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Reconciliations Grade 12 Notes Accounting Study Guide pdf

Reconciliation confirms that the recorded sum leaving an account corresponds to the amount that’s been spent and that the two accounts are balanced at the end of the reporting period. Reconciliations Grade 12 Notes Accounting Study Guide

Reconciliation is used by accountants to explain the difference between two financial records, such as the bank statement and cash book.

Reconciliations Grade 12 Notes Accounting Study Guide pdf

Reconciliation is a form of internal control where two sets of information are compared and, when there are differences, these are corrected or explained.

Bank reconciliation Debtors’ reconciliation Creditors’ reconciliation 
The balance in the bank account in the business’ general ledger should be the same as the balance on the bank statement received from the bank. When these are not the same, they need to be reconciled.The balance of the debtors’ control account should be the same as the total of the debtors list. When these are not the same, they need to be reconciled.The balance of the creditors’ control account should be the same as the total of the creditors’ list. The statements received from the creditors must match each creditors balance in the business’ books. When these are not the same, they need to be reconciled.

Use mobile notes to help you learn these reconciliation concepts.

5.1 Bank reconciliation

A summary of all possible DIFFERENCES between the CRJ/CPJ and the Bank Statement. Make sure that you know how to record all the different transactions before attempting to answer the Grade 12 CAPS Reconciliation questions.      
1. Bank Charges and interest charged on the Bank Statement–
The ABSA Bank charged the following:
Tax levy R10
Service fees R20
Cash deposit fee R30
Interest R40
CPJ – May 2014     
BS

BS

ABSA Bank
(10 + 20 + 30)
ABSA Bank
60

40

60

40

Bank charges

Interest on overdraft

2. Interest earned/received on the Bank Statement
The bank statement showed interest received on current account, R50
CRJ – May 2014     
BSABSA Bank5050Interest on current account
3. Direct deposit on the Bank Statement
E.g. A tenant, E Baloyi, paid his rent directly into the bank account, R800.
CRJ – May 2014   
BSE Baloyi800800Rent Income
4. Stop orders/Debit orders on the Bank Statement
The bank statement showed a stop order, R367, in favour of Santam for a payment on an insurance premium.
CPJ – May 2014
BSSantam367367Insurance
5. Cheques issued in CPJ but not presented for payment
The following cheques do not appear on the bank statement no. 67, R200 and no. 69, R300.
Bank Reconciliation statement – May 2014
Debit outstanding cheques:
67
69
DebitCredit
200
300
6. Deposits in CRJ but do not appear on Bank Statement
The deposit made on the last day of month does not appear on the bank statement, R9000
Bank Reconciliation statement – May 2014
Credit late depositDebitCredit
9 000
7. CHEQUES DISHONOURED – insufficient funds
Unpaid cheque, R170 – this cheque was received from P Pillay in settlement of his account of R183 and deposited on 24 May 2002. It was dishonoured because of insufficient funds
CPJ – May 2014
DSP Pillay (RD cheque)170170Debtors control
8. POST-DATED CHEQUES: received and deposited
Unpaid cheque, R157 – this cheque was received from a tenant, B Bud and deposited inadvertently on 21 May 2014 It was dishonoured because it was dated 21 July 2014
CPJ – May 2014 – May 2014
BSB Bud (RD cheque)157157Rent Income
9. POST-DATED CHEQUES: Issued
Entry in the CPJ which did not appear on the Bank Statement:
The business issued a post-dated cheque no. 303 to a Factory to secure the popular stock to be delivered, R6 000, dated 25 July.
Bank Reconciliation statement – May 2014
Debit outstanding cheques:
303 (25 July 2014)
DebitCredit
6000
10. STALE CHEQUE: Cheque issued, (cheque is older than 6 months)
Entry on Bank Reconciliation statement on 30 April 2014 which did not appear on the Bank Statement: May 2014
Cheque no 120 was issued to Shezi Stat on 20 November 2013 for Stationery, R100.
CRJ – May 2014
120Shezi Stat (Cancel stale cheque)100100Stationery
11. STALE CHEQUE: Received and dishonoured
Entry on Bank Statement which did not appear in CRJ or CPJ:
Unpaid cheque, R160 – this cheque was received from a debtor, J. Nel and deposited inadvertently on 25 May 2014. It was dishonoured because it was dated 25 May 2013
CPJ – May 2014
DSJ Nel (RD cheque)160160Debtors control
12. LOST CHEQUE: issued
(Only issue new cheque if instructed to do so →)

