Bank reconciliation statement

Bank reconciliation statement :-
                 
               A form that allows individuals to compare their personal bank account records to the bank's records of the individual's account balance in order to uncover any possible discrepancies. Since there are timing differences between when data is entered in the banks systems and when data is entered in the individual's system, there is sometimes a normal discrepancy between account balances. The goal of reconciliation is to determine if the discrepancy is due to error rather than timing.

How to Prepare a Bank Reconciliation Statement :-

     To prepare the bank reconciliation statement, the following rules may be useful for the students:

1.  Check the cash book receipts and payments against the bank statement.

2.  Items not ticked on either side of the cash book will represent those which have not yet passed through the bank statement.

3.  Make a list of these items.

4.  Items not ticked on either side of the bank statement will represent those which have not yet been passed through the cash book.

5.  Make a list of these items.

6.  Adjust the cash book by recording therein those items which do not appear in it but which are found in the bank statement, thus computing the correct balance of the cash book.

7.  Prepare the bank reconciliation statement reconciling the bank statement balance with the correct cash book balance in either of the following two ways:

(i)  First method (Starting with the cash book balance)
(ii) Second method (Starting with the bank statement balance)

Example :-

On December 31 1991 the balance of the cash at bank as shown by the cash book of a trader was $1,401 and the balance as shown by the bank statement was 2,253.

On checking the bank statement with the cash book it was found that a cheque for $116 paid in on the 31st December was not credited until the 1st January, 1992 and the following cheques drawn prior to 31 December were not presented at the bank for payment until the 5th January 1992. Rashid & Sons $29, Bashir & Co. $801, MA Jalil $6, Khalid Bros., $132.

Prepare a statement recording the two balances:

Solution:

Bank Reconciliation Statement on 31st December 1991
First Method:
Balance as per cash book - Dr.		1,401
Less cheques paid in but not collected		116
		1,285
Add cheques drawn but not presented:
Rashid & Sons	29
Bashir & Co.	801
MA Jalil	6
Khalid Bros.	132	968
Balance as per bank statement - Cr.		2,253
Second Method:
Balance as per bank statement - Cr.		2,253
Less cheques drawn but not presented		968
		1,285
Add cheques paid in but not collected		116
Balance as per cash book - Dr.		1,401

IAS-2 inventories ...

Definition:-
                 “ IAS defines entries and specifies requirement for the recognition of and entry as an expense or as an asset the measurement of inventories and disclosures about inventories ”

Reasons for Revising IAS 2 :-
                       The International Accounting Standards Board developed this revised IAS 2 as part of its project on Improvements to International Accounting Standards. The project was undertaken in the light of queries and criticisms raised in relation to the Standards by securities regulators, professional accountants and other interested parties. The objectives of the project were to reduce or eliminate alternatives, redundancies and conflicts within the Standards, to deal with some convergence issues and to make other improvements..
SCOPE:-
               The Standard clarifies that some types of inventories are outside its scope while certain other types of inventories are exempted only from the measurement requirements in the Standard.

   Some of the scope is as follows:-

1. raw material (material in use)
2. work in process (work being in process)
3. finished goods (goods which are prepared for using)

The Standard does not apply to the measurement of inventories of producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products, to the extent that they are measured at net realizable value in accordance with well-established industry practices. The previous version of IAS 2 was amended to replace the words 'mineral ores' with 'minerals and mineral products' to clarify that the scope exemption is not limited to the early stage of extraction of mineral ores ..

COST FLOW ASSUMPTIONS:-

1. Average-cost method
2. First in - first out method
3. Last in – last out method...


The following item should not be include in inventory cost:-
àAbnormal waste
àStorage costs
àSelling costs
àInterest costs etc …

Fair value:-
   The amount for which an asset could be saved or liability could be settled …

Write down the net realizable value (NRV):-

   It is the estimated which the company’s estimate in the ordinary working of the business. Less the cost of completion this estimated cost should be there to make sale any nrv must be an expense in the period which the written down occur. Any reversal can be recognized in the income statement of the business in the same period which the reveal occurs...

DISCLOSURE:-
  à Accounting policy for inventories. Carrying amount, generally classified as merchandise, supplies, materials, work in process and finished goods· g amount, generally classified as merchandise, supplies, materials, work in process and finished goods. The classification depends on what is appropriate for entity…

à Carrying amount of any inventories at fair value less cost to sell…

à  Amount of any reversal of a write down to NRV and the circumstances that led to such reversal…

à Amount of any write-down of inventories recognized as an expense in the period…

à Carrying amount of inventories pledged as security for liabilities...

Cost of inventories recognized as expense (cost of goods sold). IAS 2 acknowledges that some enterprises classify income statement expenses by nature ( material, labor and so on ) rather than by functions (CGS selling expense and so on ). Accordingly, as an alternative to disclosing cost of goods sold expense, IAS 2 allows an entity to disclose operating costs recognised during the period by nature of the cost (raw materials and consumables, labour costs, other operating costs) and the amount of the net change in inventories for the period)…

closing entries

Ø Closing entries:-
   

Ø Introduction

Ø Definition

Ø Revenues, Expenses,  Dividends, Income summary

Introduction:-
                    Closing entries are normally done to close the entries or temporary accounts of the journal, CLOSING ENTRY is a journal entry at the end of a period to transfer the net effect of revenue and expense items from the income statement to owners equity..
Definition:-
                         “A closing entry is made to the general ledger at the conclusion of an accounting period and is used to transfer the balance from a temporary account to a corresponding permanent account.”

