Practice Question : CASH FLOW STATEMENT

with solutions of course :D ....


Practice Question : Cash flow statement

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Key Formulae

A must before exams !!!

Key Formulae 1

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Balances on both sides of a control account ??

It may happen that there is a small opening credit balance brought down on sales ledger control account , along with the usual opening debit balance . Why ? for example , if a has returned goods after paying his account or a debtor has overpaid his account . Similarly , it may happen that there is a small opening debit balance on a purchases ledger control account ,along with the usual opening credit balance . If the business has returned goods after paying the account or where a business has overpaid its accounts the purchase ledger control account will show a debit balance.

Control Account

Here's a nice layout of control account, makes it easier to comprehend and remember .

Control Account

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Suspense account - An example question

Here's a good link to an example practice question with answers . Hope it helps out

http://www.accaglobal.com/students/publications/student_accountant/archive/2003/38/964058

Suspense Account

This week’s topic is fun and unlike the previous topic , very interlinked . So if you feel you are not proficient enough with you journal entries as yet , I would suggest not to touch this topic now . If you have mastered the journal entries, can identify the nature of entries, is well acquainted with ledgers and type of ledgers – you can move on , confidently !

The topic is - suspense account, (funny name ) and a short one. According to accountingcoach.com’s definition "A suspense account is an account in the general ledger in which amounts are temporarily recorded. The suspense account is used because the proper account could not be determined at the time that the transaction was recorded.
When the proper account is determined, the amount will be moved from the suspense account to the proper account."


Before I proceed with a simple example, it’s easier if I mention errors one by one and cite examples which will be much easier to comprehend. So just to refresh up our minds – I will start off with

Error of Omission: if a transaction is completely omitted from the books there will be neither a debit entry nor a credit entry, so the trial balance will balance. For example, cash purchases not entered in the books.

Error of commission: This occurs when a transaction is entered using the correct amount and on the correct side , but in the wrong account of the same class . For example, sales on credit to C J correctly credited to the sales account, but debited to M K ‘s account instead of C J's .

Error of Principle : This occurs when a transaction is entered using the correct amount and on the correct side , but in the wrong class of account , e.g. cash paid for machinery repairs correctly credited on the cash account but debited to the machinery account instead of machinery repairs account .

Compensating Error: These occur where two or more, errors cancel each other . For example if the purchase account is added up $200 too much and the sales account is also over added by the same amount, there is an extra $200 on both the debit side and the credit side , so the trial balance will balance

Error of original entry: This occurs where an incorrect figure is used when the transaction is first entered in the accounts. The double entry will be made using this incorrect amount in both accounts. e.g. if the total of an invoice is $1010 but is incorrectly entered in the accounts as $1100 , the trial balance will balance .

Complete reversal of entries: This occurs where the correct amounts have been entered in the correct accounts, but the entry has been made on the wrong side of each account. For example, Cash purchases debited in the cash account and credited in the purchases count. This is a reversal of ht correct entry, but the trial balance will balance.


The interesting part – we will not open a suspense account if the any of these above mentioned errors occur! We will correct these errors by using journal entries using each relevant account. For example, cash drawings of $300 had been completely omitted from the books. The entry would be Drawings: Debit and Cash: Credit. We would use a suspense account in these situations, for example, the sales account was under cast by $300. Sales must be credited with $300 and the suspense account debited by the same amount. This is why it is important to identify if our situation has any of those 6 errors. In that case, we will not use a suspense account.

... For now, I hope you're staying warm, wherever you are in the world, and hope your families are happy and close, and I hope you're feeling as loved and adored as appreciated as you really and truly are. ~HappY holiDaY Wishes to All ~

Bank Reconciliation : clarification of some weird doubts ...!~

As I proceed through number of questions , some entires become increasingly chanlleging - one of them is 'bank errors' ! these entries are not difficult but getting it right is fundamental part of reconciling otherwise our bank or cash statement balance will never match . Here's an example of bank error entry . Credits to http://www.accountingcoach.com/ , here you will find many more answers to questions - primarily asked by students .

The best feature ? the questions are divided by individual topics .


Bank errors involve amounts that were recorded incorrectly by the bank. For example, if a company wrote a check for $89 but the bank coded the check as $98, the bank statement balance will be too low. (The bank deducted $9 too much from the account, and therefore, the bank owes the customer $9.) When the bank makes the correction, the bank balance will increase by $9.00. This adjustment should appear on the bank reconciliation as an addition to the balance per bank.
If a company deposits $97 and the bank records the deposit as $79, the bank added $18 too little into the account…the bank owes the company $18. When the bank makes the correction, the the bank statement balance will increase by $18.00. The company’s general ledger has the correct amount recorded, but the bank has the incorrect balance on the bank statement. Hence the balance per bank needs to be increased by $18.

Tip: For determining whether a bank error will be an addition or a deduction on the bank reconciliation, be sure to think in terms of the change in the balance of the bank account. Both of the bank errors described above caused the bank balance to be too low. The correction of each of these errors will result in an increase to the balance per bank.

Here's another question

Can you help me to understand credit memo and debit memo in the bank reconciliation?

A bank credit memo is an item on a company’s bank statement that increases a company’s checking account balance. A bank debit memo is an item on the bank statement that reduces the company’s checking account balance. Since these items are already on the bank statement, the only adjustment that could be required is in the company’s accounting records. The old rule for the bank reconciliation “Put it where it isn’t” means that the bank’s credit memo amount must be added to the company’s accounting records, if it is not yet in the company’s accounts. Since the bank credit memo increased the checking account balance, the company’s Cash account will have to be debited and another account will need to be credited. For example, if the bank statement shows a credit memo for $100 for interest earned, the company will need to have a debit of $100 in its Cash account and will need a credit of $100 in Interest Revenue or Interest Income.
If the bank statement shows a debit memo of $25 for a service fee, the bank statement balance was decreased by $25. As part of the bank reconciliation process the following entry must be made if the item has not yet been recorded in the company’s records: debit Bank Fee Expense or Miscellaneous Expense $25 and credit Cash $25. The company’s Cash account needs to be credited because this company’s asset account decreased.
The reason the bank used “debit” to decrease the company’s checking account is that its customers’ checking account balances are liabilities for the bank. (The bank’s cash was debited when customers deposited money and the bank’s liability account Demand Deposits or Checking Account Deposits was credited.) When the bank pays a customer’s check, the bank’s cash is reduced and the bank’s liabilities are reduced. The bank records this with a credit to Cash and a debit to Demand Deposits.

This will by the my last entry of BR ....in some days I will post a new topic , if you have any doubts in mind regarding BR questions or anything - do ask away , I'll try my best to answer them .

Any queries , suggestions , critisism , are genuinely welcome :)~