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Financial Accounting

Sample Paper 3

Questions & Suggested Solutions

Financial Accounting Sample Paper 3 of 31

NOTES TO USERS ABOUT SAMPLE PAPERS

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Accounting Technicians Ireland

Year 1

FINANCIAL ACCOUNTING

Sample Paper 3

EXAM DURATION: THREE HOURS

INSTRUCTION TO CANDIDATES

PLEASE READ CAREFULLY

In this examination paper the £/€ symbol may be understood and used by candidates in Northern

Ireland to indicate the UK pound sterling and by candidates in the Republic of Ireland to indicate

the Euro.

Answer ALL THREE questions from Section A. Answer ANY TWO of the three questions from

Section B. If more than TWO questions are answered in section B, then only the first two

questions, in the order filed, will be corrected.

Candidates should allocate their time carefully.

All workings should be shown.

All figures should be labelled as appropriate e.g. €s, units etc.

Answers should be illustrated with examples, where appropriate.


SECTION A

Answer ALL THREE QUESTIONS (Compulsory) in this Section

QUESTION 1 (compulsory)

The following trial balance is available for P Xavier a sole trader for the year ended 31 December 2016.

€ €

Proprietor’s capital 688,000

Land at cost 140,000

Office buildings at cost 634,000

Accumulated depreciation office building to 31/12/15 53,128

Delivery vans at cost 46,500

Accumulated depreciation delivery vans to 31/12/15 17,100

Inventory at 31/12/08 28,621

Purchases 156,607

Sales 389,061

Wages and salaries 59,000

Long term loan (interest rate 9%) 40,000

Interest on long term loan 1,600

Bank 33,662

Allowance for receivables 31/12/15 6,500

Receivables and Payables 43,359 23,491

General expenses 19,018

Carriage inwards 4,100

Carriage outwards 14,000

Drawings 4,800

Building maintenance 4,200

Light and heat 12,900

Irrecoverable debts 3,451

Accounting charges 4,000

Insurance 7,462

1,217,280 1,217,280

The following additional information has not been accounted for and should be taken into consideration:

PTO


1. Inventory items were physically counted on the 31 December 2016 and were valued at €32,670.

2. The following information relates to non current assets:

a. The estimated useful economic life of office buildings is estimated at 40 years.

Depreciation is to be provided using the straight-line method assuming a zero residual

value.

b. Delivery vans are depreciated at 20% using the reducing balance method.

c. Land is not depreciated.

3. Additional irrecoverable debts of €1,700 should be written off. The allowance for receivables

should be set at 5% of net receivables.

4. €4,100 of insurance is prepaid for 2017 and light and heat of €1,100 should be accrued for 2016.

5. Discounts of €1,050 were received from payables during 2016. These discounts have not been

accounted for in the above trial balance.

You are required to prepare:

i. The Income Statement for the year ended 31 December 2016.

13 Marks

ii. The Statement of Financial Position as at that date.

7 Marks

Total 20 Marks


Question 2 (compulsory) The following Trial Balance was extracted from the books of J. Burke as at 1 December 2016.

Trial Balance as at 1 December 2016

Debit Credit

€ €

Bank 78,000

Payables 71,600

Non current assets 52,500

Receivables 43,150

Capital account 85,000

Bank loan 17,050

173,650 173,650

The following transactions took place during the month of December 2016:

1. On 2 December purchased goods on credit for resale for €18,000;

2. On 4 December sold goods on credit for €31,000;

3. On 5 December purchased goods on credit for resale for €23,400;

4. On 8 December received €41,250 from receivables;

5. On 11 December returned faulty goods valued at cost of €1,550;

6. On 14 December purchased an item of non current asset, paid for in total by cheque for €11,000;

7. On 16 December purchased goods for resale by cheque for €48,900;

8. On 17 December transferred €2,000 from the bank account to the loan account;

9. On 20 December cash sales of €55,000 were lodged to the bank account;

10. On 21 December paid ESB by cheque €1,500;

11. On 28 December paid payables €51,000 by cheque;

12. On 30 December paid wages by cheque €7,500.

(Ignore depreciation, VAT and interest on loan)

You are required to prepare: i. Enter the trial balance figures as at 1 December 2016 in the relevant ledger accounts.

