MODULE 4: RECONCILIATIONS
INTRODUCTION
This module covers the Bank, Creditors and Debtors Reconciliations. These sections were introduced in the previous
grades, and the grade 12 content integrates bookkeeping activities and also extensively focus at the interpretations of
different reconciliations. The internal control processes are also a critical component that is covered, the objective is
to safeguard the assets of the entity.
OVERVIEW
The following will be covered:
• Bank Reconciliation
• Creditors Reconciliations
• Debtors Reconciliations
• Age Analysis of debtors
• Analysis and interpretation of reconciliations
• Internal audit and control processes relating to reconciliations
SPECIFIC OBJECTIVES
• Bank reconciliation (reconciliation of cash journals and the bank statement)
• Reconcile creditors lists and control account
• Reconcile the creditors ledger and the creditors statement
• Reconcile the debtors list and control accounts
• Debtors age analysis
• Integration of internal control procedures on bank, creditors and debtors.
CONTENT ON RECONCILIATIONS
Reconciliation forms part of the INTERNAL CONTROL PROCESSES where different sets of information are
compared, differences are identified, investigated (if necessary) and corrected.
The purpose of reconciliation is to identify differences, errors and omissions and to verify the accuracy of
all transactions recorded.
It confirms the accuracy of transactions recorded in the subsidiary journals and the balance reflected in
the statements received from external sources such bank and creditors.
Types of Reconciliations
Bank
1
Creditors
Debtors
WHY SHOULD WE RECONCILE THE FOLLOWING?
BANK
DEBTORS
CREDITORS
◼ The Bank Account
balance in the General
Ledger of the business is
never the same as the
balance on the Bank
Statement received
from the bank.
◼ The balance of the Debtors
Control account in the
General Ledger should be
the same as the total of the
Debtors List.
(An internal control
measure).
◼ The balance of the Creditors Control
account in the General Ledger should
be the same as the total of the
creditors’ list.
◼ A Creditor’s Ledger account in the
books of the business should match
the statement balance from the
creditor.
1. BANK RECONCILIATION
It enables the business or individual to keep track of the following:
◼ Outstanding cheques
◼ Outstanding deposits
◼ Electronic transfers made by the business or person
◼ Electronic transfers /direct deposits in favour of the
business
◼ Interest on overdrafts
◼ Interest earned on the credit balance
◼ Stale cheques
◼ Bank charges/ service fees
Concepts unique to Bank Reconciliation
Current Bank account
Cheque
Cheque counterfoil
Bank charges
Bank overdraft
Interest on overdraft
Interest on current account
Credit card
2
An account from which money can be drawn immediately without notice,
payments can be made by cheque, electronic transfers or debit card.
An instruction to the bank, signed by the drawer, to pay a specific sum of
money.
This is the portion of the cheque that is kept by the drawer as proof of the
cheque payment.
Amounts deducted by the bank as payment for the services it provides. This is
reflected on the statement.
The business has withdrawn more money than was deposited in the bank
account.
Represents a payment (expense) to the bank for an overdraft bank balance.
A receipt (income) from the bank for reflecting a favourable bank balance.
This is used to buy goods or services from suppliers, and the amounts used is
paid back to the bank at a later date.
Concepts unique to Bank Reconciliation
Debit card
This is used to buy goods/services and the amount is immediately deducted
from your bank account balance.
Dishonoured cheque
(R/D cheque)
The cheque deposited by the business has not been paid out by the bank
because of errors or insufficient funds
Deposit slip
This form is used to record the total cash and cheques received for the day and
is proof of the amount deposited in the current account.
Electronic transfer of money from one bank account to another, without direct
interaction of the bank staff.
Electronic funds transfer
(EFT)
Comparison between the bank statement and the current bank account
Records of the business
Records of the bank
◼ Cash transactions recorded in the CRJ and CPJ
◼ The bank sends a statement of account to the
business showing a record of all transactions
through that account.
◼ Cash received and deposited is reflected on the
debit side of the Bank Account
Asset of the business increase
◼ The Bank credits all deposits made by the business
Liability of the bank increase
◼ Payments made by the business are reflected on
the credit side of the bank account
Assets decrease
◼ Payments, withdrawals, debit orders made by the
business are recorded on the debit side of the bank
statement.
Liability decrease
◼ A favourable balance is reflected on the debit
side of the Bank account
◼ A favourable bank balance is reflected on the credit
side of the Bank statement
◼ An unfavourable bank balance (bank overdraft)
is reflected on the credit side of the Bank
account
◼ An unfavourable bank balance is reflected on the
debit side of the Bank statement
Bullet two and three are
applicable to a FAVOURABLE bank
account
3
LIST OF POSSIBLE ERRORS, DIFFERENCES AND OMISSIONS
When comparing the Cash Journals against the Bank statement the following errors, differences omissions will be
identified:
Entries on Bank Statement
Records Corrected or Updated
Credit Entries
Interest on current account
Direct deposits
Internet deposits
Entries appearing in the Bank Statement only ,will be
recorded in CRJ.
Debit Entries
Interest on overdraft
Unpaid cheques received (RD)
Stop orders and Debit orders
Bank charges
❖ Service fees
❖ Cheque book
❖ Levy on debit transactions
❖ Credit card costs, etc.
Entries in Cash Journals
Entries appearing in the Bank Statement only, will be
recorded in CPJ.
