Overdraft – Knowsia

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(iii) A debit of GH¢4,200 appeared on the bank statement for an unpaid cheque which has been returned marked “out of date”.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

AAA – L3 – Q59 – Going Concern

Identify factors indicating that a company may not be a going concern.

Question

You are responsible for the audit of Asante Co, a limited liability company, for the year ended 31 December 20X8. The principal activity of Asante Co is the provision of high-quality packaging services for manufacturing companies. The company was established 3 years ago and has significantly exceeded its growth targets in each subsequent year.

Historically, the packaging process was labour-intensive, but in September 20X8, in an effort to reduce labour costs and increase efficiency, the company invested in an enhanced automated packing system. The investment was funded by a loan repayable in monthly instalments over four years. The loan covenant agreement includes a covenant specifying that the company’s debt:equity ratio should not exceed 1:1.

A comparison of the draft financial statements for the year ended 31 December 20X8 with the previous year indicates a significant increase in revenue with a small increase in profitability. The company is currently trading in excess of its overdraft limit and is negotiating an increase in its facility with the bank. Management has prepared, in support of its negotiations, profit and cash flow forecasts based on the assumptions that the anticipated increase in efficiency and reduction in labour costs will be achieved.

The company struggles to meet the weekly wage bill and has fallen behind with its payments to the taxation authorities. It has also failed to comply with the terms of the lease in respect of the factory premises and has not paid the last 3 months’ instalments.

Required:

(a) Identify, and explain, from the information provided above, factors which indicate that Asante Co may not be a going concern. (b) Outline the matters to which you would direct your attention in the period after the end of the reporting period in order to determine whether Asante Co can continue as a going concern for the foreseeable future.

Answer

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Tags: Audit Procedures, Cash Flow, Debt Covenant, Financial Distress, Going Concern, Overdraft, Taxation Liabilities
Level: Level 3

Topic: Evaluation and review

Tag (SQ): Overdraft

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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.

AAA – L3 – Q59 – Going Concern

Identify factors indicating that a company may not be a going concern.

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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.

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FA – L1 – Q58 – Bank reconciliations

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

You're reporting an error for "FA – L1 – Q58 – 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.

You're reporting an error for "FA – L1 – Q57 – Bank reconciliations"

AAA – L3 – Q59 – Going Concern

Identify factors indicating that a company may not be a going concern.

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