 Revenues, Expenses  Etc :-                

Ø  Closing entries are based on the balances of accounts in the adjusted trial balance.
                   Temporary accounts include:
            1. Revenues
            2. Expenses
            3. Dividends
            4. Income Summary …

adjusting entries

ADJUSTING ENTRIES:-
       
         INTRODUCTION:-
                         à  An adjusting journal entry is created to adjust account balances. Adjusting entries are used for a variety of reasons, including booking depreciation or amortization, reallocating accruals and reversing accruals of prepaid income or expenses, adjusting Sales Tax Payable for interest, penalties, or discounts, and entering bank or credit card fees or interest. This is usually done by an accountant.

                            à   An adjusting entry will not affect your books or reports differently from a normal journal entry, except for being noted on the Adjusted Trial Balance report.  If you are not sure whether the entry you are about to make should be an adjusting entry, please consult your accountant…

IN OTHER WORDS à  Adjusting entries are those entries that passed to rectify an error or wrong entry already made some accounting soft wares have disabled edit function in the accounts, so the only way to undo the mistake is to pass a correction entry or adjusting entry…

TYPES OF ADJUSTING ENTRIES:-
There are total five types of adjusting entries which are as follows:-
1. Accrued revenues
2. Unearned revenues
3. Accrued expenses
4. Prepaid expenses
5. Others…
               The detail is given below…

1. Accrued revenues are those which are already earned but not yet paid or recorded . They are also called accrued assets they are normally used in adjusting entries.
2. Unearned revenues are those which are received in cash and recorded as liabilities in the accounts . They are also known as deffered revenues .
3. Accrued expenses are those which have been incurred but not yet paid or recorded . They are also known as accrued liabilities . they are also normally used in adjusting entries .
4. Prepaid expenses are those whish are paid in cash and are recorded but yet to be used .
5. Others includes  depreciation of fixed assets, allowances for bad debts, and inventory adjustments .

Problem 4.6(b):-

1.

Adjusting Entry	Debits	Credits
Unearned dues	21000
Earned dues		21000

2.

Adjusting Entry	Debits	Credits
Insurance expired	3200
Unexpired insurance		3200

3.

Adjusting Entry	Debits	Credits
Rent expense	7300
Prepaid expense		7300

4.

Adjusting Entry	Debits	Credits
Office supplies expense	1720
Office supplies		1720

5.

Adjusting Entry	Debits	Credits
Depreciation equipment	3000
Accumulated depreciation		3000

6.

Adjusting Entry	Debits	Credits
Interest expense	750
Interest payable		750

7.

Adjusting Entry	Debits	Credits
Salaries expense	10500
Prepaid salaries		10500

8.

Adjusting Entry	Debits	Credits
Tax expense	2000
Tax payable		2000

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accounting cycle

           Accounting cycle
 For getting the knowledge about accounting cycle firstly we have to know what is an accounting cycle ..Accounting cycle is a process in which the data is finalised or stated with a profit or loss at the end. It provides complete information of the entries and their postings. Following are the steps of accounting cycle:-

 1. Collecting data 

      2. Analyzing the data

                    3. Recording the transactions 

               4. Preparing the general ledger

                                 5. Making the trial balance and adjusting it

6. Income statement

              7. Statement of retained earnings

8. Financial statement  

           

JOURNAL :-
                               It is the first book of accounting cycle. Journal is a book of accounts in which the record of daily happening is written in the form of entries on specific date. It is also called a day book, a book of original entry etc. The process of writing entries in a journal is known as "JOURNALISING". It is widely used in accounting cycles. It is the first step of maintaining accounting data. With the help of journal we can easily recognize as to what is being increased of decreased in our business.

Ledger :-
              The second book of accounts is the ledger. Ledger is a book in which the record of each entry is individually posted in their accounts and this process is known as "POSTING". We can also say that ledger is "A book in which the monetary transactions of a business are posted in the form of debits and credits". In this book we can clearly find out the accounts and their balances. It helps a lot in providing the further information to other books of account.

Trial balance:-
                    Trial balance is a two column statement of debit and credit. A trial balance proves the equality of debit and credit. Trial balance contains both BALANCE SHEET and INCOME STATEMENT ACCOUNTS. The total of the debit and credit columns should agree.

Income statement:-
                           Income statement is an activity statement that shows details and results of the company's profit retained activities for a period of time. It also helps in depicting the revenues and expenses.

Statement of retained earnings:-
                             Retained earnings is a revenue to the owner of the business. Retained earnings is a portion of net income not paid out to investors in a business.

Financial statement:-
                              Financial statements are those statements which gives the financial position of the business as to what had earned (profit or loss). They are finalised normally on yearly basis ...

accounting