, there are three elements to take account of:

 The original cost of the asset

 The depreciation provided to date

 The sale proceeds

It is worth bearing in mind that the amount actually received for the asset may well be different from that assumed at the time when the depreciation was decided Depreciation, remember, is necessarily an estimate Moreover, the asset may be sold or disposed of earlier than was originally reckoned Consequently there is likely to be either a ‘loss’ of ‘a profit’ arising out of the sale

The book-keeping method used here for dealing with the sale of a fixed asset is that required to be used

in LCCIEB exams It involves the use of a disposals account

The book-keeping entries are:

 The original cost of the asset

- debit disposals account

- credit fixed asset account

 The depreciation provided to date

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- debit provision for depreciation account

- credit disposals account

 The sale proceeds

- debit bank/ cash account

- credit disposals account

 Loss on sale

- debit profit and loss account

- credit disposals account

 Profit on sale

- debit disposals account

- credit profit and loss account

Example:

Asset sold at a profit:

Using the last set of data, and assuming that the straight line method of depreciation has been used, we will suppose that the vehicle is sold on 31 December Year 3 for £13,500 The provision for depreciation account at that stage will have a credit balance of £28,125

28,125 11,875 13,500 1,625

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The book-keeping entries, excluding bank account, are:

Vehicle Account

Year 1 £

Year 3 £ Dec 31 Disposal of vehicles 40,000

Provision for Depreciation on Vehicle

Profit and Loss account: year ended 31 December Year 3

£ Profit on sale of vehicle 1,625

Asset at a loss:

Using the same data, we will suppose that the vehicle is sold for 11,200

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28,125 11,875 13,200 (675)

Provision for Depreciation on Vehicle

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Profit and Loss account: year ended 31 December Year 3

£

Loss on sale of vehicle 675

SUMMARY

Important points to remember from this chapter:

1 Depreciation is an estimate fall in value of fixed assets over a period of time

2 The main causes of depreciation are physical deterioration, economic factors and time factors

3 The depreciation charge is an estimate of the value consumed each financial year, it is not a cash expense

4 In the straight line method (also called the fixed instalment method), the estimated disposal value is subtracted from the cost to find the written down value, which is then divided by the estimated number

of years in use This gives the depreciation charge for each year

5 In the reducing balance method or diminishing balance method a fixed percentage is written off the reduced balance each year

6 Depreciation is accumulated over the years of the asset’s life in a provision for depreciation account

7 To record depreciation in the books the provision for depreciation account is credited while the profit and loss accounts is debited

8 In the balance sheet, the aggregate depreciation to date is subtracted from the cost of the fixed asset to show its net book value

EXERCISES

T Swift is a sole trader whose financial year ends on 31 December On 1 January Year 4 he bought a delivery vehicle for £7,500 for use in the business He is considering which method of depreciation to apply: the straight line method or the reducing balance method

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If Swift uses the straight line method, he would allow for 4 years use of the vehicle in the business, followed by a disposal value of £500 For the reducing balance method, he would write off 50% per annum of the balance of the vehicle at each year end

(i) the delivery vehicle account

(ii) the provision for depreciation on delivery vehicle account

Giá trị thanh lý Tài sản cố định

Lỗ do thanh lý tài sản cố định Nguyên giá

Sự sở hữu Quỹ dự phòng khấu hao Lãi do thanh lý tài sản cố định Phương pháp số dư giảm dần Tiền bán hàng (bán tài sản cố định) Phương pháp trực tuyến

Không có giá trị

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LESSON 3 BAD DEBTS AND PROVISION FOR

DOUBTFUL DEBTS

CONTENTS

Introduction

I Bad debts

II Provision for doubtful debts

II.1 Increase in the provision

II.2 Decrease in the provision

III Bad debts recovered

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LESSON 3 BAD DEBTS AND PROVISION FOR

DOUBTFUL DEBTS

The objectives: After studying this unit, students should be able to:

- record the accounting entries for writing off individual debtor balances, in whole or in part, using a Bad Debts account;

- record the end-of-period transfer of total debts written off as bad debts to the Profit and Loss Account;

- record the recovery of debts previously written off

INTRODUCTION

It is, unfortunately, likely that some of the customers who have bought goods (or services) on credit will never pay their accounts, despite efforts to recover the amounts from them Such debts become ‘bad debts’ and a decision has to be made to write off such debts In some cases customers will pay part of the amount due, the remainder being written off Any debts written off are effectively an expense of the business and accordingly must be charged against current profits by means of a debit entry in the profit and loss account This will be achieved through the use of a bad debts account

