Financial Accounting
LO 3
Reconciliation of banks statement involves verifying the amount indicated in the bank statement to ensure they are consistent with total amount in Cash account of a firm. There is a benefit of doing reconciliation of the bank statement which include confirmation that the cash reported by a firm in its financial records is compatible with what is in the records of the bank. The process involves adjusting the bank statement balance to the true balance and adjusting the balance as per the records so that the correct balance is obtained. Both of the adjusted amounts have to be the same and if not, the process must be repeated until an identical balance is obtained. Then, the preparation of journal entries follows so that balance as per records is adjusted (Lunt, H, 2009, 282).
LO 4
Control account is a record of various individual items or an impersonal account that forms part of double process. These accounts are majorly used for trade payables and trade receivables. A Receivable Control Account is where all records related total receivables are kept. At any given time, the receivable control account’s balance is the overall amount due to the firm at that given moment from receivables. A Payable Control Account is where records of transactions relating to the total payables and the account balance at a given time equal to the overall amount owed to creditors at this time. Control accounts are held for various reasons: they help in checking the accuracy of personal accounts entries in payables and receivables ledge (Bebbington, Gray & Laughlin, 2001, 121).
A mistake can easily be made in posting entries since many entries are required to be made or transposition of figures can occur. The errors made can be identified by comparing receivables control account balance with each balance in receivables ledger’s personal accounts. The errors can also be identified through a comparison of payables control account balance with each balance in payables ledger personal accounts (Bebbington, Gray & Laughlin, 2001, 121). Secondly, control accounts help identifying errors in case of monthly, weekly daily posting to the accounts. If there is a failure to record a payment or invoice in relevant personal accounts or if a transposition error occurs, it would be a huge task to identify such errors at the yearend in case of many transactions. A control account enables the comparison with every balance in payables or receivables ledger for each month, week and day to locate the error more quickly (Bebbington, Gray & Laughlin, 2001,121). The process of reconciling control accounts involves finding the total balances. The steps includes: finding the Creditors Control Account balances; add deferred transactions balances; finding overall balances of supplier accounts ; checking any direct posting of journals to the nominal account; finding opening balances for the customer accounts ; checking ant posting of transactions in suspense account ; finding the Creditors Control account balance (Bebbington, Gray & Laughlin, 2001, 122).
Suspense account enables the posting of transactions before enough information is obtained for creating an entry to the appropriate accounts. If such transactions are not posted, some transactions may fail to be recorded which results to inaccurate financials at yearend. Clearing of suspense accounts involves reviewing every transaction and shifting it to the relevant account immediately. The account is, therefore, temporary and any posting should be made when if an error has arisen. Clearing of the account ensures all entries are made before preparing final accounts (Bebbington, Gray & Laughlin, 2001, 120).
References
Lunt, H., & Chartered Institute of Management Accountants. (2009). C2: Fundamentals of financial accounting : CIMA Certificate in Business Accounting. Oxford: CIMA. 282-283
Bebbington, J., Gray, R., & Laughlin, R. (2001). Financial accounting: Practice and principles. London: Thomson Learning. 120-122