3 Marks

ii. Write up the original books of entry for December 2016 and post the balances to the ledger

accounts.

10 Marks iii. Balance the ledger accounts at 31 December 2016.

4 Marks iv. Extract the Trial Balance at 31 December 2016.

3 Marks

Total 20 Marks


Question 3 (compulsory) - Complete Any Four Parts

Part A

The following information is available for sole trader M. Maple for the year ended 31 December 2016:

€/£

Draft receivables debit balances as at 31 December 2016 210,150

Draft irrecoverable debts written off during the year 9,120

Allowances for receivables as at 1 January 2016 11,550

As at 31 December 2016 M. Maple reviewed their receivables listing and decided the following (none of

these adjustments have been reflected in the draft figures above):

An additional €/£3,700 of debts should be written off as irrecoverable;

M. Maple considers that €/£4,190 of debts should be made the subject of a specific allowance;

The general allowance for receivables should be set at 4% of the remaining receivable balances

(round to the nearest whole number).

Prepare the allowance for receivables T account for M. Maple for the year ended 31 December 2016

5 Marks

Part B

The following information relates to the payroll costs for O. Oaks, a sole trader for the month of

December 2016.

Gross wages and salaries €/£30,400;

Employers PRSI/Social Insurance €/£3,240;

Net wages and salaries €/£24,450;

Note: The difference between gross and net wages and salaries relates only to salary taxes and employees

PRSI/social insurance.

Prepare appropriate journal entries to record the:

i) Wages expense in the books and records of O. Oaks

3 Marks

ii) Payment of wages through the bank.

2 Marks


Part C

The following information relating to the motor vehicles of E. Elm is available for the year ended 30 June

2016.

Vehicle Number Cost Date of Purchase Date of Disposal

Motor vehicle 1 €/£26,400 1 June 2011 1 March 2016

Motor vehicle 2 €/£33,600 1 May 2014 Not applicable

Motor vehicle 3 €/£18,000 1 November 2015 Not applicable

The deprecation policy of E. Elm is to charge depreciation on motor vehicles from the month of purchase

to the month of sale on a proportional basis. Depreciation is charged at 10% straight line basis. Opening

depreciation as at 1 July 2015 was €/£14,700.

Prepare the motor vehicle depreciation T account for E. Elm for the year ended 30 June 2016

5 Marks

Part D

Below is a sample of error types:

Error of omission

Error of commission

Error of principle

Compensating errors

Error of original entry

For each of the error types outlined above provide an example of the error and state whether the error

would leave the trial balance in balance or not.

5 Marks

Part E

S. Spruce manufactures and sells three products: Products Delta, Epsilon and Zeta. The following

information is available for the year ended 31 December 2016 (on a per unit basis):

Inventory Item Costs

Incurred

Cost to

Complete

Sales Price Costs to Sell Units in

Inventory

€/£ €/£ €/£ €/£

Delta 54 1.75 58 Nil 1,500

Epsilon 16.2 Nil 21.6 1.25 2,000

Zeta 10 4 16 2.50 3,500

Calculate the total value of inventory for inclusion in the financial statements of S. Spruce for the year

ended 31 December 2016.

5 Marks


Part F

L. Limes does not maintain proper books and records. However he is in a position to provide you with the

following information for the year ended 31 December 2016.

31 December 2016 1 January 2016

€/£ €/£

Assets 95,250 81,200

Liabilities 24,540 29,780

During the year L. Limes introduced capital of €/£26,500 and took drawings of €/£11,200.

