Chemhistorian
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Hi,

I have a question about entering things in a suspense a/c:

1. The year end bank overdraft of £756 has been entered in the trial balance as a debit entry.

This causes 756x2 = 1512 excess debit and thus to balance the trial balance a CR entry in the suspense a/c of £1512 is needed to make the trial balance balance.

However the answer says the exact opposite of this (ie DR suspense a/c £1512)

2. The total of discounts receivable for the last month of £13400 was entered in the discounts received account as £14300.

This would cause an excess credit of £900 and so a DR entry of £900 in the suspense account is required to make the trial balance balance.

However, again the solution says the exact opposite.

Someone please explain what I'm doing wrong, I have absolutely no idea what I've done wrong.

If anyone thinks the solution is wrong please tell me so I can stop worrying!

Thanks
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A.A.T.
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Which exam paper is it?
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Chemhistorian
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(Original post by A.A.T.)
Which exam paper is it?
CFAB Accounting, i.e. the ACA Accounting knowledge paper. Why? I'd have thought accounting rules are the same throughout all (UK) qualifications...?
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(Original post by Chemhistorian)
CFAB Accounting, i.e. the ACA Accounting knowledge paper. Why? I'd have thought accounting rules are the same throughout all (UK) qualifications...?
I can first see if there were reported discrepancies on the paper/mark scheme.
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Chemhistorian
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(Original post by A.A.T.)
I can first see if there were reported discrepancies on the paper/mark scheme.
Ah I see. Having gone back and looked at a similar example, the way they've done the solution matches the way the example is done. It appears that the question is simply worded horribly, so it's still rather confusing.

The original question is:

"A bank reconciliation statement for Worth Ltd at 31 December 20Y1 is in course of preperation. In light of the information given below, compute the final balance shown by the cash book.

[info given in OP]

I'd have thought this would have meant adding/subtracting the things that are on the bank statement not currently in the cash book, but apparently you start with the original bank statement balance and add/subtract the things in the cash book nnot yet in the bank statement.

Could you explain why that is? :/ It's really confusing me and seems rather illogical :/
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Chemhistorian
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(Original post by A.A.T.)
I can first see if there were reported discrepancies on the paper/mark scheme.
Ah I see. Having gone back and looked at a similar example, the way they've done the solution matches the way the example is done. It appears that the question is simply worded horribly, so it's still rather confusing.

The original question is:

"A bank reconciliation statement for Worth Ltd at 31 December 20Y1 is in course of preperation. In light of the information given below, compute the final balance shown by the cash book.

1 Overdrawn balance per bank statement is £1019
2. An amount of £250 credited in the bank statement under a standing order arrangement has not been entered in the cash book.
3. Cheques drawn and entered but not presented total £2467
4. Bank charges of £1875 debited by the bank have not been entered in the cash book.
5. CAsh and cheques received and entered but not credited to the bank statement total £4986
6. An uncorrected bank error resulted in a cheque for £397 debited to Worth's account instead of to the account of the drawer.

I'd have thought this would have meant adding/subtracting the things that are on the bank statement not currently in the cash book, but apparently you start with the original bank statement balance and add/subtract the things in the cash book nnot yet in the bank statement.

Could you explain why that is? :/ It's really confusing me and seems rather illogical :/
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A.A.T.
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"I'd have thought this would have meant adding/subtracting the things that are on the bank statement not currently in the cash book, but apparently you start with the original bank statement balance and add/subtract the things in the cash book nnot yet in the bank statement."

Could you explain why that is? :/ It's really confusing me and seems rather illogical :/

We start from the bank statement as errors tend to occur internally i.e your own business rather than a bank. Banking reporting is seen and taken as a respected standing point so we always "reconcile" from an official bank statement to internal records. Exams involve errors to take into account real life examples but also simply to test the Accounting. In reality we always reconcile bank statements as there will always be time delays of transactions that have occurred but not printed / recorded on the statement.

https://www.youtube.com/user/profaccounting/videos

Bank reconciliation videos:
https://www.youtube.com/watch?v=7qBo...1s4kU2NAfhqy_A
https://www.youtube.com/watch?v=toqs...1s4kU2NAfhqy_A

These videos may help further on this topic.




(Original post by Chemhistorian)
Ah I see. Having gone back and looked at a similar example, the way they've done the solution matches the way the example is done. It appears that the question is simply worded horribly, so it's still rather confusing.

The original question is:

"A bank reconciliation statement for Worth Ltd at 31 December 20Y1 is in course of preperation. In light of the information given below, compute the final balance shown by the cash book.

1 Overdrawn balance per bank statement is £1019
2. An amount of £250 credited in the bank statement under a standing order arrangement has not been entered in the cash book.
3. Cheques drawn and entered but not presented total £2467
4. Bank charges of £1875 debited by the bank have not been entered in the cash book.
5. CAsh and cheques received and entered but not credited to the bank statement total £4986
6. An uncorrected bank error resulted in a cheque for £397 debited to Worth's account instead of to the account of the drawer.

I'd have thought this would have meant adding/subtracting the things that are on the bank statement not currently in the cash book, but apparently you start with the original bank statement balance and add/subtract the things in the cash book nnot yet in the bank statement.