Records Corrected or Updated
Cash Receipts Journal
Amounts received incorrectly recorded
(include cheques and EFT’s)
❖ Overstated
❖ Understated
Overstated
Difference should be
recorded in the CPJ
Understated
Difference should be
recorded in the CRJ
Cash Payments Journal
Amounts paid incorrectly recorded
(include cheques and EFT’s)
❖ Overstated
❖ Understated
Overstated
Difference should be
recorded in the CRJ
Understated
Difference should be
recorded in the CPJ
Errors of overstating and understating are normally picked up when:
Bank Statement is compared against the Journals
When financial records are audited internally
4
Cheques
Obtained from the following
documents /records
Correction and Reconciling
Dishonoured cheques
Bank Statement (DR)
Previously recorded in CRJ
Record in CPJ –cancel the receipt
Stale cheques
Post-dated cheques
Lost cheques
Bank Reconciliation statement as
outstanding cheques
Were recorded in CPJ
Record in CRJ
Record in BRS
Record in CRJ
Take note
The replacement of lost cheques is recorded in the
CPJ
Post dated cheques –will be kept in the BRS until they are
presented for payment (by creditors)
Remember that !!
 Post-dated cheques received by the business are kept
in the register for post-dated cheques
 They are recorded in CRJ on the date reflected on
cheques.
Bank Reconciliation Statement Entries
◼ Closing balance of the Bank Statement
◼ Favourable (CR) or unfavourable balance (DR)
◼ Deposits not yet credited by the Bank
◼ Credit entry – you may have more than one
deposit
◼ Cheques drawn not yet presented for payment
◼ Debit outstanding cheques
◼ Debit wrongly credited amount
◼ Credit wrongly debited amount
◼ Correction of wrongly debited or credited
amounts by the bank does not affect our
Journals/Records, will be recorded in the BRS.
◼ Closing balance according to the Bank account
◼ Favourable (DR) or unfavourable balance (CR)
Format of the Bank Reconciliation Statement (BRS) is key for exams, candidates should know
the amounts credited or debited
Refer to 2017 and 2019 NSC exams –Structure of Answer books on BRS
5
Internal control processes that should be implemented to safeguard cash are:
◼
◼
◼
◼
◼
◼
◼
◼
◼
◼
6
Ensure deposits are done on regular basis
Rotate duties and times of banking to avoid creating a pattern
Provide security when going to bank ,at least two people should go
Divide duties ,the person who receives cash cash cannot be the person who banks or prepare the financial
records.
Use the collection companies to collect cash on a daily/regular basis.
Check documentation ,receipts against deposit slips
Senior personnel should check via internet banking / deposit slips that deposits reflected daily.
Request SMS from bank for all transactions.
Encourage debtors to make direct transfers (EFT).
use of electronic notification of cash/bank deposits
25 Minutes
Activity 1: Bank Reconciliation
QUESTION 1: BANK RECONCILIATION AND INTERNAL CONTROL
NSC -2017 NOV
(30 marks; 20
minutes)
1.1
Indicate whether the following statements are TRUE or FALSE. Write
only 'true' or 'false' next to the question number (1.1.1–1.1.3) in the
ANSWER BOOK.
1.2
1.1.1
A favourable balance on the Bank Statement is indicated as a debit.
1.1.2
A post-dated cheque received must be entered on the date received.
1.1.3
An issued cheque that has been lost must be cancelled in the CRJ.
(3 x 1)
(3)
MENZIES TRADERS
The given information relates to Menzies Traders for June 2017.
REQUIRED:
1.2.1
Calculate the following on 30 June 2017:
• Correct totals for the CRJ and CPJ
• Bank account balance
(14)
1.2.2
Prepare the Bank Reconciliation Statement on 30 June 2017.
(9)
1.2.3
Explain the problem relating to deposits.
Explain TWO strategies to prevent this in future.
(4)
Quote
evidence.
INFORMATION:
A.
The Bank Reconciliation Statement on 31 May 2017 showed the
following:
Unfavourable balance on the Bank Statement
Outstanding deposits:
• 17 May 2017
• 31 May 2017
Outstanding cheques:
• 605 (dated 16 December 2016)
• 812 (dated 10 April 2017)
• 816 (dated 25 May 2017)
• 819 (dated 15 August 2017)
• 823 (dated 31 May 2017)
Unfavourable balance on the Bank account in the Ledger
7
R1 450
30 000
16 200
9 750
8 550
13 590
7 650
2 900
R5 210
B.
Provisional Cash Journal totals on 30 June 2017:
•
•
C.
Cash Receipts Journal: R90 500
Cash Payments Journal: R85 920
Entries in the Cash Journals for June 2017 that do not agree with the June
Bank Statement:
JOURNAL
DOCUMENT
DATE
DETAILS
AMOUNT
EFT 19
11
Paintco
R5 500
CRJ
Deposit slip 451
25
Cash sales
R40 500
NOTE: EFT 19 was incorrectly entered in the CRJ instead of the CPJ.
JOURNAL
CPJ
D.