  1. cancel lost cheque in CRJ
  2. issue new cheque in CPJ
  3. record new cheque as “debit outstanding cheque” in the Bank Reconciliation Statement

Cheque no. 255, R500 was lost by PNA and they asked for a new  cheque. Cheque no 255 to be cancelled and replaced by cheque 365. The cheque was a payment for Printing made

CRJ – May 2014 (a) cancel lost cheque
255PNA (Cancel lost cheque)500500Printing
CPJ – May 2014 (b) Issue a new cheque
365PNA500500Printing
Bank Reconciliation Statement – May 2014
(c) Record the new cheque as outstanding
Debit outstanding chequesDebitCredit
500
ERRORS MADE BY BUSINESS IN THE CRJ AND CPJ
13. E RRORS IN CRJ/ or CPJ :
Amount less than it should be →
Cheque no 253 on Bank Statement showed and amount of R664, while the amount in the CPJ was R646. It was a payment to Makro for goods.
CPJ – May 2014
453Makro (understated, 654-545)1818Trading stock
14. ERRORS IN CRJ/ or CPJ :
Amount more than it should be →
Cheque no 244 on Bank Statement showed and amount of R250, while the amount in the CPJ was R258. It was a payment to Investec for rent.
CRJ – May 2014
244Investec (overstated,258 – 250)88Rent Expense
ERRORS MADE BY BANK ON BANK STATEMENT
15. Cheque drawn by other client and erroneously debited to our bank account.
Cheque no.2 230, R1500, on the Bank Statement was a cheque drawn by another client, ZITHA Stores, debited to our account.
Bank reconciliation statement – May 2014
Credit cheque no. 2230 wrongly debitedDr.Cr.
1500
16. Deposit wrongly credited to our bank account
The deposit on the 15 May 2014, R2000, showed on the Bank Statement was a deposit made by the owner into his own bank account and the Bank has erroneously recorded the deposit in his business’ Bank account
Bank reconciliation statement – May 2014
Debit deposit wrongly creditedDr.Cr.
2000

 

 CFormat of the Bank Reconciliation statement
BANK RECONCILIATION STATEMENT ON 31 March 2012
 DEBITCREDIT
Credit balance as per Bank Statement8 000
(Always start with the balance of the Bank Statement and end with the calculated balance of the Bank account)
Credit deposit not credited by bank3 000
Debit outstanding cheques:
 1244 000
 1701 000
Debit deposit wrongly credited
(errors made by Bank)
1 500
Credit cheque wrongly debited500
Debit balance as per Bank account5 000
11 50011 500
The debit and credit totals of the Bank Reconciliation statement must be equal e.g. R11 500

5.2 Debtors’ reconciliation

These are the steps the bookkeeper will need to follow to correct differences between the debtors’ control account and debtors’ list:

  1. Check entries in the journals against the source documents.
  2. Check casting (totalling) of journals.
  3. Check posting from journals to general and debtors ledgers.

A. Procedure to follow when the balance of the debtors control account and the debtor’s account do not correlate.

  1. The ENTRY in the journal will be posted on a daily basis to the debtors ledger and the TOTAL at the bottom of the journal will be posted at the end of the month to the control account
  2. When the balance in the Debtors control account does not correlate with the total of the Debtors list, you need to establish where the error is. Is the error in the control account or in the list of debtors?
  3. Is the error in the original ENTRY or is it in the TOTAL of the Journal?
    If the ENTRY is incorrect the TOTAL will also be wrong, so the control account and the list must be corrected.
  4. Study the following examples.
    The following rules will assist you when you compare the Debtors Control account with the list of Debtors. The list of debtors is made up by the balances of the debtors from the Debtors Ledger.4.1 Example: The ENTRY is posted daily to the Debtors ledger (Debtor’s list) and the TOTAL is posted to the control account at the end of the month.

    Journal
     Nameentry
    total
    Debtors ledger
     Name of debtorDrCrB/d

    Dr. Debtors Control Cr.
    4.2 Example: Sold goods to Monki for R10 and issued an invoice.

