FINANCIAL ACCOUNTING – Page 5

FA – L1 – Q64 – Correction of Errors

Prepare journal entries to correct errors in Mensah and Partners' trial balance, including irrecoverable debts and misposted transactions.

Question

The trial balance of Mensah and Partners did not agree as at 31 December 20X9, and the difference was carried to a suspense account. On scrutinising the books of account, the following types of errors were detected:
(i) Receivables include GH₵15,000 which are irrecoverable and need to be written off.
(ii) Goods invoiced at GH₵4,600 were returned by a customer. It was entered in the purchases book and posted from there to a creditor’s account as GH₵6,400.
(iii) A cheque of GH₵8,000 received from a customer was not posted to his ledger account. Moreover, the corresponding sales invoice for GH₵12,000 was incorrectly passed through the sales day book as GH₵2,000.
(iv) Sales include goods sold for cash amounting to GH₵25,000 on behalf of Mr Kwame. Mensah and Partners were entitled to a commission of 10% on the sales plus selling expenses, for which no adjustment was made. The related selling expenses amounted to GH₵1,500.
(v) An amount of GH₵3,800 owed by Y & Co. for goods supplied was to be adjusted against an amount of GH₵8,500 owed to Y & Co. No entry has been made in this regard.
(vi) A purchase of GH₵15,100 was entered in the purchase day book as GH₵1,500 and posted to the supplier’s account as GH₵5,100.
(vii) Goods invoiced at GH₵23,000 and returned by J K, a debtor, were entered in the purchase day book and posted therefrom to K J, a creditor, as GH₵32,000.
(viii) A supplier’s invoice for GH₵12,300 had been entered in the purchase day book on 28 December 20X9. However, the goods were received on 2 January 20Y0.
(ix) Some items of furniture which stood in the books at GH₵24,000 on 1 January 20X9 were disposed of on 30 June 20X9 in exchange for new furniture costing GH₵20,800. A net invoice of GH₵9,200 was passed through the purchase day book. Depreciation on furniture is charged at 10% on written down value.
(x) Mensah and Partners maintains an allowance of 5% of the gross amount of receivables.

Required:
Prepare journal entries to rectify the errors identified above.
(Narrative is not required.)

Answer

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Tags: Bad Debt, Depreciation, Error Correction, Inventory, Journal entries, Purchases, Receivables, Sales, suspense account, Trial Balance
Level: Level 1

Topic: Correction of Errors

FA – L1 – Q63 – Correction of Errors

Prepare journal entries to correct errors in B.B. Ventures' trial balance, including unposted returns, sales errors, and inventory issues.

Question

The trial balance prepared by B.B. Ventures showed a difference of GH₵47,060, which was put on the credit side of a suspense account. An investigation disclosed that:
(i) The total of purchase return day book amounting to GH₵16,160 had not been posted to the ledger.
(iii) The sales account had been added short by GH₵10,000.
(iv) An asset bought four years ago for GH₵7,000 and depreciated to GH₵1,200 had been sold for GH₵1,500 at the beginning of the year. The receipt of cash has been posted in the bank book but corresponding entries have not been recorded.
(v) A credit sale of GH₵1,470 had been credited to the customer’s account as GH₵1,740. An irrecoverable debt of GH₵1,560 has to be written off. Allowance for receivables is to be maintained at 10% of receivables. Receivables appearing in the trial balance are GH₵23,390, and the allowance for receivables account shows a credit balance of GH₵2,320.
(vi) A sub-total of GH₵29,830 on the list of closing inventory had been carried over as GH₵29,380, and another sheet had been overcast by GH₵1,000.

Required:
(a) Prepare journal entries to correct the above errors. (Narrations are not required)

(b) Explain why it is important that the accountant of B.B. Ventures behaves in an ethical manner when preparing financial statements.

Answer

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Tags: Error Correction, Ethics, Financial accounting, Financial Reporting, Professional conduct, Trial Balance
Level: Level 1

Topic: Correction of Errors

FA – L1 – Q62 – Correction of Errors

Prepare journal entries to correct errors in Western Medical Supplies' trial balance as of June 30, 20X9.

Question

The trial balance of Western Medical Supplies showed a short credit of ZM₵6,264 as at June 30, 20X9. A suspense account was opened for the difference and the profit for the year was then calculated at ZM₵956,180.
The following errors and adjustments were discovered subsequently:
(i) An invoice of ZM₵3,700 was debited to purchases but the goods were received after year-end and were not included in the closing inventory.
(ii) Store equipment costing ZM₵8,100 and having a book value of ZM₵3,600 was sold for ZM₵2,500. Cash was debited and store equipment was credited. No other entries were made.
(iii) A cheque of ZM₵1,850 received from a customer was dishonoured on June 25, 20X9 but no entry was made in the books. Cash there against was received after year-end.
(iv) Purchase of office equipment costing ZM₵15,200 was entered in the purchases account. Depreciation on office equipment is provided at the rate of 10%.
(v) A purchase invoice of ZM₵197 was debited to the supplier account as ZM₵917.
(vi) Purchase returns book was under-casted by ZM₵650.
(vii) The opening balance of furniture account was brought forward as ZM₵18,300 instead of ZM₵13,800. Depreciation on furniture is provided at the rate of 10%.
(viii) A balance of ZM₵730 in the sales ledger is to be offset against a balance of ZM₵880 in the purchase ledger.

