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Marketable Securities.
Evaluating Solvency
Study of Balance Sheet.
Users of a company financial statement.
Creditors need to know the amount of liquid
resources.
Line of Credit
Arrangements of the Line of Credit.
Borrow Money.
Kinds:
1. Simple : maintained by small enterprise
2. Cash book with discount
3. Cash book with discount and cash column
4. Petty cash book
Bank statement
Cash book
(A debit (A credit
represents an represents a
increase) decrease)
The balance as per the bank statement is a
liability to the bank, therefore:
Bank statement
Dr. Cr. Balance
(represents (represents (represents
decreases) increases) the amount
owed to
the clients)
3. REASONS FOR DIFFERENCES
BETWEEN THE CASH BOOK AND THE
BANK STATEMENT.
The bank balances as shown in the cash book and
the bank statement seldom agree. There are
various reasons for this. A statement is used to
reconcile the two balances.
There are some transactions recorded by the depositor but
missed by the bank.
Cr +
2. Uncredited cheques
•
•
•
Cheques deposit but not credited by the bank
Cheques paid into the bank but not cleared by bank
Cheques sent to bank but not collected by bank
-
Dr
3. All types of income/credit memo/memorandum + _
• Income given by bank
• Income collected by bank
CR (-) (+)
4. Dishonored cheques
• Cheques received and deposited but dishonor DR (+) (-)
• Cheque issued but dishonor
5. If anything C. in the bank statement only Dr (+) (-)
6. If anything Dr. in the bank statement only Cr (-) (+)
7. Overstated/overcast
• Payment side of cashbook overstated Dr (+) (-)
• Receipts side of cashbook overstated Cr (-) (+)
8. Expenses paid by bank Cr. (-) (+) 9. expenses charged by Cr. (-) (+)
bank
• Bills directly paid bank charges
ADD:- LESS:-
•Deposit in Transit. • Outstanding cheques
•Bank errors. • Unpresented cheques
•Wrongly recorded • Unpaid cheques.
cheques. etc.
IN CASH BOOK :-
ADD :- LESS:-
• Interest Earned • NSF cheques
• Interest Received •Service Charges
• Notes Receivable • Interest Allowed.
• Recording Error
Steps
1. Check the bank statement and the cash book to see the
items which have been omitted.
2. Arrange the paid cheques in sequence by serial number
and compare each cheque with the corresponding entry
in the cheque register.
3. Add balance to the depositor’s accounting record(credit
memorannda) issued by the bank.
4. Deduct from the balance per the depositor record which
have not been recorded by the depositor.
5. Make appropriate additions or deductions to correct
errors.
Continued ...
6. Balance of B.S = Balance of cashbook
7. Prepare journal entries as adjustments
Balance as per Company’s
statement…………………………………………………………. $ 26,686.95
Add:
Interest earned……………………………………………….............. 80
Notes receivable ………………………………………………………….. 3663
Recording error ……………………………………………………………. 900
Subtotal …………………………………………………………………………4643
Less:
NFS checks ………………………………………………………………. 168.20
Service charges ………………………………………………………….. 19.45
Subtotal
…………………………………………………………………………………………………….
187.65
Adjusted cash balance (as above) ……………………………. $31142.3
7B-3-B
Prepare journal entries to adjust the accounts of July
7B-3-C
What balance should be included in the balance sheet?
Bank Balance = 31142.3