    Debtors Journal
    Monki10
    (The ENTRY goes to the debtors ledger or/to the List of Debtors)
    10
    (The TOTAL of the Debtors Journal is posted to the Control account at the end of the month.)
    Debtors ledger
    Name of debtorDrCrB/d
     Invoice10

    Dr. D ebtors Control Cr.
    Sales Dj 10

  5. The following are some of the types of errors and omissions that could arise:
    –– Errors on source documents
    –– Recording errors in Subsidiary Journals
    –– Incorrect posting from the Journals to the General ledger and Debtors- or Creditors ledger.
    –– Incorrect additions in the lists of debtors and creditors.
    –– Incorrect addition of Journal totals – too much (overcast) – too little (undercast)

Basic rule:

Debtors Journal
Entry
50
60
Total
110

 

Debtors Ledger (Debtors List)
DrCrBalance
InvoiceEntry
50

GENERAL LEDGER:
Dr. D ebtors Control (A) Cr.
total
Sales 110

BASIC RULES:

  1. The individual entry goes to the debtor’s account in the Debtors Ledger.
  2. The Total of the journal will be posted to the Debtors Control account.
    • The entry goes to the Debtors Ledger on a daily basis.
    • The Total is posted to the Debtors Control account at the end of the month.
  3. When reading the transaction, you need to establish where the error occurred.
    –– If the error is the entry, then the total will automatically be incorrect as well. Then the Debtors list and the Debtors Control must be corrected. E.g. The entry in the DJ was incorrectly recorded as R56 instead of R50.
Debtors Journal
Entry
56 x
60
Total
116 x
Debtors Ledger (Debtors List)
DrCrBalance
InvoiceEntry
56 x
 -6

GENERAL LEDGER:
Dr. Debtors Control (A)     Cr.
total
Sales 116 X
(116 – 6)
–– If the Total was incorrectly added, then there is no error in the entry and the error will be only corrected in the Debtors control account.
E.g. The total of the DJ was incorrectly totaled as R100 instead of R110.

Debtors Journal
Entry
50
60
Total
100 x

 

Debtors Ledger (Debtors List)
DrCrBalance
InvoiceEntry
50

GENERAL LEDGER:
Dr. Debtors Control (A) Cr.
total
Sales 100 X
(100 + 10)
–– If the entry is correct then the Total will also be correct. So you need to establish where the error is. The error will be in the posting to the ledgers.
–– If the entry was not posted to the Debtor ledger, then the entry will be recorded.

E.g. The amount of R50 in the DJ was not posted to the debtor’s account.

Debtors Journal
Entry
50
60
Total
110

 

Debtors Ledger (Debtors List)
DrCrBalance
InvoiceEntry
– x
50

Dr. Debtors Control (A) Cr.
Sales total
110
–– If the entry was recorded but the amount was wrongly recorded. UNDER CAST:
E.g. The amount of R50 in the DJ was posted to the debtor’s account as R30.
(therefore the account was undercasted by R50 + R30 = R20)

Debtors Journal
Entry
50
60
Total
110
Debtors Ledger (Debtors List)
DrCrBalance
InvoiceEntry
30 x
+ 20

–– If the entry was recorded but the amount was wrongly recorded. OVER CAST:
E.g. The amount was R50 in the DJ was posted to the debtor’s account as R59.

(therefore the account was over casted by R59 – R50 = R9)

Debtors Journal
Entry
50
60
Total
110

 

Debtors Ledger (Debtors List)
DrCrBalance
InvoiceEntry
59 x
 -9

Dr. D ebtors Control (A) Cr.
Sales total
110
–– If the entry was posted but to the wrong side of the account.
The entry was recorded on the credit side instead of the debit side therefore the entry will be recorded on the debit side twice
– cancel the wrong entry on the credit side and once more to have the entry on the correct side.
E.g.: The amount of R50 in the DJ was posted to the debtor’s account in the Debtors Ledger however the entry was recorded on the credit side of the account (or the wording can read; the R50 was recorded on the credit side.)

Debtors Journal
Entry
50
60
Total
110

 

Debtors Ledger (Debtors List)
DrCrBalance
InvoiceEntry
50 +
50
 50 x

Dr. D ebtors Control (A) Cr.
Sales total
110

Worked example 1
Example adapted from March 2012 NSC question paper.
Crystal Traders sells glassware for cash and on credit.
Required
Study the information provided and answer the questions that follow.

