BANK RECONCILIATION STATEMENT

INTORDUCATION

           A bank reconciliation is a schedule ecplaning any difference between the balance shown in the bank statement and the balance shown in the depositor's accounting records. The bank and the depositor maintain indeendent records of the deposits, the checks, and the current balance of the bank account. Each month, the depositor should prepare a bank reconciliation to verify that these independent sets of records are in agreement. This reconcillation may disclose internal control failures, such as unauthorized cash disbursements or failure to deposit cash receipts, as well as errors in either the bank statement or the depositor's accounting records.In addition , the reconciliation identifies certain transactions that must be recorded in the depositor's accounting records and helps to determine the actual amount of cash on deposit.

                                                                                                                                                                                                       

 Normal Differences between Bank Records and Accounting Record

   The balance shown in a monthly bank statement seldom equals the balance appearing in the 

depositor's accounting records. Certain transactions recorded by the depositor may not have 

been recorded by the bank. The most common example are:

OUTSTANDING CHECKS:

Checks issued and recorded by the company but not yet presented in the bank for payment.

DEPOSITS IN TRANSIT:

Cash receipts recorded by the depositor that reached the bank too late to be included in the bank 

statement for the current month.

SERVICE CHARGES:

Banks often charge a fee for handling small accounts. The amount of this charge usually depends on

both the average balance of the account and the number of checks paid during the month.

CHARGES FOR DEPOSITING NSF CHECKS:

NSF stands for "NOT SUFFICIENT FUNDS."  When checks from customers are deposited, the bank 

generally gives the depositor immediate credit. On occasion, one of these checks may prove to be uncollectible, because the customer who wrote the check did not have sufficient funds in his or her account.

CREDITS FOR INTEREST EARNED

Tthe checking accounts of unincorporated businesses often earn interest. At mont end, this interest is credited to the depositor's account and reported in the bank statement.

MISCELLANEOUS BANK CHARGES AND CREDIT:

Bank charge for services such as printing checks, handling collection of notes receivable , and processing. 

NSF checks. The bank deducts these chareges from the depositor's account and notifies the depositor by 

including a debit memeorandum in the monthly bank statement. If the bank collects a note receivable on

behlf of the depositor, it credits the depositor's account and issues a credit memorandum

STEP IN PREPARING A BANK RECONCILIATION:

1 Compare deposits listed in teh bank statement with the deposits shown in the acccounting 

records. Any deposits not yet recorded by the bank are deposits in transit and should be 

added to the balance shown in the bank statement

2 Compare checks paid by the bank with the corresponding entries in the accounting records .

    Any checks issued but not yet paid by the bank should be listed as outstanding checks to be 

    deducted from the balance reported in the bank statement.

3 Add to the balance p[er the depositor's accounting records any credit memorands issued by 

     the bank that have not been recorded by the depositor.

4 Deduct from the balance per the depositor's records any debit memoranda issued by the bank that have    not been recorded by the depositor.

5 Make appropriate adjustments to correct any errors in either the bank statement or the depositor's

accounting records.

6 Determine that the adjusted balance of the bank statement is equal to the adjusted balance in the 

depositor's records.

7 Prepare journal entries to record any items in the bank reconciliation listed as adjustments to the

balance per the depositor's records. 

IAS 2 Inventories

IAS 2 Inventories

The objective of this Standard is to prescribe the accounting treatment for inventories.
A primary issue in accounting for inventories is the amount of cost to be recognised as
an asset and carried forward until the related revenues are recognised.  This Standard
provides guidance on the determination of cost and its subsequent recognition as an
expense, including any write-down to net realisable value.  It also provides guidance
on the cost formulas that are used to assign costs to inventories.
Inventories shall be measured at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business
less the estimated costs of completion and the estimated costs necessary to make the
sale.
The cost of inventories shall comprise all costs of purchase, costs of conversion and
other costs incurred in bringing the inventories to their present location and condition.
The cost of inventories shall be assigned  by using the first-in, first-out (FIFO) or
weighted average cost formula.    An entity shall use the same cost formula for all
inventories having a similar nature and use  to the entity.  For inventories with a
different nature or use, different cost formulas may be justified.  However, the cost of
inventories of items that are not ordinarily interchangeable and goods or services
produced and segregated for specific projects shall be assigned by using specific
identification of their individual costs.
When inventories are sold, the carrying  amount of those inventories shall be
recognised as an expense in  the period in which the related revenue is recognised.
The amount of any write-down of inventories to net realisable value and all losses of
inventories shall be recognised as an expense in the period the write-down or loss
occurs.  The amount of any reversal of any write-down of inventories, arising from an
increase in net realisable value, shall be recognised as a reduction in the amount of
inventories recognised as an expense in the period in which the reversal occurs

God is great

what is 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 ...

Closing Entries

To update the balance in the owner's capital account, accountants close revenue, expense, and drawing accounts at the end of each fiscal year or, occasionally, at the end of each accounting period. For this reason, these types of accounts are called temporary or nominal accounts. Assets, liabilities, and the owner's capital account, in contrast, are called permanent or real accounts because their ending balance in one accounting period is always the starting balance in the subsequent accounting period. When an accountant closes an account, the account balance returns to zero. Starting with zero balances in the temporary accounts each year makes it easier to track revenues, expenses, and withdrawals and to compare them from one year to the next. There are four closing entries, which transfer all temporary account balances to the owner's capital account.

1. Close the income statement accounts with credit balances (normally revenue accounts) to a special temporary account named income summary.
2. Close the income statement accounts with debit balances (normally expense accounts) to the income summary account. After all revenue and expense accounts are closed, the income summary account's balance equals the company's net income or loss for the period.
3. Close income summary to the owner's capital account or, in corporations, to the retained earnings account. The purpose of the income summary account is simply to keep the permanent owner's capital or retained earnings account uncluttered.
4. Close the owner's drawing account to the owner's capital account. In corporations, this entry closes any dividend accounts to the retained earnings account. For purposes of illustration, closing entries for the Greener Landscape Group follow.

Entries solutions:4.7

c. As the customers are billed after the services are rendered. So, an adjusting entry is needed in order to recognise the amount of services rendered in December 2009. The effect of this adjusting entry would be to increase the assets,increasing the revenue earned during this period and in return increasing the owner's equity.

d. No adjusting entry is required in this case because the policy will be in effect from Jan 2nd 2010. No benefit is derived from it in Dec 2009. So, no insurance expense will be recorded for Dec 2009.

e. An adjusting entry is required. Depriciation is required to be recorded on the equipment purchased for the month ending Dec 2009. It will increase the expense,decrease assets and decrease owner's equity.

f. Salaries for the month of Dec 2009 are due on 2nd Jan 2010. So, an adjusting entry is required here for the amount of salaries for Dec 2009. The effect of this adjusting entry would be to increase the expense, increasing the liability and reducing the owner's equity