Required:
(a) Prepare journal entries to adjust the above items.

(b) Recalculate the net profit for the year.

Answer

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Tags: Depreciation, Error Correction, Inventory, Net profit, Non-current Assets, Payables, Profit Adjustment, Receivables, suspense account, Trial Balance
Level: Level 1

Topic: Correction of Errors

FA – L1 – Q61 – Control accounts and account reconciliations

Reconcile accounts receivable ledger control account with ledger balances for Nelson Ltd. Clear suspense account for Nelson Ltd by posting corrections for trial balance errors.

Question

The trial balance of Nelson Ltd includes the following items:

	GH₵
Accounts receivable ledger control account	115,440
Accounts payable ledger control account	80,901
Suspense account (debit balance)	3,310

The following information is available:
(1) The total of debit balances in the accounts receivable ledger is GH₵116,374 and the total of credit balances is GH₵1,234.
(3) The accounts receivable ledger includes a debit balance of GH₵700 for Entity D, and the accounts payable ledger includes a credit balance of GH₵800 relating to Entity D. Only the net amount will eventually be paid.
(4) Included in the credit balances in the accounts receivable ledger is a balance of GH₵600 in the name of P. Smith. This arose because a sales invoice for GH₵600 had earlier been posted in error from the sales day book to the debit of the account of M. Smith in the accounts payable ledger.
(5) An allowance of GH₵300 granted to a customer for some damaged goods had been omitted from the appropriate account in the accounts receivable ledger. This allowance had been included in the accounts receivable control account.
(7) A cash receipt from a credit customer for GH₵345 had been entered in the cash book as GH₵245.

Required:
(a) Prepare a reconciliation of the accounts receivable ledger control account and the accounts receivable ledger balances.

(b) Open a suspense account and post the entries required to clear this account.

Answer

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Tags: Contra entries, Control Accounts, Ledger errors, Receivables ledger, Reconciliation
Level: Level 1

Topic: Control accounts and account reconciliations

FA – L1 – Q60 – Correction of Errors

Prepare journal entries to correct errors in a trial balance and clear a suspense account for a company with a debit-credit imbalance.

Question

The accountant of Apex Chemical Solutions has prepared a trial balance, but has found that the total of debit balances is GH₵864,600 and the total of credit balances is GH₵862,150.

On investigation, he discovers the following errors in the book-keeping:

(1) Total purchases in the period were recorded at GH₵100 below their correct value, although the total value of trade payables was correctly recorded.

(2) Total telephone expenses were recorded at GH₵1,000 above their correct amount, although the total value of the amounts payable was correctly recorded.

(3) Purchase returns of GH₵550 were recorded as a debit entry in the sales returns account, but the correct entry had been made in the trade payables control account.

(4) Equipment costing GH₵2,000 had been recorded as a debit entry in the repairs and maintenance account.

(5) Rental expenses of GH₵5,490 were entered incorrectly as GH₵5,940 in the expense account but were entered correctly in bank account in the ledger.

(6) Bank charges of GH₵200 have been omitted entirely from the ledger.

Required

Prepare journal entries for the correction of the errors.

Open a suspense account. Record the appropriate corrections in the suspense account, so that the balance on this account is eliminated.

Answer

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Tags: Correction of Errors, Double Entry Bookkeeping, Journal entries, suspense account, Trial Balance
Level: Level 1

Topic: Correction of Errors

FA – L1 – Q59 – Bank reconciliations

Prepare a bank reconciliation statement for Kofi & Associates as of 31 December 20X9, addressing discrepancies between cash book and bank statement.