  1. Calculate the correct closing balance of the debtors’ control account on 31 March 2011. [5]
  2. Calculate the correct amounts owing by the following debtors of Crystal Traders:
    1. R Jansen
    2. S Wonder
    3. P Collins [12]

Information

  1. Balance of debtors’ control account on 31 March 2011 is R200 000
    (Can you see that the Debtors’ control account and the Debtors’ Ledger are not the same?)
  2. Balances per Debtors’ Ledger on 31 March 2011:
    M CareyR64 500
    R JansenR41 200
    S WonderR23 000
    C DionR51 500
    P CollinsR7 900
    TOTAL  R188 100
  3. The following errors and omissions were discovered and must be corrected:
    1. The debtors’ journal has been overcast by R2 600.
      (Overcast means that the journal has been added up incorrectly and the amount is too big.
      Undercast means that the journal has been added up incorrectly and the amount is too small.)
    2. An invoice issued to S Wonder for R1 800 had not yet been recorded in the books of Crystal Traders.
    3. Stock sold on credit to P Collins was incorrectly charged to the account of R Jansen, R8 300.
    4. An invoice issued to P Collins for R6 000 had been posted to the wrong side of his account.
    5. A cheque of R13 500, originally received from R Jansen in settlement of an invoice of R15 000, was returned by the bank due to insufficient funds. No entries have yet been made.
    6. Goods sold on credit to S Wonder for R5 800 were correctly recorded in the debtors’ journal but incorrectly posted as R8 500 to S Wonder’s account in the Debtors’ Ledger.

Answers to worked example 1 (see page 89)

Calculate the correct closing balance of the debtors’ control account on 31 March 2011.
200 0003 – 2 6003 (A) + 1 8003 (B) + 15 0003 (E)
= 214 200 [5]

Calculate the correct amounts owing by the following debtors of Crystal Traders:

WorkingsAnswer
R JansenR41 200 + 15 000 (E) – 8 300 (C) =R47 900
S WonderR23 000 + R1 800 (B) – 2 700 (F) =R22 100
P CollinsR7 900 + 12 000 (D) + 8 300 (C) =R28 200

[12]

ERROR Explanation 
AThe debtors’ journal has been overcast by R2 600.The debtors’ control balance is R2 600 too much.
This must be deducted from the debtors’ control balance.
BAn invoice issued to S Wonder for R1 800 had not yet been recorded in the books of Crystal Traders.This was not recorded so it needs to be entered in the debtors’ control account and in the account of S Wonder on the debtors’ list.
Debtors’ control (+R1 800)
S Wonder (+R1 800)
CStock sold on credit to P Collins was incorrectly charged to the account of R Jansen, R8 300.This must be removed from R Jansen and added to P Collins on the debtors’ list.
R Jansen (−R8 300)
P Collins (+R8 300)
DAn invoice issued to P Collins for R6 000 had been posted to the wrong side of his account.Correct it on P Collins’ account in the debtors’ list.
It should have been entered on the debit side but was entered on the credit side.
Cancel the credit of R6 000 by debiting (+R6 000)
Record the correct entry on debit side (+R6 000)
EA cheque of R13 500, originally received from R Jansen in settlement of an invoice of R15 000, was returned by the bank due to insufficient funds.
No entries have yet been made.
No entries were made.
This needs to be recorded in the debtors’ control account and in the account of R Jansen in the debtors’ list.
Debtors’ control (+R13 500) → bank amount
Debtors’ control (+R1 500) → discount cancelled
R Jansen (+R15 000)
FGoods sold on credit to S Wonder for R5 800 were correctly recorded in the debtors’ journal but incorrectly posted as R8 500 to S Wonder’s account in the Debtors’ Ledger.Debtors’ control account is correct.
S Wonder’s account is incorrect and must be corrected.
It was entered in the Debtors’ Ledger as R8 500 instead of R5 800. Too
much was posted to the debit side of S Wonder’s account in the Debtors’ Ledger. The difference of R2 700 must be credited (subtracted) from S Wonder’s account

5.3 Debtors’ age analysis

Introduction
Any business must keep a careful control of all the accounts in the Debtors Ledger. The debtor’s credit controller has the responsibility to monitor a debtor’s credit rating before extending any credit to the debtor. The debtor’s clerk’s responsibility includes that no debtors exceed their credit limit and that payments are regularly received according to their agreement with them.
Before any order can be despatched to a debtor, the debtor’s clerk must first approve of the credit sale. The debtor’s clerk must verify the balance of the debtor’s account and the agreed credit limit allowed for that debtor.
Debtor’s Age analysis is used where the debtor’s ledger account is broken down into time periods so that it is clear how long an amount has been outstanding.
When calculating age analysis there are TWO RULES to apply:

  • Returns are subtracted from the latest sale.
    (A credit note is subtracted from the most recent invoice issued because goods usually can be returned within a certain number of days, e.g. 7 days.)
  • Payments are subtracted from the oldest outstanding balance.
    (A receipt will be issued for the payment and for discount allowed. This amount will be subtracted from the oldest amount owed by the debtor.)

