ACCY112: Accounting In Organisations

Tutorial 1 and 2
(Chapter 11)
Managing Current Assets: Cash and Internal Control

Tutorial Work: DQ11.4; DQ11.7; EQ11.7; EQ11.8; EQ 11.9; EQ 11.11; PQ 11.19

DQ11.4
‘Although the process of bank reconciliation provides a measure of control over cash in a
business entity, bank reconciliation is useless unless it operates within a framework that
incorporates essential elements of a good internal control system.’ Discuss this statement.
1. Understand the purpose of the bank statement – to reconcile the money in your
bank and cash in your company record.
Preparing a bank reconciliation statement does not ensure that all cash receipts in an entity
have been banked or that all payments are properly authorised. Only a good internal control
system (of which bank reconciliation is only a part) can do that. A good internal control
system is needed to ensure that all cash is received and is duly banked intact, and that all
payments are authorised by responsible personnel. Nevertheless, a bank reconciliation
statement, reconciling cash records of receipts and payments with the bank’s statement of
account is useful in maintaining control over banked receipts and payments made by
cheques, direct transfer, or by a system of electronic payments. The bank reconciliation
statement helps prove the accuracy of both the entity’s and the bank’s records.
DQ11.7
A manager of a small online business believes that because most of the transactions take
place using electronic transfer of funds rather than cash or cheques, the business no longer
needs to do a bank reconciliation each month. Explain to the manager why a bank
reconciliation is still necessary for the business.

 A bank reconciliation is still necessary for control purposes. There may still be some
transactions that occur using cash and cheques and so there may be outstanding
deposits and cheques at the end of the period.
 Even with electronic transfers these are often processed overnight on computer
systems and transactions can appear on bank statements a day after they actually
occurred.
 The manager also needs to check that the business’s accounts are correct and have
included all of the transactions that have been processed electronically by the bank.
Automatic payments, fees and transfers into the account by customers all need to be
checked to make sure they have been recorded in the accounting system of the
business.
 It is not uncommon to find errors in items being processed through bank accounts.
Interest may be charged when it shouldn’t be or human error may lead to amounts

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 going into the wrong accounts. Sometimes transactions are processed more than
once.
EQ11.7
Bank reconciliation
Sandy Poglase, owner of Sandy’s Sandwiches, wants a bank reconciliation statement to be
prepared for the month ended 31 March 2019 using the following information:
1. Final balance in the Cash at Bank account in the ledger of Sandy’s Sandwiches (after all
entries arising from the bank statement had been entered) was $13 204.26 Dr.
2. Balance shown by the bank statement at 31 March was $13 155.10 Cr.
3. Cheques recorded in the cash payments journal but not presented to the bank for
payment were as follows.

4. A deposit of $1270.30 appears as a deposit in the cash receipts journal but had not been
recorded by the bank at the date of the statement.

Required
(a) Prepare the bank reconciliation statement at 31 March, 2019.

SANDY’S SANDWICHES
Bank Reconciliation Statement
as at 31 March 2019

Balance as per bank statement Cr $13 155.10

Add: Deposit not credited 1 270.30
14 425.40
Less: Cheques not presented
Cheque No. 41 $339.50
Cheque No. 43 262.64
Cheque No. 46 423.90
Cheque No. 51 195.10 1 221.14
Cash at Bank balance Dr $13 204.26

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EQ11.8
Bank reconciliation
The following information relates to the cash position of Cathy Fraser, loan broker.
1. Cash at Bank account balance as at 30 June 2019: $45 451 debit.
2. Bank statement balance as at 30 June 2019: $47 512 credit.
3. 30 June receipts amounting to $1820 have not been deposited.
4. Cheques issued but not presented total $3468.
5. A $312 cheque was returned marked ‘dishonoured’. The cheque had been received from
J. Simms, a new customer.
6. A $750 deposit made by L. Richards was incorrectly credited to the bank account of Cathy
Fraser.
7. The bank statement shows that the bank has charged the business’s account with fees
and charges of $25.
8. Items 4, 5, and 6 have not yet been entered in the cash journals.
Required
(a) Prepare a bank reconciliation at 30 June 2019, assuming that items 4, 5, and 6 are
already recorded in cash journals.

CATHY FRASER, LOAN BROKER

Bank Reconciliation Statement
as at 30 June 2019

Balance as per bank statement Cr $47 512

Add: Deposit not credited 1 820
49 332
Less: Cheques not presented 3 468
45 864
Less: Deposit incorrectly credited 750
Balance as per cash at bank account *$45 114

* Workings
Cash at bank balance – 30 June 2019 $45 451
Less: Bank fees $25
Cheque not honoured by J. Simms 312 337
Adjusted cash at bank balance – 30 June 2019 $45 114

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EQ 11.9
Bank reconciliation – bank account overdrawn
Cathy’s Consulting collected its latest bank statement on 1 July 2019. All entries appearing in
the bank statement that had not been entered into the cash journals were entered therein.
The cash journals were posted and the resulting balance of the Cash at Bank account in the
ledger at 30 June was $30 273 Cr. The balance shown on the bank statement at 30 June was
$34 033.24 Dr.
The following items recorded in the cash journals did not appear in the bank statement.
1. A deposit made on 30 June of $5254.24.
2. Cheques written during June that had not been presented for payment were:

A cheque written for $48 appeared incorrectly in the bank statement as $84.