I BAD DEBTS

Example: two customers, L Mellon and T Swanson are overdue debtors for goods bought from us during

Year 4 The following accounts appear in the sales ledger:

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T Swanson has managed to pay part of the amount due but at the end of Year 4 the decision is taken to

write off the whole of L Mellon’s debt and the remainder of that of T Swanson

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Profit and loss account:

Year ended 31 December Year 4

£

Bad debts

660

You will appreciate that the book-keeping rule for bad debts is to

(1) Debit bad debts account

Credit individual debtor accounts

 with the amount written off

(2) Debit profit and loss account

Credit bad debts account

 with the total figure at the end of the accounting period

II PROVISION FOR DOUBTFUL DEBTS

It is common for business to allow for a certain level of debts becoming bad during the course of the year This would be from experience, and might be set a percentage of debtors A provision for doubtful debts then created and maintained, the term ‘doubtful’ meaning that his allowing for debtors who may not pay

The provision for doubtful debts needs to be distinguished from the writing off of bad debts Two distinct stages are involved

Example: a gross debtors is calculated, say 18,620 at 31 December Year 6, obtained by totaling the

balances on debtor accounts in the sales ledger

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 Of this, some individual debtor accounts have yet to be written off bad debts

 The provision for doubtful debts (4%) is then calculated on the total of the remaining debtors The calculation may be shown thus:

Gross debtors’ figure

Less bad debts written off

Less provision for doubtful debts at 4%

Net debtors

£ 18,620

620 18,000

720 17,280

The provision having been calculated, the book-keeping entries are then made On the initial creation of the provision, this is as follows:

Profit and loss account:

Year ended 31 December Year 6

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Dec 31 P/L 720

II.1 Increase in the provision

Let it be assumed that at 31 December Year 7, the amount of debtors after writing off bad debts is

£20,000 The 4% rate is unchanged The calculation then becomes:

The book-keeping entries will then be:

Profit and loss account:

Year ended 31 December Year 7

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Dec 31 P/L 720 Year 7

Dec 31 P/L 80

800 Year 8

Jan 1 Balance b/d 800

II.2 Decrease in the provision

Suppose that at 31 December Year 8, the amount of debtors after writing off bad debts is 19,000 The business has been more careful in granting credit to potential customers and so believes it can reduce the rate of the provision to 3% The calculation is then:

3% of £19,000 Less amount of existing provision Decrease in the provision

£

570

800 (230)

The book-keeping entries will be:

Profit and loss account:

Year ended 31 December Year 8

£

Reduction in provision for doubtful debts 230

Provision for doubtful debts

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Dec 31 P/L 720 Year 7

Dec 31 P/L 80

800 Year 8

Jan 1 Balance b/d 800

800 Year 9

Jan 1 Balance b/d

570

III BAD DEBTS RECOVERED

Occasionally debts previously written off are recovered If recovered within the same financial year as the debt was written off, the book-keeping entries would be:

Dr debtor Cr bad debts

Dr cash/bank Cr debtor

If recovered after the year of write-off, the entries would be:

Dr debtor Cr bad debts recovered

Dr cash/bank Cr debtor

At the end of the year of recovery, the balance on the bad debts recovered account would be transferred

to the profit and loss account:

Dr bad debts recovered

Cr profit and loss account

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SUMMARY

Important point to remember from this chapter:

1 Bad debts are debts that the business is unable to collect

2 Bad debts are an expense to the business and are charged against the current profit for the year

3 Once a debt has been declared as ‘bad’, it must be written out of the accounts by crediting the

debtor’s account and debiting the bad debt account

4 A part of a debt may be written off as a bad debt if the debtor is not able to pay all of what is owed

5 A bad debt recovered account is used to record the recovery of bad debts after the financial year in which they were written off

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On 31 December Year 6, his debtors totaled £23,000 but there were no irrecoverable debts He again decided to adjust the provision for doubtful debts to 5% of his debtors.