DOCUMENT
Cheque 870
EFT 21
DATE
25
30
DETAILS
VN Ltd
SJ Stores
AMOUNT
R16 800
R2 250
Items on the Bank Statement dated 30 June 2017 that do not agree with the
June Cash Journals:
DATE
02
05
09
11
12
16
18
22
23
24
DETAILS
Deposit (17/5)
Cheque 812
Debit order (insurance)
Direct transfer to Paintco (EFT 19)
Cheque 816
Deposit (31/5)
Direct transfer from S Smit (rent)
Cheque 823 (see note below)
Unpaid cheque
(B Blast settled his debt, R795)
Service fee
DEBIT
CREDIT
30 000
8 550
2 290
5 500
13 590
16 200
16 500
9 200
750
1 220
NOTE:
• Cheque 823: Bank Statement figure is correct.
• Service fees were overstated by R900. The bank will rectify the problem
next month.
E.
The Bank Statement on 30 June 2017 reflected a balance of R?
30
8
30 Minutes
Activity 2: Bank Reconciliation
QUESTION 2: RECONCILIATION
NSC NOV 2019
The information relates to Klonex Traders.
(30 marks, 20 minutes)
REQUIRED:
2.1
The owner, Ben Joseph, realises that many people are now using electronic funds
transfers (EFTs) instead of cheques.
2.1.1
State THREE advantages of EFTs.
2.1.2
Janet, the bookkeeper, has been assigned the duty of processing and
controlling all EFTs.
(3)
Explain TWO reasons why the internal auditor is concerned about this.
(4)
Show changes in the Cash Journals for June 2019.
2.2
(11)
2.3
Calculate the correct Bank Account balance on 30 June 2019.
(4)
2.4
Prepare the Bank Reconciliation Statement on 30 June 2019.
(8)
INFORMATION:
A. Extract: Bank Reconciliation Statement on 31 May 2019
Outstanding deposit
Outstanding cheques
No.
Date
321
10 December 2018
427
14 May 2019
444
27 May 2019
516
28 May 2019
Favourable balance on Bank Account
R9 500
R1 500
R1 400
R4 670
R7 950
R9 200
NOTE:
•
•
•
•
•
9
The outstanding deposit appeared on the June Bank Statement.
Cheque 321 was issued for the owner's club fees. It was never deposited.
Cheque 427 did not appear on the June Bank Statement. It was lost and a new cheque
will be issued in July.
Cheque 444 did not appear on the June Bank Statement.
Cheque 516 appeared on the June Bank Statement with the correct amount of
R5 250.
B.
Provisional totals in the Cash Journals on 30 June 2019 before receiving the Bank
Statement:
Cash Receipts Journal: R27 470
Cash Payments Journal:
R32 400
C.
Entries in the Cash Journals NOT on the June Bank Statement:
•
Deposit, R9 675
•
EFT 14 (30 June 2019), R3 800
•
Cheque 522 (12 August 2019), R4 580
D.
Entries on the June 2019 Bank Statement NOT in the Cash Journals:
DATE
15
16
25
30
30
DETAILS
Debit order: Micro Insurance*
Debit order: Micro Insurance*
Unpaid cheque (debtor, B Marais)
M Malan (EFT by tenant)
Interest income
Service fees
R
1 125
1 125
1 200
2 800
130
175
*Insurance appeared twice in error. This will be rectified next month.
E.
Bank Statement balance on 30 June 2019: …?
30
10
REFLECTION ACTIVITY
Balance per BS.
If favourable (CR)
If unfavourable (Dr)
BANK RECONCILIATION STATEMENT
DEBIT
CREDIT
Credit balance according to the
Bank Statement
Deposit yet credited by the Bank
Always Credited
Note –Some activities will have
more than one outstanding
deposit
Cheques not yet presented for
payment and outstanding EFTAlways recorded on the Dr side
Error committed by the bank, it
cannot be corrected in our
books, the bank is responsible
for correcting
620
Credit outstanding deposit
10 220
Debit outstanding cheques:
No 409
4 455
No 410
1 235
No 411
10 500
Outstanding EFT
3 000
Cr amount wrongly debited by
bank
1 000
Credit balance according to the
Bank account
7 350
19 190
Balance per Account
If favourable (DR)
If unfavourable (CR)
Total of debit side must be
equal to credit side
Possible Exam Questions
◼ Calculation of the Bank opening balance using the previous month Bank Reconciliation
◼ Calculate the Total Receipts and Total payments
OR
◼ Complete the detailed Bank Account (Record all transactions affecting CPJ and CRJ)
◼ Complete the Bank Reconciliation Statement
◼ Analysis and interpretation of the BRS
◼ Questions on internal control processes
◼ Questions on fraud committed by employees and action that should be taken against them
11
19 190
Sections /items that should be integrated with financial statements –Balance Sheet
◼ Treatment of Post-dated cheque paid to creditors at the end of the year:
 Increase Bank (Favourable) and increase Creditors Control
 If the bank is unfavourable –reduce overdraft
◼ Dishonoured cheque will have the following effect:
 Reduce Bank Account and increase Debtors Control
 If the bank is unfavourable –increase overdraft
2. CREDITORS RECONCILIATION
Creditors reconciliation is an internal control measure that highlights the differences between a Creditor’s
balance in the creditor’s ledger of a business and the monthly statement received from a creditor (an
external set of information). This process ensures that the creditors’ accounts are properly maintained and
controlled.
The second type of reconciliation involves comparing the Creditors Control account in the General Ledger
against the Creditors List and correcting differences thereof.
Creditors Control Account: The General Ledger account that contains all related totals from the relevant
Subsidiary Journals. The account balance allows one to verify the accuracy of Creditors lists total.