Reasons for debtors age analysis

  • To ensure that Debtors honour the agreement of e.g. 30 days.
  • To charge interest on overdue balances according to the agreement.
  • To take legal action if the account is not settled within a certain period, e.g. more than 90 days.
  • To minimise debts to be written off.
  • To ensure liquidity in the business and a proper cash flow.
  • To be aware of debtors who honour their credit agreement and those who do not.
  • To follow up on those debtors who signed a payment plan due to previous late payments.
  • To follow up on possible errors that could be on a debtor’s statement where the debtor paid the correct amount without letting the business know of the statement error.

Example of a debtor’s statement and age analysis
Study the following statement to understand the calculation of age analysis. A possible format was used for the breaking down of Moja and Sons account into time periods, February to May. Take into account the TWO RULES.

  • Returns are subtracted from the most recent invoice
  • Payments are subtracted from the oldest outstanding balance
(TAX NO: 456123)
NO. 77KIMA WHOLESALERS
45 Dove street,
Pretoria 1000
STATEMENT OF ACCOUNTTO: Moja and Sons
Mahlangu Street
Timbato DATE: 31 May 2014
TERMS: CREDIT PERIOD: 30 days                                            CREDIT LIMIT: R5 000

  • 10% discount on settlement of account within 14 days of purchase
  • Interest at 5% per month will be charged on amounts owing for 60 days or more
DateDescriptionDebitCreditBalance
01-03-2014Balance brought forward 800
07-03-2014Invoice 102 2 500 3 300
28-03-2014Receipt no 533 500 2 800
03-04-2014Invoice 125 2 400 5 200
08-04-2014Credit note C66 600 4 600
29-04-2014Receipt 575400 4 200
01-05-2014Invoice 1301 200 5 400
09-05-2014Invoice 131700  6 100
30-05-2014Receipt 6211500 4 600
Receipt 621 (discount)150 4 450
Age Analysis:Current30 Days60 Days90 Days120 Days
1 9001 80080000

(Current month means the month of the statement
The Table below was used to calculate the age analysis)

Steps to follow to see how the Age analysis was calculated:

(Draw a template with months)Transactions:MayAprilMarchFebruary
Balance800
(Record the invoices according to the month that you have received the stock)Invoices1 200 + 7002 4002 500
Returns(600)
Total purchases per month1 9001 8002 500800
(The payment of R500 (March) must pay off the balance of R800. (800 – 500 = 300 still outstanding) So R300 will come off from the next payment.)Receipts and discounts
Mar: payment by debtor
R500
 –(R500)
(The R400 (April) receipt must 1st pay off the R300 in Feb (400-300 = R100) The R100 paid some of the debt of March)Apr: payment by debtor
R400
 –(100)(300)
(The R1500 and discount R150 (May), paid off some of the debt of March)May: R1 500 + 150(1 650)
Balance1 9001 8007500

Check your answer: 1 900 + 1 800 + 750 = R4 450
Take note: The total of the analysis must be equal to the total balance on the statement and debtor’s ledger account.
Remember the rule: Subtract payments from the longest outstanding balance.

Worked example 2: Debtors’ age analysis
Study the debtors’ age analysis below and answer the questions that follow:

TotalCurrent30-60 days61–90 daysMore than 90 days
B BarneyR5 900R1 800R2 400R1 200R500
D DonaldR4 600R1 400R3 200
Z NdlovuR3 000R3 000
TotalR13 500
(This is the balance of the debtors’ control account in the general ledger.)
R6 200R5 600R1 200R 500

Credit terms

  • Debtors are given 60 days from statement date (end of the month) in which to settle their debts.
  • Debtors settling within 60 days will be granted a discount of 10%.
  • Debtors older than 60 days are charged interest of 12.5% p.a.

