Question

Question 2

Bank reconciliations and cash

It is now January 2020, and Harry Smith has come to you for some assistance as he is having trouble reconciling the bank account as at 31 December 2019.The December 2019 bank statement appeared as follows:

Bank statement for December 2019:
Date	Description	Deposit	Withdrawal	Balance
1/12/2019	Opening balance			$14,550.00
1/12/2019	Loan application fee		300.00	$14,250.00
2/12/2019	EFT - Harry Smith Drawings		1,000.00	$13,250.00
5/12/2019	Deposit	1,650.00		$14,900.00
5/12/2019	Cheque 43		440.00	$14,460.00
11/12/2019	EFT - Super Kites Ltd		5,500.00	$8,960.00
14/12/2019	Deposit	2,200.00		$11,160.00
18/12/2019	Cheque 44		330.00	$10,830.00
18/12/2019	Deposit	3,300.00		$14,130.00
20/12/2019	Cheque 45		220.00	$13,910.00
21/12/2019	Cheque 46		110.00	$13,800.00
21/12/2019	Deposit	440.00		$14,240.00
21/12/2019	EFT - Harry Smith Drawings		1,000.00	$13,240.00
22/12/2019	EFT - Super Kites Ltd		1,100.00	$12,140.00
23/12/2019	Deposit	660.00		$12,800.00
24/12/2019	EFT - Wages Tom Webb		600.00	$12,200.00
31/12/2019	Direct debit - Telstra internet		99.00	$12,101.00
31/12/2019	Interest	6.00		$12,107.00
31/12/2019	Monthly bank fee		20.00	$12,087.00

Kites Galore’s accounting records for December 2019 showed an opening balance for the ‘bank’ account of $14,110. The bank reconciliation from November 2019 showed a bank balance of $14,550, less one outstanding cheque (Cheque 43) for $440. Following is a summary of deposits and withdrawals recorded in the accounting records during December:

Withdrawals:				Deposits:
					Amount
Date	Detail	Amount		Date	banked
2/12/2019	EFT - Harry Smith Drawings	$1,000.00
11/12/2019	EFT - Super Kites Ltd	$5,500.00		5/12/2019	$1,650.00
16/12/2019	Cheque 44	$300.00		14/12/2019	$2,200.00
18/12/2019	Cheque 45	$220.00		18/12/2019	$3,303.00
18/12/2019	Cheque 46	$1,100.00		21/12/2019	$440.00
21/12/2019	EFT - Harry Smith Drawings	$1,000.00		23/12/2019	$606.00
22/12/2019	EFT - Super Kites Ltd	$1,100.00		31/12/2019	$880.00
27/12/2019	Cheque 47	$220.00
28/12/2019	Cheque 48	$495.00			________
		$10,935.00			$9,079.00

As Harry reviewed the bank statement for the month, he noticed one bank error: the bank had incorrectly charged the business $300 for a loan application fee on 1 December 2019. Harry has contacted the bank, and they will refund the fee charged in January 2020. The bank did not make any other errors.

Required: i.Prepare the bank reconciliation for Kites Galore as at 31 December 2019.ii. Prepare the journal entries to correct any errors made by Kites Galore, and to record transactions that have not yet been entered into the business’s accounting records. (Note: The correction of any errors relating to the recording of cheque payments should be made to ‘Accounts payable’. The correction of any errors relating to deposits (other than interest received) should be made to ‘Accounts receivable’.) iii. Prepare the ‘bank’ T-Account account for December 2019, in order to determine the balance in the ledger account after the above journal entries have been recorded and posted.

In addition to requesting your assistance with the bank reconciliation at 31 December 2019, Harry Smith would also like to discuss an issue that he uncovered as he reviewed the bank account and transactions in his online banking in January 2020:

• There was a duplicate EFT payment made for inventory purchases, for $1,100. A payment was made to Super Kites Ltd for $1,100 on 22 December 2019, and another payment of $1,100 appeared in the online banking records on 2 January 2020. After reviewing the business records and checking with Super Kites Ltd, Harry found out that the second payment had been made into an overseas bank account held by an individual unknown to Harry’s business, and the bank account has since been closed... so it looks like the business has been scammed.

Answer 1

Ans 1

Bank reconciliation Statement
Details	In $	In $
Bank Balance As per Bank Statement as on 31 Dec 2019   [ A ]		12,087.00
Add:
Cheque No 44 wrongly recorded in books as 300 against 330	30.00
Deposit on 18/12/2019 wrongly recorded in books as 3303 against 3300	3.00
Deposit on 31/12/2019 recorded in books not credited in Bank	880.00
Monthly Bank fee not recorded I Books	20.00
EFT - Wages Tom Webb on 24/12/2019 not recorded in Books	600.00
Direct debit - Telstra internet on 31/12/2019 not recorded in books	99.00
Loan Application Wrongly Charged by the Bank	300.00
Total [ B]		1,932.00
Less:
Cheque No 46 wrongly recorded in books as 1100 against 110	990.00
Cheque No 47 issued and recorded in Books but not presented for payment	220.00
Cheque No 48 issued and recorded in Books but not presented for payment	495.00
Deposit on 23/12/2019 wrongly recorded in books as 606 against 660	54.00
Interest on balance credited by Bank but not recorded in Books	6.00	1,765.00
Total [C]
Bank Balance in the books as per Bank reconciliation Statement A+B-C		12,254.00
Bank Balance as per Accounting Records
Opening Balance+ Deposits -Withdrawals=14110+9079-10935		12,254.00
Difference		-

Ans 2	Journal Entries
Date	Ledger Head	Debit	Credit
18-12-2019	Bank		30
	Party A/C	30
Cheque No 44 wrongly recorded in books as 300 against 330 corrected
18-12-2019	Bank		3
	Party A/C	3
Deposit on 18/12/2019 wrongly recorded in books as 3303 against 3300 corrected
21-12-2019	Bank		990
	Party A/C	990
Cheque No 46 wrongly recorded in books as 1100 against 110
24-12-2019	Bank		600
	Wages	600
EFT - Wages Tom Webb on 24/12/2019 not recorded in Books
23-12-2019	Bank	54
	Party A/C		54
Deposit on 23/12/2019 wrongly recorded in books as 606 against 660 corrected
31-12-2019	Bank		99
	Party A/C	99
Direct debit - Telstra internet on 31/12/2019 not recorded in books, corrected
31-12-2019	Bank	6
	Interest Income		6
Interest on balance credited by Bank but not recorded in Books, corrected
31-12-2019	Bank		20
	Bank Fees	20
Monthly Bank Fee Accounted for Dec 2019

Ans 3

Bank Account Ledger
Date	Particulars	Debit	Particulars	Credit	Balance
31-12-2019	Balance				12,254.00
31-12-2019			By Party	30.00	12,224.00
31-12-2019	To Party	3.00			12,227.00
31-12-2019	To Party	990.00		-	13,217.00
31-12-2019			By Wages	600.00	12,617.00
31-12-2019	To Party	54.00			12,671.00
31-12-2019			By Party	99.00	12,572.00
31-12-2019	To Interest Income	6.00			12,578.00
31-12-2019			By Bank fee	20.00	12,558.00