Possible reasons for differences in the control account balance and the list of creditors are:
Errors made on source documents
Incorrect additions in the journal (casting errors)
Posting incorrect amounts to the ledgers
Posting to the incorrect side in the ledgers
Incorrect balancing of accounts in the ledgers
Reconciliation of creditors statements with their creditors ledger accounts
These typical reasons explain why the balance on the statement received from a creditor is different from the
Creditor’s ledger account balance:
The statement date differs from the closing date in the Creditors Ledger.
Transactions (purchases; returns/allowances; payments; discounts) could have been omitted or entered
incorrectly in the Creditors Ledger account and/or the statement of account.
A discount could have been deducted on the Creditors ledger account but not accepted by the creditor.
Posting and/or recording errors in either the creditor’s ledger and/or the statement.
Addition or subtraction errors in either the creditor’s ledger and/or the statement.
12
The Reconciliation process involves the following steps:
Step1: Compare the credit (+) column of the Creditors Ledger with the debit (+) column of the statement.
Creditors Ledger
Invoices
Statement of Account
Invoices
Step 2: Compare the debit (–) column of the Creditors Ledger with the credit (–) column of the statement.
Creditors Ledger
Debit notes
Cheques
Discount received
Statement of Account
are
Credit notes
compared Receipts
with
Discount allowed
Step 3: Tick the amounts that appear in both the Creditors Ledger and the statement.
Circle the amounts that appear in only the Creditors Ledger or the statement.
Step 4: Errors and/or omissions in the Creditors Ledger must be corrected by the business.
Step 5: Errors and/or omissions on the statement must be recorded in the Creditor’s Reconciliation Statement.
The Creditor must be notified of this error/omission so that it can be corrected on the next
statement.
TYPES OF ERRORS
◼ Error of Omission – a transaction is not recorded at all
◼ Error of commission – an item is entered to the correct side of the wrong account (there is a debit and a
credit entry, the records balance).
◼ Error of principle – an item is posted to the correct side of the wrong type of account, For example cash
paid for repairs (expense) is debited to an asset account.
◼ Error of original entry – an incorrect figure is entered in the records and then posted to the correct account
◼ Reversal of entries – the amount is correct, the accounts used are correct, but the account that should have
been debited is credited and vice versa
13
PROCEDURE FOR CORRECTING ERRORS
ERROR
CORRECTION
Incorrect entry in the Creditors Ledger , e.g.
wrongly credited the account
Overstated amount on the debit side of
Creditors Ledger
Understated amount on the debit side of
Creditors Ledger
Returns entered as purchases in the creditors
ledger (on credit side of Ledger )
Correct on the debit side of the Creditors
Ledger to cancel the entry
Calculate the difference and record it on
the credit side
Calculate the difference and record it on
the debit side (same side)
Double the amount and record on the debit
side of the Creditors Ledger
The creditors ledger may reflect transactions that took place after the issue date reflected in
the creditors statement,the statement should be updated with such figures by the creditor.In
our books this entry will be recorded in the Creditors Reconciliation.
Ommissions in both records ,record the entry in both records, this is normally applicable to the
reconciliation of Creditors list and creditors control ( Internal records)
The errors suchs as understating ,overstating ,incorrect entries etc.can also be identified
on the statements received from creditors .
Internal controls relating to creditors include:
Adequate segregation (separation) of duties with regards to creditors’ transactions. (E.g. the same
person should not order and receive goods.)
The clerk receiving the items from creditors must check the delivery note against the order form to
ensure that all items ordered were delivered.
All documents (invoices; debit notes etc.) relating to credit transactions must be correctly processed in
the proper journals.
Paying creditors on time to take advantage of settlement discounts and to avoid interest being charged.
Transactions involving purchase of goods from creditors should be authorised
Check accuracy of invoices from creditors
Invoices to be processed (stamped) before payment
14
15 Minutes
ACTIVITY 1: CREDITORS RECONCILIATIONS
CREDITORS RECONCILIATION
The information relates to Kirsten Traders for August 2019. Kirsten Traders buys goods
on credit from Amla Suppliers.
REQUIRED:
Use the table provided to indicate the changes that must be made:
• In the Creditors Ledger Account in the books of Kirsten Traders
• In the Creditors Reconciliation Statement on 31 August 2019
(9)
INFORMATION:
The following differences were discovered when comparing the account in the Creditors
Ledger with the statement received from Amla Suppliers:
A
An invoice for R14 800 was recorded incorrectly as R1 480 on the statement
received from the creditor.
B
The bookkeeper of Kirsten Traders recorded an invoice for R1 350 as a credit
note.
C
The discount of R850 was in error, overstated by R350 in the Creditors Ledger.
D
A cheque for R7 200 issued by Kirsten Traders did not appear on the statement
due to the statement been processed early.
E
Goods for R2 700, returned by Kirsten Traders, was not recorded.
40
CREDITORS' RECONCILIATION
Creditors Ledger
Balance
28 370
Creditors Reconciliation
Statement
25 300
9
15
15 Minutes
ACTIVITY 2: CREDITORS RECONCILIATIONS
CREDITORS RECONCILIATION
MZN Traders buys goods on credit from Styles Suppliers.
REQUIRED:
Use the table on the ANSWER sheet to indicate how the balances given, will
change when preparing the creditors' reconciliation. Indicate the figure as well as
a + for increase and a – for decrease.