From the information above calculate the profit or loss for the year ended 31 December 2016.

5 Marks

Total 20 Marks


SECTION B

Answer TWO of the THREE Questions in Section B

Question 4

M. Edwards, a sole trader, has the following balances in his payable’s ledger as at 1 December 2016:

Payable Name Nature of Balance €

A. Andrews Credit balance 15,110

B. Martin Credit balance 23,750

C. Williams Debit balance 2,660

D. Devit Credit balance 58,150

The following transactions took place in the month of December 2016:

1. On 2 December 2016 goods valued at €7,600 net of VAT (€9,234 gross) were purchased from A.

Andrews;

2. On 6 December 2016 goods valued at €17,200 net of VAT (€20,898 gross) were purchased from

D. Devit;

3. On 10 December 2016 goods valued at €3,935 net of VAT (€4,781 gross) were returned to A.

Andrews;

4. On 14 December 2016 goods valued at €30,000 net of VAT (€36,450 gross) were purchased from

B. Martin;

5. On 15 December 2016 C. Williams paid the balance owed by him;

6. On 17 December 2016 goods valued at €1,600 net of VAT (€1,944 gross) were returned to B.

Martin;

7. On 28 December 2016 the following balances were paid to payables:

a. A. Andrews: €13,000

b. B. Martin: €30,050

c. D. Devit: €47,400

You are required to:

i. Prepare the following books of original entry to record the above transactions:

a. The purchases day book

b. The purchases returns day book

c. The cheque payments book

d. The cash book

7 Marks


ii. From the books of original entry prepared in part i above and any other relevant information,

prepare the payable’s control account for the month ended 31 December 2016.

4 Marks

iii. Prepare the individual T accounts for each payable for the month of December 2016 and extract a

payable’s listing as at 31 December 2016.

7 Marks

iv. Reconcile the payable’s listing as per part iii to the payable’s control account prepared in part ii.

2 Marks

Total 20 Marks

[Note to Students: The Examiner has advised that questions similar to Question 2 and Question 4 above

are unlikely to be examined on the same Examination Paper.]


Question 5 (a) Draft a letter to a client of your firm, explaining briefly the following:

i. FIFO

4 Marks

ii. The ‘going concern’ concept

4 Marks

iii. The main differences between the financial statements of a not for profit organisation

and the financial statements of a sole trader

4 Marks

(b) Prepare the journal entries to record the following transactions.

1. On 1 January purchased a machine on credit from Kelly Ltd for €20,000. Depreciation

is charged at 20% on cost, with a full year’s depreciation charged in the year of

purchase and none in the year of sale. On 31 January 2016 paid Kelly Ltd €19,500 in

full settlement for amount owed for Machine.

2. During 2016 paid rent and rates of €35,000. At year end, of 31 December, rent due was

€12,000 and rates prepaid was €5,000.

8 Marks

Total 20 Marks


Question 6 O. Higgins received his bank statement on 2 January 2017 that showed a credit balance of €231,500. This

did not agree with the balance on the nominal ledger account for the year ended 31 December 2016.

On investigation the following errors were noted:

1. Cash of €12,450 received from a customer had been entered twice to the bank account in O.

Higgins’s books.

2. A lodgement recorded in the bank on the 31 July 2016 for €14,500 was not accounted for in the

books of O. Higgins.

3. Bank charges of €1,030 for 2016 had not been accounted for in the books of O. Higgins.

4. Cheques received from customers on the 24 December 2016 were entered into the books of O.

Higgins and lodged on the 28 December 2016 but not recorded by the bank until the 3 January

2017. The value of these cheques was €80,750.

5. A cheque drawn for €145 was debited in error in the books of O. Higgins as €415 in March

2016.

6. Mr Higgins had raised capital from private sources and had lodged it to the bank on 6 June 2016

but no record had been made in the books of O. Higgins. The capital raised was €33,200.

