ACCT-1001EL Lecture Notes - Lecture 5: Bank Reconciliation, Bank Statement, Internal Control
20 Jun 2018
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Chapter 6
Uncollectible Accounts: You need to know how much credit a company has extended to its
customer, as some accounts will never be paid.
Accounts Receivable: A company's most liquid asset.Includes, money on hand, accounts in
banks, and cheques held for deposit.
Liquidity: Presenting cash and accounts receivable separately on the financial statements helps
users evaluate a companies liquidity, or ability to meet its obligations (Current liabilities) in the
short term.
Th amount of cash and cash equivalents are presented on the statement of financial position.
Cash is measured and reported at value on the date the statement of financial position is
prepared at.
Internal Control
1. Physical Controls — to protect against theft, diversion, damage or destruction.
2. Assignment of Responsibilities — to assign tasks to single individuals; if a register is short at
end of day and it has only been used by one individual.
3. Separation of Duties — Involves insuring that individuals cannot authorize transactions/
refunds, not being able to defraud the company.
4. Independent Verification — Checking the work of one another
5. Documentation — Provide evidence that transactions and events have occurred, as well as
an audit trail.
Bank Reconciliation: Internal control that is used by companies to ensure that
differences between the accounting records for cash and the bank statement received from the
bank are identified, explained, and recorded where necessary. Purpose of doing this:
1. Every transaction recorded by the bank has also been recorded by the company or the
reason why not has been explained.
2. Every transaction recorded by the company in its cash account(s) has also been recorded
by the bank or the reason why not has been explained.
Reasons why a transaction may be reflected in the company’s counting records but not the
bank.
1. A cheque has been written and mailed out but not deposited.
2. The bank has charged service fees to the account. They will not be aware of these charges
until the billing period
3. Company makes a deposit on the last day of the month, after the bank has closed. This
about will be credited for the first day of the next month.
4. Bounced cheques from customers. The company would not be privy to this until the end of
the month when the cheque is returned with the bank statement.
How it is prepared:
Bear in mind that the objective is to determine what the cash balance would be if the same
items were recorded on both the company and banks records. When an item is identified as
