CASH AND CASH EQUIVALENTS LEARNING OUTCOMES
6. CASH AND CASH EQUIVALENTS LEARNING OUTCOMES
At the end of the topic, the student should be able to:
Draw a Bank Reconciliation Statement Draw a Petty cash Journal
6.1. INTRODUCTION
For purposes of safekeeping and cash control, all monies received are deposited at a bank. Although a bank is a financial institution it is managed like a business. Every entity that entrusts its money to a bank is a creditor of the bank. People or entities can also borrow money from a bank and will then be debtors of the bank. The bank will issue, as often as requested or at least once a month, a statement to the entity showing their record of transactions with the entity.
The following will be reflected on the bank statement: the opening balance (beginning of the month)
deposits credited during the month cheques paid (debited) during the month bank charges for the month interest charged (debit) on overdraft or paid on a favourable (credit) bank
balance debit and stop orders for the month
dishonoured cheques for the month (cheques deposited, but not paid by the drawers' bank) correction of errors made by the bank in the previous month
6.2. BANK RECONCILIATION STATEMENT
If the bank and the entity keep record of the same transactions the balance of the bank statement and the bank account in the books of the business must be the same.
In order to ascertain that the bank account in the books of the entity corresponds to the bank statement, a bank reconciliation statement is prepared. This means the balance of the bank account in the books of the entity is reconciled with the balance on its bank statement.
The reconciliation process has two steps: first the entity's records are updated to account for actual transactions reflected by the bank statement, and secondly record those transactions to which the bank must still attend to in the bank reconciliation statement.
The bank reconciliation could be seen as an extension of the bank statement. An outstanding item that will be credited on the bank statement must be credited on the bank reconciliation statement and vice versa.
You must always remember this: A favourable bank account balance is on the debit side of the bank account
as well as on the bank reconciliation statement. An unfavourable or overdrawn bank account balance is on the credit side of
the bank account as well as on the bank reconciliation statement. A favourable bank statement balance is on the credit side of the bank
statement as well as on the bank reconciliation statement. Transactions or corrections which the entity must react on, must be recorded in the two cash journals of the entity, e.g. bank charges, interest,
debit/stop orders, errors in the books of the entity, stale cheques, etc. Transactions or corrections which the bank must (or will) react on, must be recorded in the bank reconciliation, e.g. deposits not yet credited, unpaid
cheques and errors made by the bank to be corrected.
Example: Bank Reconciliation Statement at 28 January 2009
Dr
Cr
Cr Balance as per bank 30
account Dr Outstanding cheques: No.001
Cr Outstanding Deposit
Dr Balance as per cash 4306 book
CASH RECEIPT JOURNAL FOR FEBRUARY 2009 Doc No
7 Rent Income
20 A. Thunder
CASH PAYMENT JOURNALFOR FEBRUARY 2009 DOC NO
81 6 Petrol expense
84 20 S. Zero
86 27 Rent Expense
87 28 S. Khan
PC MOVERS BANK STATEMENTS –FEBRUARY 2009
Cheque No.79
Deposit(Rent)
Service fees
Cheque No.80
Cheque No.81
Interest on overdraft
Service fees
Cheque No.82
Cheque No.83
Cheque No.85
Deposit
R/D Cheque (S.Tsung) Balance
Cheque no.86 was lost and payment was stopped
Required:
Complete the necessary entries in the CRJ and CPJ. Post the balances to the bank account in the ledger and draw up a bank reconciliation statement.
Solution:
CRJ Details
Analysis of
Bank
Sundry Accounts
Receipts Amount Fol Details
Totals 13300 XYZ
Rent Income
CPJ Details
Bank
Debtor
Sundry Accounts
Control
Amount Fol Detail
Totals 16438 AB Bank
38 38 Bank Charges
AB Bank
24 24 Interest on overdraft
Cheque R/D 286
Bank Account
Balance
16786 Total Receipts
Total payment
Balance
Balance
Bank Reconciliation Statement as at 28 February 2009
CR Balance as per Bank 2044
Statement DR. Outstanding cheques 001
CR. Outstanding
DR. Balance as per Bank 1300 Account
6.3. THE PETTY CASH JOURNAL
For purposes of control, all payments in a business are made by cheque.
There are, however, smaller amounts to be paid daily, for example for postage, carriage, wages for day workers, etc., for which payment by cheque is too expensive.
Entities usually cash a cheque to provide for a petty cash float to pay for these types of expenses.
Items purchased out of the petty cash float are recorded in the petty cash journal, which is part of the cash records but is separate from the cash payments journal. Recording is done from suitable petty cash vouchers authorised by responsible officials of the entity.