7. Cheques drawn by the company that had not been cashed by the bank as at 31 December 2016.

Cheque No Date Drawn Amount

€

1234 03/05/2015 5,240

1767 08/02/2016 11,346

1989 09/12/2016 12,543

2004 24/12/2016 1,890

2005 24/12/2016 240

2006 24/12/2016 937

You are required to:

i. Prepare a bank reconciliation statement as at 31 December 2016.

6 Marks

ii. Correct the books of O. Higgins and determine the original nominal ledger balance, prior to the

correction of the above.

10 Marks

iii. Write a short note to O. Higgins advising him on two issues uncovered during this reconciliation.

4 Marks

Total 20 Marks


Financial Accounting

Sample Paper 3 – Suggested Solutions


Solution One P. Xavier

Income Statement for the year ended 31 December 2016

€ €

Sales 389,061

Cost of sales

Opening inventory 28,621

Purchases 156,607

Carriage inwards 4,100

189,328

Less closing inventory (32,670)

Cost of sales (156,658)

Gross Profit 232,403

Discount received 1,050

Less Expenses

Carriage outwards 14,000

General expenses 19,018

Building maintenance 4,200

Insurance 3,362

Interest 3,600

Wages and salaries 59,000

Accounting charges 4,000

Depreciation of office buildings 15,850

Depreciation of motor vehicles 5,880

Irrecoverable debts 5,151

Decrease in allowance for receivables (4,417)

Light and heat 14,000

Total expenses (143,644)

Net Profit 89,809


P. Xavier

Statement of Financial Position as at 31 December 2016

2016 2016 2016

€ € €

Non current assets

Land 140,000 - 140,000

Office buildings 634,000 (68,978) 565,022

Motor Vehicles 46,500 (22,980) 23,520

728,542

Current assets

Closing inventory 32,670

Receivables 39,576

Prepayments 4,100

Bank 33,662

110,008

Total Assets 838,550

Equity and Liabilities

Capital

Capital 688,000

Profit for 2016 89,809

Accumulated profits 777,809

Drawings (4,800)

773,009

Non current liabilities

Term loan 40,000

Current liabilities

Payables 22,441

Accruals 3,100

25,541

Total Equity and Liabilities 838,550

Workings 1

€

Cost of office buildings 634,000

Useful economic life 40

Depreciation 15,850

€

Cost of delivery vans 46,500


Accumulated depreciation (17,100)

29,400

Depreciation 20% reducing balance method 5,880

Workings 2

€

Receivables as per TB 43,359

Irrecoverable debts as per note 3 (1,700)

Restated receivables 41,659

Allowance for receivables 5% 2,083

Opening allowance for receivables (6,500)

Decrease in allowance for receivables 4,417

€

Irrecoverable debts as per trial balance 3,451

Irrecoverable debts as per note 3 1,700

5,151

Workings 3

€

Insurance as per trial balance 7,462

Insurance prepaid (4,100)

3,362

€

Light and heat as per trial balance 12,900

Light and heat accrual (1,100)

14,000

Workings 4

€

Payables as per trial balance 23,491

Discounts received (1,050)