Required

  1. Which debtor(s) are not adhering to (meeting) the credit terms?
    Why? (2)
  2. If Z Ndlovu settled her account after receiving her statement, and within the credit terms, how much would she be required to pay? (4)
  3. If these were the only 3 debtors, what would the balance on the debtors’ control account be? (2)
  4. Is this business controlling their debtors effectively? Explain, quoting figures. (4)
    [12]

Answers to worked example 2 (see page 93)

  1. Which debtor(s) is/are not adhering to (meeting) the credit terms? Why?
    B. Barney
    He owes amounts for longer than the credit terms of 60 days.  [2]
  2. If Z Ndlovu settled her account after receiving her statement, and within the credit terms, how much would she be required to pay?
    R3 000 – 10% (R300) = R2 700 [4]
  3. If these were the only 3 debtors, what would the balance on the debtors’ control account be?
    Total of debtors’ accounts = balance on debtors’ control account.
    R13 50033 [2]
  4. Is this business controlling their debtors effectively? Explain, quoting figures.
    The answer to this question could be yes or no.
    Yes, because only one of the 3 debtors is outstanding.
    or
    No, because the amount outstanding for more than 60 days is R1 700 out of the total of R13 500 owed by the debtors. [4]

5.4 Creditors reconciliation with the creditor’s statement

  1. At the end of each month a creditor’s reconciliation is drawn up when the statement is received from a creditor and compared against the creditor’s ledger account in the Creditors Ledger.
  2. The comparison must be done to ensure that all the details of the transactions with the creditor are correct prior to any payments being done.
  3. Ensure that you are aware that in the books of the creditor you are a debtor. So when you interpret the statement received from the Creditor, you read it as if you read a Debtors control account. In that way this section becomes very easy. Look and see that for every debit entry in your books, the creditor will credit the transaction. So, know the FORMAT of both the CONTROL ACCOUNTS and know the SOURCE DOCUMENTS.

Example

  • Creditor gives you an invoice and you receive the invoice (renumber the invoice)
  • You sent goods back to Creditor and issue a debit note and the creditor acknowledges the return and issues a credit note
  • You pay your account by cheque and the Creditor acknowledges it by issuing a receipt

Study the following schematic illustration

CREDITOR’S LEDGER     
In the books of the business Bongi & Co Folio Debit – Credit + Balance 
Account Rendered1 000
Invoice receivedCJ2 0003 000
Debit note issuedCAJ252 750
Cheque counter foilCPJ8801 870

 

CREDITORS STATEMENT OF BONGI AND CO     
In the books of the Creditor: Kima Wholesalers Folio Debit +  Credit –  Balance 
Balance brought forward1 000
Invoice issuedDJ2 0003 000
Credit note issuedDAJ2502 750
Receipt issuedCRJ8801 870


SCHEMATIC ILLUSTRATION OF THE CORRELATION BETWEEN THE CREDITOR AND DEBTOR

CREDITORS LEDGER OR CREDITORS LIST  
Dr.                                   Creditors Control account                                          Cr 
(Issued a cheque)Bank and discount CPJ 880Balance b/d 1 000(Received the original invoice)
(Issued a debit note to the supplier)Sundry allowances CAJ 250Sundry Purchases CJ 2 000
Journal debits-Journal credits – interest and cancel discount   20(Journal voucher)
Bank (RD) 200(Debit slip)
Versus 
CREDITORS STATEMENT FROM THE CREDITOR
(The creditor views you as a debtor therefore your statement is in the form of a Debtors control account)
+                                                       Debtors Control account                                                               –
(The creditor issued an invoice)Balance b/d 1 000Bank and discount CRJ 880(The creditor issued a receipt to acknowledge your payment)
Sales DJ 2 000Debtors allowances DAJ 250(The creditor acknowledges the return by sending a credit note)
(Debit slip)Bank (RD) CPJJournal credit – bad debts
(Cancel discount allowed on a RD cheque or charged interest by creditor)Journal debits         20
(interest and cancel discount )

Remember the source documents will not be the same used by the debtor and the creditor. The one receives and the other one issues.
Example adapted from November 2011 NSC question paper
CREDITORS’ RECONCILIATION
A statement received from a creditor, Kairo Suppliers, on 28 February 2011, reflects that Ace Traders owes them R11 390. According to Ace Traders, the amount outstanding is only R7 910.
REQUIRED:
Use the Table in the ANSWER BOOK to indicate the differences that were discovered when comparing the account in the Creditors’ Ledger with the statement received from Kairo Suppliers.
Write only the amounts in the appropriate column and a plus (+) or minus (–) sign to indicate an increase or decrease in the balance. Calculate the correct balance/total at the end.