REQUIRED

Prepare the following accounts for the years ended 31 December Years 4, 5 and 6 :

(i) Bad debts

(ii) Provision for doubtful debts

2 The following data is available in relation to Thermogen Suppliers:

Balance of debtors at 31 December Year 6 – before writing off bad debts

Bad debts written off in Year 6

A provision of 2% of debtors for doubtful debts exists at 31 December Year

6

Bad debts written off in Year 7

Balance of debtors at 31 December Year 7 – before writing off bad debts

The provision for doubtful debts is increased to 4% as at 31 December Year

7

Bad debts written off in Year 8

Balance of debtors at 31 December Year 8-after writing off bad debts

The provision for doubtful debts is reduced to 3% as at 31 December Year

8

£ 81,600 1,200

1,800 122,700

2,100 103,500

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Sự tăng

Cá nhân Duy trì Hoàn lại

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Sự xóa sổ

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LESSON 4 BANK RECONCILATION STATEMENTS

CONTENTS

The objectives: After studying this chapter, students should be able to:

- understand the need for reconciling the cash book with the bank statement;

- update the cash book from the bank statement;

- prepare a bank reconciliation statement

Introduction

I Reconciling the bank statement with the cash book

I.1 Timing differences

I.2 Updating the cash book

II Dishonored cheques

III Bank overdraft

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INTRODUCTION

You have already learned the cash book in the previous credit of book-keeping At intervals, e.g weekly

or monthly, a statement will be received from the bank – the bank statement – setting out the account as recorded by the bank

There are likely to be differences between the two, arising from:

 Timing differences, e.g a cheque paid into the account which the bank has not yet recorded

 The cash book not yet showing items which appear on the bank statement, ie the bank statement

is the means by which the customer (the holder of the account) ‘pick up’ such items in order to update the cash book

I RECONCILING THE BANK STATEMENT WITH THE CASH BOOK

The bank statement needs to be reconciled with the cash book and it is the timing differences which will appear in the bank reconciliation statement

I.1 Timing differences

The two main timing differences between the cash book (bank columns) and the bank statement are:

 Cheques drawn and not yet shown on the bank statement

 Amounts paid into the bank but not yet included in the bank statement

On writing out a cheque, the customer may enter it immediately in the cash book but there may be a delay of 2-3 days at least before the creditor (the payee) pays it into his bank account and it is then cleared and credited to the customer’s own account Meanwhile, it is known as ‘unpresented cheque’

Amounts paid in and not yet credited arise through delay in the bank updating the account: the cheque may be paid into the bank near closing time or it may be paid into a different branch of the bank Until the bank updates the account the bank statement balance will be less than that in the cash book

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I.2 Updating the cash book

The items which are ‘picked up’ from the bank statement should be entered in the cash book before it is balanced They have already taken place and so should no longer be a cause of difference between the two records

Such items include:

 The various direct transfer methods, eg direct debits, standing order – for either the payment or receipt of money

 Bank charges for operating the account or interest charged in respect of a bank overdraft

 Interest paid by the bank to the account holder

The balance at this stage, shown as a separate note, is a debit balance of 350 Sandra receives the following bank statement:

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The reconciliation of the two balances here would be carried out as follows:

 Tick  the items that appear in both cash book and bank statement

 The unticked items on the bank statement are entered into the cash book (having checked that no errors have been made)

 The cash book ‘re-balanced’ to obtain the up-to-date balance

 The remaining (unticked) items from the cash book are used to prepare the bank reconciliation statement

The up-to-date cash book will appear like this:

CASH BOOK (Bank columns)

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“ 31 Credit transfer – A Zimm 110

1,175

- Block&Trent 80 “ 31 Direct debit

- B Traders Association 90 “ 31 Balance c/d 290 1,175

The reconciliation will appear as follows:

Sandra Renton Bank reconciliation statement at 31 March Year 3

Balance as per cash book

Add unpresented cheques

II DISHONOURED CHEQUES

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E-learning training center Learning opportunity for All

When a cheque is received and paid into the bank, it is recorded in the cash book (debit) and soon afterwards is recorded by the bank on the bank statement Later it may be known that the cheque has not gone through the account of the drawer; the drawer’s bank have not ‘honored’ the cheque, it is dishonored

The obligation on a cheque may fail to be met, i.e it may be dishonored for a number of possible

reasons:

 There may be something incorrect in the way the cheque has been written which was not

previously noticed

 It may be that the cheque has become ‘stale’, i.e too old to be accepted by the paying bank

 The drawer has not sufficient funds in his bank account

Example: on 3 November Year 6 you receive a cheque for £2,000 from D Tomkins

Sandra Renton Bank reconciliation statement at 31 March Year 3

Balance as per bank statement

Add cheque paid in, not yet credited

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