Restated payables 22,441

Workings 5

€

Loan 40,000

Interest per annum 9% 3,600

Interest paid 1,600

Interest Accrual 2,000


Solution Two

Part ii

Purchases Book

Date Analysis Total Net VAT

€ € €

02-Dec Goods for resale 18,000 18,000 -


41,400 41,400 -

Purchase Returns Book


€ € €


1,550 1,550 -

Sales Book


€ € €

4-Dec Sale of goods 31,000 31,000 -

31,000 31,000 -

Cheque Payments Book

Date Analysis Total Expenses Non current

Assets

Purchases Payables Wages

€ € € € € €

14-Dec Non current Asset 11,000 11,000

16-Dec Goods for resale 48,900 48,900

21-Dec ESB 1,500 1,500

27-Dec Payables 51,000 51,000

30-Dec Wages 7,500 7,500

119,900 1,500 11,000 48,900 51,000 7,500


Cash Receipts & Lodgements book

Date Analysis Total Receivables Sales VAT

€ € € €

8-Dec Receivables 41,250 41,250

20-Dec Sales 55,000 55,000 -

96,250 41,250 55,000 -

Part i and Part iii

Bank A/C

€ €

Balance b/d 78,000 Chq Payments Book 119,900

Cash Receipts Book 96,250 Loan Repayment 2,000

Balance c/d 52,350

174,250 174,250

Balance b/d 52,350 .

Payables A/C

€ €

Cheque Book 51,000 Balance b/d 71,600

Purchase Returns Book 1,550 Purchases Book 41,400

Balance c/d 60,450

113,000 113,000

Balance b/d 60,450

Receivables A/C

Balance b/d 43,150 Cash receipts books 41,250

Sales 31,000 Balance c/d 32,900

74,150 74,150

Balance b/d 32,900

Capital A/C

€ €

Balance 85,000


Loan A/C

€ €

Repayment bank 2,000 Balance b/d 17,050

Balance c/d 15,050

17,050 17,050

Balance b/d 15,050

Expenses

€ €

Cheque Payments Book 1,500

Wages

€ €


Sales Account

€ €

Balance c/d 86,000 Cash Receipt Book 55,000

Sales book 31,000

86,000 86,000

Balance b/d 86,000

Purchases Account

€ €

Purchases Book 41,400 Balance c/d 90,300

Cheque payments book 48,900

90,300 90,300

Balance b/d 90,300

Purchases Returns

€ €

Balance c/d 1,550 Purchases Returns Book 1,550

1,550 1,550

Balance b/d 1,550


Non Current Assets

€ €

Balance b/d 52,500 Balance c/d 63,500


63,500 63,500

Balance B/D 63,500

Part iv

J. Burke

Trial Balance at 31 December 2016

Debit Credit

€ €

Bank 52,350

Payables 60,450

Receivables 32,900

Non Current Assets 63,500

Capital 85,000

Loan 15,050

Sales 86,000

Purchases 90,300

Purchases returns 1,550

Wages 7,500

Expenses 1,500

248,050 248,050


Solution Three

Part A

€/£

Receivables 210,150

Additional irrecoverable debts written off (3,700)

206,450

Specific allowance (4,190)

202,260

General allowance 4% 4%

8,090

Specific allowance 4,190

Closing allowance 12,280

Opening allowance 11,550

Increase in allowance 730

Allowance for receivables T Account

Details €/£ Details €/£

Balance b/d 11,550

Balance c/d 12,280 Statement of PL 730

12,280 12,280

Balance c/d 12,280

Part B

€/£ €/£

Dr Wages and salaries – income statement 30,400

Dr Employers PRSI 3,240

Cr Paye/prsi 9,190

Cr Net wages 24,450

Being the posting of wages and salaries

Dr Net wages 24,450

Cr Bank 24,450

Being the payment of wages and salaries

Part C

Allowance for Motor Vehicles Depreciation

Details €/£ Details €/£

Disposal 12,540 Balance b/d 14,700

Balance c/d 8,480 Statement of PL 6,320

21,020 21,020

Balance b/d 8,480

Motor Vehicle 1:

€/£


Cost 26,400

Annual depreciation 10%

Annual depreciation 2,640

Depreciation for 2011 €/£2,640/12*1 220

Depreciation 2012 2,640




Depreciation 2016 €/£2,640/12*8 1,760

Motor Vehicle 2:

€/£

Cost 33,600



Motor Vehicle 3:

€/£

Cost 18,000



Depreciation for 2016 €/£1,800/12*8 1,200

Part D

Error of omission – this is when an entry is completely omitted from the books and records. There is no

debit entry and no credit entry. The error type will leave the trial balance still in balance.

