Introduction
Greetings students, Our new topic today is based on creditors reconciliation. Kindly watch the video below to get a better understanding of the topic.
Task
RECONCILIATIONS
The information was taken from the financial records of Loftus Traders. An account statement had been received on 31 May 2018 from a creditor, Puma Stores, indicating that Loftus Traders owed them an amount of R96 203. According to the Creditors’ ledger of Loftus Traders the amount owed to Puma Stores is R99 220.
REQUIRED:
Indicate how the differences, found during an investigation, will influence Creditors’ ledger account and the Statement received from Puma Stores in order to determine the correct balance.
INFORMATION:
After an investigation had been conducted, the following differences were found:
1. An invoice received from Puma Stores had been recorded correctly as R18 330 by Loftus Traders in the Creditors’ ledger but is shown as R1 833 on the statement received.
2. An invoice for R8 400 received from Puma Stores was mistakenly recorded by Loftus Traders as a credit note.
3. Returns of R7 100 in the Creditors’ ledger of Loftus Traders appear as R6 390 on the statement received from Puma Stores. Loftus Traders forgot that they received 10% trade discount when the purchase was made.
4. A cheque for R8 800 on 28 May 2018 issued by Loftus Traders to Puma Stores does not appear on the statement received.
5. The payment of R9 310 as settlement of the account for April 2018 which appears in the Creditors’ ledger had not been received by Puma Stores within 7 days and therefor the discount of 5% which had been calculated and taken into account by Loftus Traders in the Creditors’ ledgers must be cancelled.
6. The statement received from Puma Stores reflects interest charged, R980 on the arears account of Loftus Traders.
7. Puma Stores mistakenly recorded an invoice of R6 700 regarding stock sold to Loftus Traders as a credit note of R7 600 on the credit side of the statement.
Process
Steps followed to verify the accuracy of the monthly statement:
1. Compare the monthly statement against the creditors’ ledger account in the Creditors Ledger.
2. The debit column of the statement is compared to the credit side of the ledger account and the credit column on the statement is compared with the debit side of the ledger account.
3. If there are any errors or omissions in the books of the business receiving the statement, they must be corrected. verify the entry before recording
4. If the creditor made any errors (arithmetical, omissions), the business receiving the statement must notify the creditor so that the necessary corrections can be made by the creditor.
5. They can arrive at the correct balance by preparing a Creditors Reconciliation Statement.
Please click on the link below to get more information on creditors reconciliations.
Evaluation
| MARKING CRITERIA | |
|---|---|
| 1 |
3 marks |
| 2 |
3 marks |
| 3 |
4 marks |
| 4 |
2 marks |
| 5 |
4 marks |
| 6 |
2 marks |
| 7 | 2 marks |
| Total = 20 marks |
Conclusion
Please read the summary below
-Account reconciliation is a process of comparing two sets of related records (usually balances) from different sources (accounts, systems, etc.), identifying and analyzing differences, and making corrections (if needed).
- Reconciliation of Control Accounts is the process of comparing the balance on a control account and the total of the debtors or creditors ledger (subsidiary ledger). When there is a difference, he causes must be found and the necessary corrections made.
-Reconciliations serve as a means of identifying and fixing accounting errors. We carry out a reconciliation to verify the completeness and accuracy of a particular part of the accounting records by comparing it with another record, as noted in the table above. This can also be used as a tool in the internal control system.
In preparation for our next class, kindly watch the video below