Question

Kofi & Associates
Mr. Kofi is a sole trader and carries on business under the name “Kofi & Associates”. The balance on his cash book at 31 December 20X9 did not agree with the balance as per the bank statement which shows a credit balance of GH¢367,500.
An examination of the cash book and bank statement disclosed the following:
(i) A deposit of GH¢49,200 made on 29 December 20X9 had been credited by the bank on 1 January 20Y0.
(ii) Bank charges of GH¢1,700 have not been entered in the cash book.
(iii) A debit of GH¢4,200 appeared on the bank statement for an unpaid cheque which has been returned marked “out of date”. The cheque was re-dated by his customer and paid into the bank again on 3 January 20Y0.
(iv) A standing order for payment of an annual subscription amounting to GH¢1,000 has not been entered in the cash book.
(v) On 26 December 20X9, Mr. Kofi had given the cashier a cheque for GH¢10,000 tos to pay into his personal account at the bank. The cashier deposited it into the business account by mistake.
(vi) On 27 December 20X9, a customer had made an online transfer of GH¢49,900 in payment against goods supplied. The advice was received and recorded in the cash book on 2 January 20Y0.
(vii) On 30 September 20X9, Mr. Kofi entered into a hire purchase agreement and issued a standing order to the bank to pay a sum of GH¢2,600 on the 10th day of each month, commencing from October 20X9. No entries have been made in the cash book for these payments.
(viii) A cheque for GH¢36,400 received from Mr. Kwame had been entered twice in the cash book.
(ix) Cheques issued amounting to GH¢467,200 had not been presented to the bank for payment until after 31 December 20X9.
(x) Dividend collected by the bank amounting to GH¢12,000 has not been recorded in the cash book.
(xi) A cheque of GH¢243,000 received from Mr. Asante was deposited in the bank but entered in the cash book as GH¢234,000.

Required
(a) Prepare a bank reconciliation statement as on 31 December 20X9.

(b) Prepare necessary journal entries in the books of Kofi & Associates and determine the correct cash balance that should be reported in the statement of financial position. Also specify the situations in which no adjustment/entry is required.

Answer

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Tags: Bank reconciliation, Cash book, Financial Statements, Journal entries, Overdraft
Level: Level 1

Topic: Bank reconciliations

FA – L1 – Q58 – Bank reconciliations

Prepare a bank reconciliation statement for Accra & Sons as at 31 Dec 20X9, identifying the cash at bank balance.

Question

While reconciling the bank statement with the cash/bank book of Accra & Sons for the year ended December 31, 20X9, you noted the following:

(i) Balance as per bank statement at December 31, 20X9, overdrawn: GH¢806,436
(ii) Cheques drawn but not presented till December 31, 20X9: GH¢377,784
(iii) Mark-up on overdraft charged by the bank on January 2, 20Y0 was recorded in the cash/bank book on December 31, 20X9: GH¢118,686
(iv) Collections made on December 30 and 31, 20X9 were not lodged with the bank till January 3, 20Y0: GH¢250,600
(v) A bill which was due on December 29, 20X9 was sent to the bank for collection on December 28, 20X9, and entered in the cash/bank book. However, the proceeds were credited by the bank on January 1, 20Y0: GH¢196,500
(vi) Subscription for a magazine was paid by the bank, as per the auto-debit instructions, on December 1, 20X9. This transaction has not been recorded in the cash/bank book so far: GH¢3,144
(vii) A time-barred cheque was replaced with a new cheque on December 30, 20X9 and entered in the cash/bank book without the previous cheque being cancelled / reversed. Both the cheques are included in (ii) above: GH¢5,000
(viii) A cheque received on December 21 was erroneously recorded on the credit side of the cash/bank book: GH¢7,500
(ix) A cheque issued to a supplier was time-barred as of January 2, 20Y0: GH¢13,200
(x) A cheque issued by the company has been entered in the credit column of the bank statement: GH¢13,200

Required:
Prepare a bank reconciliation statement as at December 31, 20X9 and identify the amount to be carried to the statement of financial position as “cash at bank”.

Answer

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Tags: Bank reconciliation, Cash book, Cheques, Errors, Financial Statements, Overdraft
Level: Level 1

Topic: Bank reconciliations

FA – L1 – Q57 – Bank reconciliations

Prepare a bank reconciliation for Newman & Co as at 31 August 20X9, correcting errors in the cash book and bank statement.

Question

Following information has been collected from the books of Newman & Co, as at August 31, 20X9:
(a) Balance as per bank book
(b) Cash balance on bank statement
(c) Cheques outstanding on August 31 were as follows:

Cheque No.	GH¢
670	13,353
679	14,152
690	17,108
996	3,535
997	14,430
999	23,629

(d) The company made the following payments into the bank in the last week in August but these had not yet appeared on the bank statement.

GH¢
83,250
144,641

(e) The following matters have been discovered.
(i) Receipt of GH¢15,000 was erroneously recorded on the credit side of the bank book.
(ii) A payment of GH¢12,480 was erroneously recorded on the debit side of the bank book.
(iii) The credit side of the bank book has been overcasted by GH¢4,800.
(iv) The bank statement showed an amount collected by the bank but not shown in the cash book in the amount of GH¢87,188.

Required
Prepare the bank reconciliation as at 31 August.

Answer

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Tags: Adjustments, Bank reconciliation, Bank statement, Cash book, Cheques, Errors, Financial accounting, Overdraft
Level: Level 1

Topic: Bank reconciliations

FA – L1 – Q56 – Bank reconciliations

Reconcile cash book with bank statement for Sandwell Ltd, adjust ledger for unrecorded items.

