All businesses must have control systems in place in order to ensure that all accounts are accurate. Control systems are used to detect errors and lack of integrity issues as well as to determine accurate of financial statements.
Types of Control Systems
- Trial balance.
- Bank reconciliation statements.
- Control accounts.
- General journal and suspense accounts.
Bank Reconciliation Statement
A bank reconciliation statement is a written explanation as to why a company’s cash book differs from its bank statement balance.
Reasons for differences in the cash book balance and the bank statement balance
- Errors.
- Timing difference.
- Omission of transactions.
- Credit transfers.
- Direct debits.
Steps to take when treating with a Bank Reconciliation Issue
- Tick off the transactions that are common to both the cash book and the bank statement.
- Update the cash book with the items that have no ticks on the bank statement.
- Prepare a bank reconciliation statement as at a particular date.
Example of Bank Reconciliation Statement
| "$\text{ABC Enterprises Adjusted Cash Book}$" | |
| "$\text{October 31 balance 8,640}$" | "$\text{October 31 Correction of Error 846}$" |
| "$\text{Correction of b/f 567}$" | "$\text{October 31 Dishonoured Cheque 162}$" |
| "$\text{October 31 Bank Charges 115}$" | |
| "$\text{October 31 Balance c/d 8,084}$" | |
| "$\text{9,207}$" | "$\text{9,207}$" |
| "$\text{November 1 Balanced b/d 8,084}$" | |
So the discrepancy is 7,884 which is the difference between the cash book and bank statement.
| "$\text{Bank Reconciliation Statement as at October 31}$" | ||
| "$\text{Balance as per Bank Statement}$" | "$\text{(1116)}$" | |
| "$\text{Less Unpresented Cheques:}$" | ||
| "$\text{Don}$" | "$\text{1,926}$" | |
| "$\text{Rick}$" | "$\text{3,130}$" | |
| "$\text{Harry}$" | "$\text{270}$" | "$\text{(5,326)}$" |
| "$\text{(6,442)}$" | ||
| "$\text{Add Bank Lodgements}$" | ||
| "$\text{Cash Sales}$" | "$\text{13,878}$" | |
| "$\text{Errors}$" | "$\text{648}$" | "$\text{14,526}$" |
| "$ - \text{(8,084)}$" | ||
Control Accounts
Control accounts are essentially summary accounts in the general ledger. They contain totals instead of amounts relating to individual debtors or creditors. They allow one to see the totals, without getting into too much details from individual accounts.
The reason these accounts are called control accounts is because one uses them to ensure there are no errors or mistakes in our records relating to debtors and creditors. Thus, one gets more control.
Example:
| "$\text{Sales Ledger Control Account}$" | |
| "$\text{2009}$" | "$\text{2009}$" |
| "$\text{June 1 Balance b/d 6,420}$" | "$\text{Jun 30 Cask and Bank 10,370}$" |
| "$\text{June 30 Sales 12,800}$" | "$\text{June 30 Discount Allowed 395}$" |
| "$\text{June 30 Balance c/d 50}$" | "$\text{June 30 Set Off: Purchases 145}$" |
| "$\text{Ledger}$" | |
| "$\text{Jun 30 Balance c/d 8,360}$" | |
| "$\text{19,270}$" | "$\text{19,270}$" |
| "$\text{June 1 8,360}$" | "$\text{June 1 b/d 50}$" |
The discrepancy or difference is 8,360.