Could you explain why that is? :/ It's really confusing me and seems rather illogical :/
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Squirb
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How a bank rec is done in practise is starting with the opening balance per the statement.

Is that the answer to what you're asking?


Edit: you start with the balance per the statements because you know it's correct. An opening balance from a cashbook may not be.
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A.A.T.
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Suspense and errors

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Chemhistorian
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(Original post by A.A.T.)
"I'd have thought this would have meant adding/subtracting the things that are on the bank statement not currently in the cash book, but apparently you start with the original bank statement balance and add/subtract the things in the cash book nnot yet in the bank statement."

Could you explain why that is? :/ It's really confusing me and seems rather illogical :/

We start from the bank statement as errors tend to occur internally i.e your own business rather than a bank. Banking reporting is seen and taken as a respected standing point so we always "reconcile" from an official bank statement to internal records. Exams involve errors to take into account real life examples but also simply to test the Accounting. In reality we always reconcile bank statements as there will always be time delays of transactions that have occurred but not printed / recorded on the statement.

https://www.youtube.com/user/profaccounting/videos

Bank reconciliation videos:
https://www.youtube.com/watch?v=7qBo...1s4kU2NAfhqy_A
https://www.youtube.com/watch?v=toqs...1s4kU2NAfhqy_A

These videos may help further on this topic.

(Original post by Squirb)
How a bank rec is done in practise is starting with the opening balance per the statement.

Is that the answer to what you're asking?


Edit: you start with the balance per the statements because you know it's correct. An opening balance from a cashbook may not be.
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Yes it does, thanks. What I've done here is start with one question in the OP then ended up asking a different question halfway through!

Thanks for clearing up bank rec...any info on the original post question?
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Squirb
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(Original post by Chemhistorian)
Yes it does, thanks. What I've done here is start with one question in the OP then ended up asking a different question halfway through!

Thanks for clearing up bank rec...any info on the original post question?
That's odd, I would have done what you did in your OP. Then again, I don't have much experience doing this sort of stuff.

Is there any other information?

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Chemhistorian
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(Original post by Squirb)
That's odd, I would have done what you did in your OP. Then again, I don't have much experience doing this sort of stuff.

Is there any other information?

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Here's the question in full:

"The trial balance of Z Ltd as extracted from the books has a difference of £812, and this has been posted to the credit of a suspense a/c. Some errors, as set out below, have now been discovered:

1. The year end bank overdraft of £756 has been entered in the trial balance as a debit balance

2. The total of discounts receivable for the last month of the year of £13400 has been posted to discounts receivable as £14300.

3. A purchase invoice totalling £2015 has been correctly credited to the control a/c but the amount has been debited to light and heat.

After correction of the errors, what is the remaining balance brought down on the suspense a/c?"


The only other bit of relevant info in there is the first paragraph, which just gives you an opening balance of 812 CR on the suspense a/c

3. won't effect the suspense a/c as this doesn't cause imbalance in the trial balance and is therefore just corrected via a journal entry.

I'm starting to think this is a fault in the textbook (although I have checked the errata sheet on the ICAEW website and according to that there are no errors in this chapter....)
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Chemhistorian
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(Original post by Squirb)
That's odd, I would have done what you did in your OP. Then again, I don't have much experience doing this sort of stuff.

Is there any other information?

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Got it!

The way I'm doing it in the OP is for when opening the suspense a/c.

In the question we're given an opening balance and are asked what the balance is after the corrections are made, so as the solution says, the entries will be the reverse of what I said in the OP.

Thanks for your help
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Squirb
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(Original post by Chemhistorian)
Got it!

The way I'm doing it in the OP is for when opening the suspense a/c.

In the question we're given an opening balance and are asked what the balance is after the corrections are made, so as the solution says, the entries will be the reverse of what I said in the OP.

Thanks for your help


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I still don't completely understand aghhh
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Chemhistorian
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(Original post by Squirb)
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I still don't completely understand aghhh
When you open the suspense a/c, you're getting the trial balance to balance, that is, the way I did things in the OP.

After the errors are found, they are corrected and the suspense a/c is closed, so the opposite entries to the OP are entered in the suspense a/c.

In the question, the suspense a/c doesn't close completely (ie an overall balance of 0) because not all the errors have been found (it would seem).

Does that help?
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Squirb
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I think I understand. Question is worded strangely maybe. Thank you

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(Original post by Squirb)
I think I understand. Question is worded strangely maybe. Thank you

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It would appear that ICAEW like to word their questions in the most confusing, misleading way possible :P
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Steezy
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Basically it's saying the bank is overdrawn & should be showing as a liability on the balance sheet (I.e. a credit balance) but it's showing as an asset.

The correction for this would be

Dr Suspense £1,512.00
Cr Bank £1,512.00

The next bit is saying that too much has been posted to discounts received. which is income in the P&L (i.e. a credit).

The correction to this would be:

Dr discounts received £ 900.00 (as you are reducing the income received)
Cr Suspense £900.00

This would reduce the suspense account by £612.00.
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