(14)
INFORMATION:
Balance due to Styles Suppliers on 31 July 2020 as per
Creditors’ Ledger account in the books of MZN Traders
Balance due by MZN Traders on 28 July 2020 as per statement
of account received from Styles Suppliers
12 160 (Cr)
41 380 (Dr)
ERRORS AND OMISSIONS:
16
A
A payment of R8 700 by MZN Traders was not recorded in the Creditors ledger
account and appear not on the statement as well.
B
A discount of R950 for early payment was correctly recorded by MZN Traders. This
was not reflected on the statement.
C
MZN Traders recorded a debit note of R1 540 in the Creditors ledger account of
Styles Suppliers in error. This was for goods returned to another supplier.
D
An invoice for R28 600 received from Styles Suppliers was recorded correctly in the
Creditors Ledger account. The statement of account reflected this invoice as R26
800.
E
The statement of account showed an invoice for goods purchased, R5 930. This
transaction was not recorded in the books of MZN Traders.
F
An invoice of R4 700 was incorrectly recorded as a payment by MZN Traders.
G
A debit balance of R2 925 for repairs to a photocopier was transferred from the
account of Styles Suppliers in the Debtors Ledger to their account in the Creditors
Ledger. This transaction was not recorded by Styles Suppliers.
H
A payment of R10 275 made on the 29 July 2020 by MZN Traders was not reflected
in the statement.
25 Minutes
ACTIVITY 3: CREDITORS RECONCILIATIONS
2.2
CREDITORS RECONCILIATION AND INTERNAL CONTROL
A newly appointed bookkeeper of Molimo Traders has been having problems in preparing the
monthly Creditors Reconciliation, since the balance of the Creditor’s account in the Creditors
ledger does not coincide with the statement of account received from the supplier.
REQUIRED:
2.2.1
2.2.2
2.2.3
Prepare a Creditors reconciliation statement on 30 June 2019 and calculate
the correct balance of Bailey Ltd in the Creditors’ Ledger.
Refer to Information D.
Calculate the average creditors payment period in days.
(5)
Provide TWO internal control measures which can be implemented by a
business for good internal control over creditors.
INFORMATION:
A.
B.
17
Creditors Ledger of Molimo Traders
BAILEY LTD
Date
Details
Debit
June 01 Account rendered
07 Electronic payment
9 000
Discount received
450
15 Invoice 5671
16 Debit Note 121
900
23 Invoice 5801
26 Invoice 6011
29 Electronic payment
10 000
Discount received
500
(13)
Credit
6 555
7 835
5 800
Balance
18 510
9 510
9 060
15 615
14 715
22 550
28 350
18 350
17 850
Statement received from Bailey Ltd
BAILEY LTD
STATEMENT OF ACCOUNT
Date: 25 June 2019
Masukhane Street 498
Tel. 033 345 6901
Pietermaritzburg 3201
Fax. 033 333 1455
ACCOUNT OF: MOLIMO TRADERS
Account number: 09/7412
Date
Details
Debit
Credit
Balance
Jun
01 Account rendered
18 510
07 Receipt
9 000
9 510
Discount
900
8 610
15 Invoice 5671
6 900
1 710
(4)
16
20
23
C
D
.
Debit Note 121
Invoice 5780
Invoice 5801
900
3 320
5 985
810
4 130
10 115
Additional information:
(a)
The discount reflected on 7 June on the statement of account is correct.
(b)
Trade discount of 5% was deducted on Invoice 5671. Bailey Ltd did not
take this discount into account. They also made an error in recording
Invoice 5671.
(b)
After an investigation, it was established that the invoice on 20 June is
in respect of a purchase made by another business.
(c)
Invoice 5801 reflected on 23 June on the statement of account, is
incorrect.
(d)
There are some entries in the Creditors Ledger which do not appear on
the monthly statement of account as these transactions took place after
the statement date.
Information on 28 February 2019 (year-end):
Cost of sales
Credit purchases for the year
Cash purchases for the year
Creditors Control balance (1 March 2018)
Creditors Control balance (28 February 2019)
R720 000
R416 100
R180 000
R50 000
R64 000
40
18
Reconciliation of Creditors list and Creditors Control and Internal control
Records Prepared Internally
(Creditors List vs Creditors Control)
Creditors List
-
The two Ledger accounts
are prepared by the business.
[General Ledger and Subsidiary Ledger]
+
Totals of the two must be the same,
because they are prepared from the
same information
Creditors control
-
+
They both increase on the credit side
and decrease on debit side
 Creditors List is asummary of individual ledger accounts of creditors that reflects amounts owing
at the end of the month.
 Separate ledger account for each creditor is kept ( Creditors Ledger )
 Examples of entries affecting creditors are:
Debit
-
Credit
Purchases
+
Creditors Allowances
Payments
Interest charged
Discount received
Effect on balance
Increase
Reduce
Reduce
Increase
Reduce
 Individual ledger accounts –will guide a business on frequency of purchases and payments made
to each creditor ,it serves as a control measure.
19
Internal records compared to Creditors
Statement
-
Creditors Ledger (Internal)
+
+
Creditors Statement (External)
-
Creditor’s ledger account- prepared by
the business
Creditor’s Statement is an external
document prepared by the Supplier
(Creditors).
Total of the two must reconcile
 Suppliers regard the business as a debtor that’s why we compare different sides, debit side of
creditors ledger is compared against credit side of creditors statement
Note: Comparison between Creditors ledger and creditors statement
3. DEBTORS RECONCILIATION
It is normal procedure to compare the balance of the Debtor’s Control account with the total of the Debtor’s List
at the end of each month. If the balance/total is not the same, the errors and omissions should be identified and
addressed in order to reconcile the books.