Required
(a) Prepare the bank reconciliation statement at 30 June 2019.
Note: the bank statement balance is Dr. (i.e. in overdraft).

CATHY’S CONSULTING
Bank Reconciliation Statement
as at 30 June 2019

Balance as per bank statement Dr $34 033.24

Add: Cheques not presented
Cheque No. 841 $650.6
Cheque No. 845 424.9
Cheque No. 846 454.5 1530
35 563.24
Less: Deposit not credited 5254.24
30 309
Less: Bank error 36.00
Cash at Bank balance Cr – 30 June 2019 $30 273

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EQ 11.11
Budgeted cash receipts from sales
Hannah’s Handbags Pty Ltd is preparing a budget for the quarter ended 30 June 2019.
Hannah estimates that approximately 70% of the handbag sales will be for cash and the rest
will be on credit. Of the credit sales, 20% of the money will be received in the month of sale,
40% will be received the following month and 38% will be received 2 months after sale.
Approximately 2% of credit sales are never collected and are written off.

The actual sales for the previous quarter ended 31 March 2019 were as follows.

The budgeted sales for the June quarter are as follows:.

Required
(a) Calculate budgeted cash receipts for the quarter ended 30 June 2019.

HANNAH’S HANDBAGS PTY LTD

Budgeted Cash Receipts from Sales

April May June

From cash sales in same month [1] $29 848.00 $30 765.00 $32 144.00
[70%  current month]

From credit sales same month [2] 2 558 40 2 637.00 2 755.20

[30%  current month  20%)

From preceding month’s sales [3] 4 821.60 5 116.80 5 274.00

[30%  40%  preceding month]

From second preceding month [4] 3 963.78 4 580.52 4 860.96

[30%  38%  second preceding month]
$41 191.78 $43 099.32 $45 034.14

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[1] 70% of monthly sales are for cash.
[2] 30% of monthly sales are for credit. 20% of monthly credit sales are collected in
month of sale.
[3] 40% of monthly credit sales are collected in the next month.
[4] 38% of monthly credit sales are collected two months later.

PQ 11.19
Bank reconciliation
Information about the cash position for Cavanagh’s Charter Tours Pty Ltd for the month of
June is presented below.

1. The general ledger Cash at Bank account had a balance of $12 600 on 31 May.
2. The cash receipts journal showed total cash receipts of $45 796 for June.
3. The cash payments journal showed total cash payments of $49 152 for June.
4. The June bank statement reported a bank balance of $8066 on 30 June.
5. Outstanding cheques at the end of June were: no. 864, $120; no. 866, $146; and no. 870,
$224.
6. Cash receipts of $2400 for 30 June were placed in the bank’s night safe on 30 June and
were not included in the June bank statement.
7. Comparison of the presented cheques with the entries in the cash payments journal
disclosed that cheque no. 842 for $708, for rent expense, had been wrongly recorded as
$690.
8. Included on the bank statement were:
 a total credit for $1468, indicating an electronic transfer of $1360 plus interest
earned, which the bank had credited to the account
 a dishonoured cheque written by Vinko Ltd, a client, for $654
 account and transaction fees, $64.

Required
(a) Set up cash receipts and cash payments journals with totals shown, enter the necessary
adjustments, and complete the journals for June.
(b) Post the journals in requirement A to the Cash at Bank account and balance the account.
(c) Prepare a bank reconciliation statement as at 30 June.
(d) What is the amount of cash that should be reported on the 30 June balance sheet?

(a)

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 Cash Receipts Journal Cash Payments Journal
Date Particulars Cash at Bank Date Particulars Cash at Bank
Jun 30 Progress, total $45 796 Jun 30 Progress, total $49 152
Vinko Ltd (654) Bank fees 64
(dishonoured cheque)
Electronic transfer 1 360 Adj. to Chq. 842 18
Error
Interest revenue 108

$46 610 $49 234

(b)

Cash at Bank
1/6 Balance b./d $12 600 30/6 CPJ $49 234
30/6 CRJ 46 610 Balance c/d 9 976
$59 210 $59 210
1/7 Balance b/d $9 976

(c)

CAVANAGH’S CHARTER TOURS

Bank Reconciliation Statement
as at 30 June
Balance as per bank statement Cr $8 066
Add: Outstanding deposit 2 400
$10 466
Less: Unpresented cheques: no. 864 $120
no. 866 146
no. 870 224 490
Balance as per Cash at Bank account Dr $9 976

(d) Cash at bank $9 976.