Error of commission - this is when an entry is recorded in the correct category of account but in the

wrong account. For example light and heat expenses being recorded as a wages and salaries expense. The

error type will leave the trial balance still in balance.

Error of principle – this is when an entry is recorded in the wrong category of account. For example

repairs to buildings being recorded as an addition to buildings. The error type will leave the trial balance

still in balance.

Compensating errors – this is when two complete unrelated errors, by chance, compensate each for other

and therefore this error type will leave the trial balance still in balance.

Error of original entry – this error type is when the error was made in the books of original entry and

therefore the error has been carried through to the nominal ledgers. For example: a sale of €/£1,000 being

recorded in the books of prime entry as €/£900, in error. The error type will leave the trial balance still in

balance.


Part E

Inventory Item Sales

Price

Cost to

Complete

Costs to

Sell

NRV

€/£ €/£ €/£ €/£ Delta 58 - 1.75 - Nil = 56.25

Epsilon 21.6 - Nil - 1.25 = 20.35

Zeta 16 - 4.00 - 2.50 = 9.50

Inventory Item Total Cost NRV Valuation Units of Valuation

€/£ €/£ €/£ Inventory €/£

Delta 54 56.25 54 * 1,500 81,000

Epsilon 16.2 20.35 16.2 * 2,000 32,400

Zeta 10 9.50 9.5 * 3,500 33,250

146,650

Part F

€/£

Net assets at the end of the year 70,710

Less net assets at the start of the year (51,420)

Change in net assets during the year 19,290

Less capital introduced in the year (26,500)

Add drawings for the year 11,200

Profit/loss for the year 3,990


Solution Four

Part i

Purchases Book


€ € €

02-Dec Goods Andrews 9,234 7,600 1,634

06-Dec Goods Devit 20,898 17,200 3,698

14-Dec Goods Martin 36,450 30,000 6,450

66,582 54,800 11,782

Purchase Returns Book


€ € €

10-Dec Goods Andrews 4,781 3,935 846

17-Dec Goods Martin 1,944 1,600 344

6,725 5,535 1,190

Cheque Payments Book

Date Analysis Total Payables

€ €

28-Dec Payables - Andrews 13,000 13,000

28-Dec Payables - Martin 30,050 30,050

28-Dec Payables - Devit 47,400 47,400

90,450 90,450

Cash Receipts & Lodgements book

Date Analysis Total Payables

€ €

15-Dec Williams 2,660 2,660

2,660 2,660

Part ii

Payables A/C

€ €

Opening balance b/d 2,660 Balance b/d 97,010

Cheque payments book 90,450 Purchases Book 66,582

Purchase Returns Book 6,725 Cash receipts book 2,660

Balance c/d 66,417

166,252 166,252

Balance b/d 66,417

Part iii


Andrews A/C

€ €

Cheque payments book 13,000 Balance b/d 15,110


Balance c/d 6,563

24,344 24,344

Balance b/d 6,563

Martin A/C

€ €



Balance c/d 28,206

60,200 60,200

Balance b/d 28,206

Williams A/C

€ €

Balance b/d 2,660 Cash receipts books 2,660

2,660 2,660

Devit A/C

€ €


Balance c/d 31,648 Purchases Book 20,898

79,048 79,048

Balance b/d 31,648

Payable’s Listing

€

Andrews 6,563

Martin 28,206

Williams -

Devit 31,648

Total 66,417


Part iv

€

Balance as per payable’s control account 66,417

Balance as per payable’s listing 66,417

Difference -

The balance as per the payable’s control account and the payable’s listing should always be the same.


Solution Five

An Accounting Technician

Auditors & Accountants

The Square

Dublin

Client

Client Road

The Road

Date: 31 December 2016

Dear Mr. Client

As previously discussed please find below a brief explanation of the terms requested by you.