The Debtors control account, debtors ledger and debtors list
◼ Debtors Control Account - General Ledger account that contains all the related totals involving debtors from
the relevant subsidiary journals.
◼ The entries to the control account must correspond to the entries made to individual debtor’s accounts in the
debtor’s ledger.
◼ A list of all the debtors balances is compiled and the total amount owed by the debtors must then be equal to
the balance of the debtors control account.
The entry (ies) in the journal (s) will be posted on a daily basis to the Debtor’s ledger and
the total at the bottom of the journal will be posted at the end of the month to the Control
Account.
20
FORMAT OF THE CONTROL ACCOUNTS AND THE SUBSIDIARY LEDGERS
GENERAL LEDGER OF KIMA TRADERS
DR
+
Debtors Control (asset)
GENERAL LEDGER OF KIMA TRADERS
CR
[1800+ 800 + 50 ]
Balance
b/d 1000 Bank & discount CRJ 1 850
Sales
DJ 2000 Debtors allowances DAJ
250
Bank(RD)
CPJ 800 Journal credits
GJ
0
Journal debits
GJ
65 [bad debts & transfers]
[interest charged and [50]
cancel discount]
[15]
Balance
c/d
3 865
b/d 1 765
Balance
1765
3 865
Creditors Control (liability) +
CR
[3 000 + 30]
Bank & discount CPJ 3030 Balance
b/d
Sundry allowances CAJ 500 Sundry purchases CJ
Journal debits
GJ
0 Bank(RD / refunds) CRJ
[bad debts & transfers]
Journal debits
GJ
[interest charged [35]
5 000
4 000
0
35
And cancel discount]
Balance
c/d 5505
9 035
Balance
DEBTORS LEDGER OF KIMA TRADERS
b/d
9 035
5505
CREDITORS LEDGER OF KIMA TRADERS
CREDITOR’S LEDGER
DEBTORS LEDGER
TRANSACTIONS
DR -
Folio
Debit Credit
Balance
+
-
1. Balance brought forward
1 000√
2 000
BONGI Wholesalers
Folio
Debit Credit
+
Account Rendered
Bal
5 000√
2. Invoice 222
DJ
3 000
Invoice 222
CJ
3. Credit note 89
DAJ
250
2 750
Debit note 45
CAJ
500
6 000
4. Receipt 567
5. Discount
CRJ
CRJ
800
50
1 950
1 900
Cheque counter foil 66
Discount received
CPJ
CPJ
3 000
30
3 000
2 970
6. RD cheque/-debit slip
CPJ
800
2 700
Invoice 345
CJ
2 500
5 470
7. Cancel discount of RD
GJ
50
2 750
General voucher -interest
GJ
35
5 505
8. Receipt 582
CRJ
9. 1% Interest charged
GJ
1 000
15
1 500
6 500
1 750
1765
Debit side of Debtors Control Account is compared with the debit side of the Debtors Ledger
and credit is compared to credit. This will also apply to the Creditors Reconciliations.
Control Accounts and Creditors/Debtors Ledger are prepared internally.
The Bank Reconciliation will compare the credit side of the statement with the CRJ and debit
side with CPJ.
Creditors Ledger and the statement from the Creditor will compare opposite sides (debit and
credit)
21
REASONS FOR DIFFERENCES IN THE CONTROL ACCOUNT AND LIST/ ACCOUNT OF DEBTORS AND
CREDITORS
TYPE OF ERRORS /OMISSIONS
Errors on source documents
Source document not recorded
Recording errors in Subsidiary Journals
Incorrect additions of TOTAL in journal
(over cast) or (under cast)
Incorrect posting from journal to the control account.
Incorrect posting from the Journals to the list/ or the
account of the debtor
Entry or total recorded on the wrong side
CORRECTION OF ERRORS
Correct Control A/c and List
Correct Control A/c and List
Correct Control A/c and List
Only in the Control Account
Only the Control Account.
Only the List / or the account of debtor
Double the entry on the correct side
20 Minutes
Activity 1: Debtors Reconciliations
Answer Sheet 1 : Debtors Reconciliation
DEBTORS' CONTROL ACCOUNT AND DEBTORS LIST
2016 PRELIM: FREE STATE
The bookkeeper of Groenewald Stores made some mistakes and omitted certain transactions in
preparing the Debtors Control Account and the Debtors List on 30 June 2016. You are the internal
auditor of the store and you are called upon to correct the mistakes.
REQUIRED:
Use the format provided to reconcile the balances of the Debtors Control and the Debtors List. Write
in the correct amount with a + sign to show an increase and – sign to show a decrease and 0 for no
entry. Details are not required.
INFORMATION:
A.
B.
Balances on 30 June 2016
Debtors' Control Account
Debtors' List
R47 200 (Dr)
R53 090 (Dr)
ERRORS AND OMISSIONS:
1. The total of the Debtors Allowance Journal was undercast by R4 210.
2. Issued receipt no.105 for R3 800 to N Pieterse who had made a partial payment towards her
account. Her account was mistakenly debited with this amount.
3. Received R2 500 from a tenant for the June rent. This amount was erroneously entered in
the Debtors Control column of the Cash Receipts Journal.