INFORMATION:
On investigation, it was found that:

  1. A cheque for R3 000 issued by Ace Traders has not yet been recorded in the statement received from Kairo Suppliers.
  2. The cheque in settlement of the January account was not received by Kairo Suppliers within 7 days; therefore the discount of R500 recorded by Ace Traders in the Creditors’ Ledger must be cancelled.
  3. Returns recorded as R810 in the Creditors’ Ledger of Ace Traders were recorded as R900 in the statement received from Kairo Suppliers. Ace Traders had miscalculated the cost of goods returned.
  4. An invoice received from Kairo Suppliers was correctly recorded as R7 700 by Ace Traders. However, in the statement received from Kairo Suppliers it was incorrectly recorded as R770.
  5. An invoice for R3 500 received from Kairo Suppliers was incorrectly recorded as a credit note by Ace Traders.

Explanation of the transactions:

Error Explanation
1A cheque for R3 000 issued by Ace Traders has not yet been recorded in the statement received from Kairo Suppliers.This cheque was paid to the creditor however the amount has not been subtracted yet from the balance on the statement.
The balance owing to the Creditor, Kairo Suppliers, must decrease by R3 000. (The statement is like the Debtors Control account. Increase on the dr side and decrease on the cr side)
This payment must be deducted in the Reconciliation/Creditors Statement (–R3 000)
2The cheque in settlement of the January account was not received by Kairo Suppliers within 7 days; therefore the discount of R500 recorded by Ace Traders in the Creditors’ Ledger must be cancelled.Ace Traders claimed R500 discount when he settled his account. (Bank and discount is on the debit side of the creditors control account).
Kairo Suppliers refused the discount because the payment was received after 7 days. To cancel the discount the amount must be credited. (Creditors control increases on the credit side)
The entry must be done in the debtors ledger and added
3Returns recorded as R810 in the Creditors’ Ledger of Ace Traders were recorded as R900 in the statement received from Kairo Suppliers. Ace Traders had miscalculated the cost of goods returned.Ace Traders has recorded R810 in the Creditors ledger instead of R900.Undercasted by 900 – 810 = R90.
Returns are recorded on the debit side of Creditors control account. (Creditors control account decreases on the debit side.)
R90 must be subtracted in the Creditors ledger
4An invoice received from Kairo Suppliers was correctly recorded as R7 700 by Ace Traders. However, in the statement received from Kairo Suppliers it was incorrectly recorded as R770.The creditors ledger was correct but the statement is wrong/ undercast by R7700 – R770 = R6 930. Any mistakes on the statement are corrected in the Reconciliation statement however the question reads that the Statement must be corrected.
The statement must increase; (+R6 930)
5An invoice for R3 500 received from Kairo Suppliers was incorrectly recorded as a credit note by Ace Traders.The Creditors statement is correct.
The Creditors ledger is incorrect; the invoice of R3 500 received is recorded as returns. This means the correct amount was recorded on the wrong side of the account, To cancel the R3 500 on the debit side, R3 500 must be credited to cancel the wrong entry and another R3 500 must be recorded to record the invoice received.
No entries were made.
This double entry (R3 500 +R3 500 = R7 000) needs to be recorded on the credit side of the Creditors ledger

Use the Table to indicate the differences that were discovered when comparing the account in the Creditors’ Ledger with the statement received from Kairo Suppliers.
Write only the amounts in the appropriate column and a plus (+) or minus (–) sign to indicate an increase or decrease in the balance. Calculate the correct balance/total at the end.

Creditors’ Ledger of Ace TradersStatement from Kairo Suppliers
BalanceR7 910R11 390
1– 3 000
2+500
3– 90
4+ 6 930
5+3 500+3 500
OR
+7 000
Balance/Total15 32015 320

Below is a list of suggested past examination questions for extra practice:

Topic  Paper  Question 
Bank reconciliationFebruary/March 2009 1.1
Bank reconciliationNovember 2010 2
Creditors reconciliationFebruary/March 2009 1.2
Debtors control account and Age analysisFebruary/March 2010 1
Debtors reconciliation, age analysis and internal controlFebruary/March 2012 6
Debtors reconciliation November 2013 1.3

 

 

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