FIFO

First In First Out method of valuing inventory

This means that from a valuation perspective it is assumed that the goods purchased first are sold first.

Every time a sale is made, the cost of goods sold is identified as representing the cost of the oldest goods

remaining in inventory. This is the most common way of valuing inventories as it gives inventory a value

based on most recent goods purchased.

The Going Concern Concept

Accountants assume, unless there is evidence to the contrary, that a business is not going to break up and

that it will continue in operational existence for the foreseeable future (this is taken as one year from the

date the financial statements are signed) and there is no intention to put the business into liquidation.

This has important implications for the valuation of assets and liabilities. One does not use this concept

when one is aware of circumstances, which would cause the business to be closed down or substantially

wound up.

Differences between the Financial Statements of a Not for Profit Organisation and the Financial

Statements of a Sole Trader

Not for profit organisations are organisations such as charities and clubs. These organisations are

established to promote an activity or a group of activities or to promote the interests of the members.

They are not run with the objective of making a profit, like a sole trader business. Not for profit

organisations do conduct business to earn revenue but this revenue is invested back into organisation for

the purpose of furthering the goals of the organisation as opposed to for the benefit of members

personally.

Not for profit organisations do not need to prepare a set of complex financial statements and the accounts

tend to include a statement of income and expenditure and an accumulated fund statement as at the end of

the year.

I trust the above explanations clarify the matters for you.

Yours sincerely



(b)

`(1)

Dr Cr

Machine a/c 20,000

Payables a/c 20,000

Purchase of machine on credit

Depreciation expense a/c 4,000

Accumulated depreciation a/c 4,000

Depreciation charge for 2016

Payables a/c 20,000

Bank a/c 19,500

Discount received a/c 500

Settlement of debt for purchase or machine

(2)

Rent & rates expense a/c 35,000

Bank a/c 35,000

Payment of rent & rates during 2016


Rent accrual a/c (SOFP) 12,000

Rent due at year end


Rates prepaid a/c (SOFP) 5,000

Rates prepaid at year end


Solution Six

Part i

O. Higgins

Bank Reconciliation as at 31 December 2016

€

Balance per bank 231,500

Add outstanding Lodgement 80,750

Less O/S Cheques

1989 12,543

2004 1,890

2005 240

2006 937 (15,610)

Restated Balance 296,640

Part ii

O. Higgins

Corrected bank accounted

Bank Account

€ €

31/12/09 Balance 246,394 31/12/09 Error 1 12,450

31/7/09 Error 2 14,500 31/12/09 Error 3 – Bank charges 1,030

6/6/09 Error 6 – Capital raised 33,200 31/3/09 Error 5 (415 +145) 560

31/12/09 Error 7 - Backdated cheques 16,586 31/12/09 Balance c/d 296,640

310,680 310,680

31/12/09 Balance b/d 296,640


Part iii

To: O. Higgins

From: An Accounting Technician

Subject: Matters regarding bank reconciliations

Date: 31/12/2016

We have completed the bank reconciliation as at 31 December 2016. During this process some matters

arose that we would like to bring to your attention.

Issue 1

Bank reconciliations should be prepared on a regular basis. This is normally taken as every month or in

some cases every week. From the errors that came to our attention it would appear that this is currently

not the case within your business. Preparing regular bank reconciliations helps to ensure the accuracy

of the books and records of the business by helping to identify errors, for example, on a timely basis.

This in turn helps to ensure the quality of information generated for you from the accounting function.

Issue 2

Cheques raised have six months to be presented to the bank for payment. If they are presented after this

period of time the cheque will be returned by the bank un-cashed to the payee. On the outstanding

cheque list there are two cheques that were written more than six month prior to the year end. These

cheques should be written back to the bank account (thereby increasing it) and increasing your

liabilities/payables.

The cheques can then be reissued or the balances held until the business is contacted by the payable

requesting payment.

Should you require any further information in this regard please feel free to contact me.


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