4. An invoice for R700 issued to a debtor, P Pollie was completely omitted when books were
drawn up.
5. A credit note for R850 issued to a debtor, K Kwatsman, for goods returned by him, was
entered in the Debtors' Journal in error and posted accordingly.
10
22
Debtors Reconciliation
Detai
ls
No
Debto
rs'
Contr
ol
Debto
rs'
List
1
A
2
3
4
5
REFLECTION ACTIVITY
Debtors and Creditors - Integration with the Balance sheet notes
Transaction
Explanation
Accounting record
Transfer the credit balance of a
The transaction will affect the
Debtors
AgeLedger
Analysis
ledger
is broken -downfollowing
into timenotes:
periods to clearly
debtor in the
Debtors
to –when
+ a debtors
Debtors
Ledger
how long an amount
has been outstanding.
his accountindicate
in the Creditors
Trade and Other Receivables: Will
xxxxx
xxxxx
Ledger.
increase
Creditors Ledger
+
Trade and other Payables: Will
xxxxx
increase
Debtors Ledger: Dr
Creditors Ledger: Cr
Transfer the debit balance of a
Creditor in the Creditors Ledger
to his account in the Debtors
Ledger.
Creditors Ledger
xxxxxx
xxxxx
+
Debtors Ledger
xxxxxx
Debtors Ledger: Dr
Creditors Ledger: Cr
+
The transaction will affect the
following notes:
Trade and other Payables: Will
increase
Trade and Other Receivables: Will
increase
 When correcting errors- firstly demonstrate the incorrect entry /mistake, then demonstrate the correct
entry(ies)
23
DEBTORS AGE ANALYSIS
Debtors age analysis-is a tool used to manage the outstanding debts and identify debtors who not comply with
the credit agreement. It displays a breakdown of debtors’ accounts balances for each specified period for
selected debtors accounts or a range of selected debtor’s accounts. Debtors Age analysis is useful for credit
control, helps a business to anticipate any cash flow problems.
Debtors ledger –is used to manage and monitor the accounts of individual debtors.
The Debtors clerk /Debtors credit controller is responsible for:
Monitor debtors’ credit rating before extending any credit to the debtor.
Monitor debtors’ accounts to avoid exceeding of credit limit.
Ensuring that payments are received as per agreement.
Approve the credit sales before any order is delivered to a customer.
Debtors age analysis –when a debtors ledger is broken down into time periods to clearly
indicate how long an amount has been outstanding.
TWO rules applicable when calculating Age Analysis
•
Credit note
subtracted from
recent invoice
Returns are subtracted from the latest sales
Issue a receipt for
payment and
discount
Important information for exams: Debtors Age Analysis
Problems reflected by the debtors age analysis:
Slow payers
Debtors exceeding credit limits
Continued sales to defaulting debtors
Internal control measures OR action to be taken against problems identified
Calculate the percentage of outstanding debtors
24
NB: Identify figures and quote names of debtors when responding
ILLUSTRATION ACTIVITY: DEBTORS AGE ANALYSIS (ENRICHMENT)
25 Minutes
This activity is aimed at providing background information on how Age Analysis is compiled.
REQUIRED:
Prepare:
•
•
•
The debtors age analysis statement
A summary of aging statement
A step-by-step illustration of the month number and balance per month
INFORMATION:
A.
P. David has the following credit agreements with A. Armstrong
• Credit limit: R5 000
• Credit terms: 60 days
B.
Transactions:
1 May 2017
5 May 2017
15 May 2017
25 May 2017
6 June 2017
30 June 2017
10 July 2017
26 July 2017
31 July 2017
25
Outstanding balance of R1 800 at the beginning of the month.
Receive a cheque from A Armstrong for R1 000 as payment on the amount
owing for April 2017: A. Armstrong received R50 discount. Issued a receipt
491
Issued invoice 1564 for goods sold on credit to A. Armstrong, R1 600.
A. Armstrong returned merchandise for R200. Issued a credit note 184.
Sold goods on credit to A. Armstrong for R2 100 and issue invoice 1589.
Interest charged on A. Armstrong’s overdue account amounted to R50
(journal voucher).
Received a cheque for R1 500 from A. Armstrong as payment of his debt.
Issued receipt 601
Issued invoice to A. Armstrong as payment for merchandise sold to him for
R1 900
Charge A. Armstrong’s overdue account with R60 interest (journal voucher)
DEBTORS AGE ANALYSIS
A. ARMSTRONG
DATE
RECEIPTS/
TOTAL DEBITS
DISCOUNTS/
(Cr sales and other Debits)
RETURNS
Name of
debtor
A. Armstrong
% of Total
26
Bal
AMOUNTS
Current
amount
CLOSING
BALANCE
1 month
(30 days)
May
2 months
60 days
June
3 months 90
days
July
More than 3
months
DEBTORS AGE ANALYSIS: A ARMSTRONG
Month
Receipts
Returns
Discounts
Months
Balance
May
June
July
1 800
May
[18 00 -1 050]
June
1 050
200
#
750
1 600
*(200)
July
1 500
(750)
(750)
2 100
*50
#
Nil
650
2 150
1 900
60
1 960
90 days
60 days
30 days
Current
Amount Outstanding
650 + 2 150 + 1 960 = 4 760
650
4 760
13.6%
x
100
1
2 150
4 760
x
100
1
45%
1 960
4 760
x
100
1
41.4%
*(R200) Returns are deducted in May, because the goods were purchased in May. Goods can
only be returned by customers within the specified period.
