Topic 3 of 6 · Form 3
Verification of accounting records
Lists ledger balances to check arithmetical accuracy. Errors not revealed: omission, commission, principle, original entry, complete reversal and compensating errors.
Notes for this topic 1 file, in order
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The trial balance
Lists ledger balances to check arithmetical accuracy. Errors not revealed: omission, commission, principle, original entry, complete reversal and compensating errors.
Correction of errors
Journal entries with narratives; suspense accounts when the trial balance does not agree; effects of errors on profit and on the statement of financial position.
Worked example: Rent paid US$200 was debited to the repairs account. Write the correcting journal entry.
Dr Rent 200; Cr Repairs 200 (error of commission/principle within expenses – no effect on total profit)
Bank reconciliation
Adjust the cash book for items on the bank statement (bank charges, direct debits, standing orders, credit transfers, dishonoured cheques), then reconcile with unpresented cheques and uncredited deposits.
Worked example: Updated cash book balance (Dr) US$1 500; unpresented cheques US$420; uncredited deposit US$300. Find the bank statement balance.
1 500 + 420 − 300 = US$1 620
Control accounts
Sales ledger and purchases ledger control accounts summarise individual accounts, help locate errors and prevent fraud; contras (set-offs) between them.
Check yourself
- Name two errors not revealed by a trial balance.
- Why might a cash book need updating before a bank reconciliation?
- Give one use of a control account.
Show answers
- Any two: omission, commission, principle, original entry, complete reversal, compensating.
- Items such as bank charges and direct debits appear on the bank statement but have not been entered in the cash book.
- Any one: checks the accuracy of the ledger, helps locate errors, deters fraud, gives quick totals of receivables or payables.
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