Question

A company, Sandwell Ltd, receives a bank statement. The balance on its cash book (= bank account in the main ledger) is a debit balance of GH₵1,600,000. In reconciling the cash book balance with the bank statement balance, the accountant discovers that the bank statement does not show cheques received from customers for GH₵8,200,000 and banked, or cheque payments to suppliers for GH₵4,700,000. The bank statement also shows bank charges of GH₵150,000, a direct debit payment of GH₵400,000, and a dishonoured cheque for GH₵300,000. None of these three items have yet been recorded in the ledger.

Required:

What is the balance on the bank statement?
What entries should be made in the company’s ledger accounts when the cash book and the bank statement balances have been reconciled?

Answer

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Tags: Adjustments, Bank charges, Bank reconciliation, Bank statement, Cash book, Direct Debit, Dishonoured Cheque, Errors, Financial accounting, Ledger Entries
Level: Level 1

Topic: Bank reconciliations

FA – L1 – Q55 – Bank reconciliations

Calculate the cash book balance given bank statement details, unrecorded transactions, and ledger discrepancies.

Question

A company, Connelly Enterprises, receives a bank statement showing a credit balance of GH₵7,400,000. On investigation, its accountant discovers that the bank statement does not show cheques received from customers for GH₵16,200,000 and banked, or cheque payments to suppliers for GH₵18,500,000. The bank statement also shows bank charges of GH₵250,000, which have not yet been recorded in the ledger.

Required
What is the current balance on the cash book? (This is the balance on the bank account in the main ledger.)

Answer

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Tags: Bank charges, Bank reconciliation, Bank statement, Cash book, Ledger adjustments, Unpresented cheques
Level: Level 1

Topic: Bank reconciliations

Subject (SQ): FINANCIAL ACCOUNTING

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FA – L1 – Q64 – Correction of Errors

Prepare journal entries to correct errors in Mensah and Partners' trial balance, including irrecoverable debts and misposted transactions.

FA – L1 – Q63 – Correction of Errors

Prepare journal entries to correct errors in B.B. Ventures' trial balance, including unposted returns, sales errors, and inventory issues.

FA – L1 – Q62 – Correction of Errors

Prepare journal entries to correct errors in Western Medical Supplies' trial balance as of June 30, 20X9.

FA – L1 – Q61 – Control accounts and account reconciliations

Reconcile accounts receivable ledger control account with ledger balances for Nelson Ltd. Clear suspense account for Nelson Ltd by posting corrections for trial balance errors.

FA – L1 – Q60 – Correction of Errors

Prepare journal entries to correct errors in a trial balance and clear a suspense account for a company with a debit-credit imbalance.

FA – L1 – Q59 – Bank reconciliations

Prepare a bank reconciliation statement for Kofi & Associates as of 31 December 20X9, addressing discrepancies between cash book and bank statement.

FA – L1 – Q58 – Bank reconciliations

Prepare a bank reconciliation statement for Accra & Sons as at 31 Dec 20X9, identifying the cash at bank balance.

FA – L1 – Q57 – Bank reconciliations

Prepare a bank reconciliation for Newman & Co as at 31 August 20X9, correcting errors in the cash book and bank statement.

FA – L1 – Q56 – Bank reconciliations

Reconcile cash book with bank statement for Sandwell Ltd, adjust ledger for unrecorded items.

FA – L1 – Q55 – Bank reconciliations

Calculate the cash book balance given bank statement details, unrecorded transactions, and ledger discrepancies.

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Subject (SQ): FINANCIAL ACCOUNTING

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Prepare journal entries to correct errors in Mensah and Partners' trial balance, including irrecoverable debts and misposted transactions.

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Prepare journal entries to correct errors in B.B. Ventures' trial balance, including unposted returns, sales errors, and inventory issues.

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Prepare journal entries to correct errors in Western Medical Supplies' trial balance as of June 30, 20X9.

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Reconcile accounts receivable ledger control account with ledger balances for Nelson Ltd. Clear suspense account for Nelson Ltd by posting corrections for trial balance errors.

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Prepare journal entries to correct errors in a trial balance and clear a suspense account for a company with a debit-credit imbalance.

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Prepare a bank reconciliation statement for Kofi & Associates as of 31 December 20X9, addressing discrepancies between cash book and bank statement.

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Prepare a bank reconciliation statement for Accra & Sons as at 31 Dec 20X9, identifying the cash at bank balance.

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Prepare a bank reconciliation for Newman & Co as at 31 August 20X9, correcting errors in the cash book and bank statement.

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Reconcile cash book with bank statement for Sandwell Ltd, adjust ledger for unrecorded items.

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Calculate the cash book balance given bank statement details, unrecorded transactions, and ledger discrepancies.

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