*R50 for interest is charged in the month of June, and will affect our Journals for June, it is not
charged on the goods purchased in June but BEFORE JUNE.
#
27
No payment from A.Armstrong in June
20 Minutes
Activity 1: Debtors Age Analysis
DELUSH LTD.
The debtors’ age analysis of Delush Ltd. on 28 February 2018, is presented.
REQUIRED:
2.1
Identify the problem with debtor G. Hugo. Quote figures.
2.2
What should the credit controller do about N. Tshabalala’s account in March 2018? Give THREE
actions.
.
Explain why debtor, A. Wijn, should be handed over to the attorneys.
2.3
INFORMATION:
A.
Debtors age analysis on 28 February 2018:
Debtor
A. Wijn
G. Hugo
B. Luus
N. Tshabalala
W. Morgan
L. Ntshinga
B.
28
Credit Limit
5 000
5 500
3 000
6 000
3 500
5 000
Current
4 200
2 150
1 850
1 550
3 250
13 000
30 days
60 days
90 days
> 90
days
5 000
1 550
1 425
800
1 350
620
3 775
1 970
80
1 175
1 255
The terms allowed to debtors are as follows:
• If paid within 30 days, a 2% discount will be allowed.
• If not paid after 60 days, 5% p.a. interest will be charged.
• If not paid after 90 days, the account will be handed to the attorneys for collection.
5 000
25 Minutes
Activity 2: Reconciliations
QUESTION 1: CONCEPTS AND RECONCILIATION
2015 PRELIM-NC
1.1
(35 marks; 25 minutes)
BANK RECONCILIATION
1.1.1
Indicate whether the following statements are TRUE or FALSE. Write only ‘true’ or
‘false’ next to the question number (a – d) in the ANSWER BOOK.
(a)
Preparing a bank reconciliation statement is an important part of internal
control in a business.
(b)
Interest on a bank overdraft is recorded as part of bank charges.
(c)
A credit balance on the bank statement is favourable.
(d)
A post-dated cheque issued must be recorded in the Cash Payments
Journal on the date of issue.
1.1.2
(4)
You are provided with information relating to Orion Traders.
REQUIRED:
(a)
(b)
(c)
Cheque no. 789 is stale. The cheque was issued to MP Aid Fund as a
donation. The organisation does not exist anymore. Show the double entry to
record the stale cheque.
(2)
The financial year of Orion Traders ends on 30 June, annually. How would cheque
no. 1040 be treated in the financial statements?
(2)
State ONE error by the bank, which could result in the erroneous debit entry of
R1 550 on the bank statement of Orion Traders.
(2)
INFORMATION:
Bank Reconciliation Statement on 30 June 2015
Unfavourable balance per bank statement
Outstanding deposit
Outstanding cheques:
No. 789 (dated 25 December 2014)
No. 1032
No. 1040 (dated 5 July 2015)
Credit amount erroneously debited by the bank
Balance per bank account
29
12 300
4 650
750
1 365
2 355
1 550
?
1.2
CREDITORS RECONCILIATION
The creditors control account and creditors list of Orion Traders were prepared by an
inexperienced bookkeeper. She has calculated the following figures at the end of the
month.
•
•
Balance of creditors control, R83 505 (cr)
Total of creditors list, R58 860
REQUIRED:
1.2.1
1.2.2
Why should the balance of the creditors control account and the total of the
creditors list correspond?
(2)
Calculate the correct balance of the creditors control account and the
creditors list. Use the format which is provided to show your calculations.
(9)
INFORMATION:
1.3
(a)
An adding mistake in the creditors list resulted in the total being added up
with R720 less.
(b)
A credit purchases invoice for stationery bought from Umso Ltd, R2 940, was
erroneously omitted from the books.
(c)
Trading stock returned to Veritas Suppliers, R1 080, was correctly entered in
the creditors allowance journal but posted as R405 to the creditors’ account
of Veritas Suppliers.
(d)
The creditors control total in the Cash payments journal is R12 300. The
bookkeeper has erroneously credited it in the creditors control account.
DEBTORS AGE ANALYSIS
REQUIRED:
30
1.3.1
Calculate the missing figures indicated by the letters A and B.
(2)
1.3.2
Calculate which percentage of total debts is current.
(3)
1.3.3
Calculate the percentage of total debts that has exceeded the credit terms of
30 days.
(3)
1.3.4
The owner, M. Olifant is concerned that the control over debtors has not been
satisfactory. She wants you as the internal auditor, to:
•
•
Identify TWO problem areas with names. Quote relevant amounts from
the debtors age analysis to support your answer. In EACH case give a
different reason.
(4)
Give TWO measures to implement in order to recover outstanding
amounts that have exceeded the credit terms.
(2)
INFORMATION:
The business sells goods on credit. The credit terms are 30 days and each debtor has a
credit limit of R10 000.
DEBTORS AGE ANALYSIS ON 30 JUNE 2015
Debtor
Total
Current (30
31 – 60
amount
days)
days
C Mathews
P de Bruin
A Saaiman
G Makaleni
16 140
9 550
9 120
14 190
49 000
6 140
9 550
5 700
A
30 490
61 – 90
days
90 days
+
1 500
1 000
7 500
3 420
2 090
B
3 000
4 000
7 500
35
31