The so-called imprest system is preferable for controlling petty cash. The petty cashier is provided with a float of say R1000. During the month payments are made and when necessary a cheque is issued to restore the float to R1000.
Exercise
Books of Tyt-pc Traders - June 2009 Cash cheque 727 for R300 for petty cash on 1 June
PETTY CASH PAYMENTS - JUNE 2009
Date Details
Cash voucher
Amount (R)
12 Cleaner's wages
17 Pro-advertising poster
19 Cleaner's wages
26 Cleaner's wages
27 Taxi fare for messenger 009
Cash cheque number 790 is issued on 30 June 2009 to restore the petty cash float to R300.
Required:
Prepare a petty cash journal for June 2009 with the following payment analysis columns: total, wages, postage, stationery and sundries.
REVIEW QUESTIONS
QUESTION 1 Bank Reconciliation Statement as at 31 March 2009
DR
CR
Debit balance according to bank
statement Credit deposit not credited by bank
21120 Debit cheques not presented for payment: No. 222
No. 288
No. 290
No. 291
Debit balance according to bank account
Cash ‘e eipts Jou al: Totals o 0 Ap il 009
SUNDRY BANK SALES
COST OF DEBTORS
Cash Payments Journal: Totals on 30 April 2009
Sundry Accounts Stock
A comparison of the Bank statement with the Bank Reconciliation Statement on
31 March 2009 and the CRJ and CPJ for April 2009 revealed the following differences.
The Bank statement showed a credit balance of R4450 on 30 April 2009. Cheque 288 was recorded correctly on the Bank statement as R860. The
cheque .has been issued to Chaplin & Co. for packing material purchased. Cheque 290 was recorded correctly on the bank statement as R1360. The
cheque had been issued to Killin Auto for repairs to the delivery motor cycle. Cheque 222 had been issued in February 2009 to Brass Printers for an
advertisement. The advertisement had not been placed and the cheque was stopped at the bank and must be cancelled in our books.
The following cheques had not been presented for payment: No. 291
The deposit of R19750 on 30 April 2009 has not been credited on the Bank statement.
An amount of R2500 was deposited directly in the current account of Gill Traders by Laird Agencies for the tenant, Bosman Boerwors.
Brickett Bank charged the current account of Gill Traders with the following amounts: credit card levy R236, Service fees R372, Sundry debits R48,
Interest on overdraft R20. A cheque R690 received from C. Roberts, a debtor, was dishonoured on
account of insufficient funds. A cheque for R512 received on 25 April 2009 from J.Bergh, a debtor, was
dishonoured by the bank because it had been post-dated for 11 June 2009.
The cheque was held back to be deposited on the date of the cheque The Bank statement showed a debit order of R466 in favour of the City
Treasurer for water, electricity and rates. The Bank statement showed a monthly stop order in favour of Beilby
Insurers for the insurance premium, R224
Required: Prepare the following:
The Cash Receipts Journal for April 2009 The Cash Payments Journal for April 1994 General Ledger Bank Reconciliation Statement as at 30 April 2009
QUESTION 2
A comparison of the Cash Receipts Journal and Cash Payments Journal Whispers Limited with its bank statement at 30 June 2001 reveals the following: Balances
Rand
Bank account in the General Ledger (Debit) 01/06/2001
Bank statement (Overdraft) 30/06/2001
Totals 30/06/2001 Cash Receipts Journal
30 675 Cash Payments Journal
Additional Information:
1. A debtor, A Simmons paid an amount of R750 directly into the bank account of Whispers Limited.
2. The a k e o eousl de ited Whispe s Li ited s a ou t ith a he ue fo R2 250 drawn by Whiskers Limited.
3. According to the Bank statement a cheque for R285 received from S York in settlement of his account of R300 was dishonoured and returned on 27 June 2001.
4. Sundry bank debits and per bank statement: Interest
R45
Service fees
R69
Cheque book
R6
5. A stop order for the annual fire insurance premium of R405, payable to MY Insurance Company, appeared on the bank statement but not in the relevant cash journal.
6. A deposit of R1 170 on 30 June 2001 in the cash receipts journal was in fact deposited on 1 July 2001.
7. Outstanding cheques not yet presented to the bank for payment amounted to R2 475.
Required:
a) Prepare adjustment journal entries at 30 June 2001.
b) Show the Bank account for June 2001 in the general ledger, properly balanced.
c) Prepare a Bank Reconciliation Statement as at 30 June 2001
TOPIC 7 ________________________________________________________________