Bank Reconciliation Statement

The bank columns of the cashbook records money paid out and received by the business bank account. Both the bank and business concerned should have identical records of these transactions since both records refer to the same transactions. The bank will regularly send to the business concerned a copy of its related transactions. This is called a bank statement. The business will check its cash book bank entries against the entries in the bank statement. The differences found many times are due to: -Genuine recording errors -Fraud -The difference in time when the entries to the cashbook of the business and the banks records are made; most of the time it is due to this third factor. Items which may cause a time difference in making entries to the cash book and the banks records Unpresented Cheques These are cheques paid out and recorded by the business but have not been received by the bank for payment. Unpresented cheques will therefore be found on the payment side of the cashbook but not on the bank statement. Late Lodgements These are cheques received and recorded in the cashbook by the business which have not been lodged, or were lodged late, so were not entered on the bank statement. Late Lodgements will be found on the receipts side of the cashbook but not on the bank statement. Standing Orders A business may instruct its bank to make regular payments to stated entities on its behalf. These would have been entered on the banks records first and would therefore be found on the payment side of the bank statement but not in the cash book of the business. Direct Debits These represent payments where the creditor is given permission to withdraw the payments directly from business bank account. These would first be recorded by the bank. Direct Debits are found on the payment side of the bank statement but not in the cash book. Bank Charges

These represent payments of the business for some services provided by the bank. These payments would automatically be withdrawn from the business account by the bank so would first be on the banks records. Bank Charges would be found on the payment side of the bank statement but not in the cash book. Credit Transfers These represent funds transferred to the business bank account from another account through the banking system. This would first be entered on the banks records. Credit Transfers are found on the receipts side of the bank statement but not in the cash book. Dishonoured Cheques If a cheque is received by the business and lodged to the bank but later discovered by the bank to have some irregularity, the bank will not accept the cheque. This dishonoured cheque would first be recorded by the bank. Dishonoured cheques will be found on the payment side of the bank statement but not in cashbook of the business. Below is an example: The bank columns in the cash book for May 2011 and the bank statement for the same month for C. White are shown below.

You are required to: (a) Update the cashbook with the correct balance as on May 31, 2011 (b) Draw up a bank reconciliation statement, reconciling the corrected cash book balance with the bank statement balance.

Provision for Depreciation

Depreciation refers to two very different but related concepts: (1) The decrease in value of assets (fair value depreciation) (2) The allocation of the cost of assets to periods in which the assets are used (depreciation with the matching principle). Causes of depreciation The former affects values of businesses and entities. The latter affects net income. Generally the cost is allocated, as depreciation expense, among the periods in which the asset is expected to be used. Such expense is recognized by businesses for financial reporting and tax purposes. Methods of computing depreciation may vary by asset for the same business. Methods and lives may be specified in accounting and/or tax rules in a country. Several standard methods of computing depreciation expense may be used, including straight line, and reducing balance methods. Depreciation expense generally begins when the asset is placed in service. Factors to consider when calculating depreciation Depreciation is the gradual decrease in the economic value of the fixed assets of a business, either through physical depreciation, obsolescence or changes in the demand for the services of the asset in question. While depreciation expense is recorded on the income statement of a business, its impact is generally recorded in a separate account and disclosed on the balance sheet as accumulated depreciation, under fixed assets, according to most accounting principles. Accumulated depreciation is known as a contra account, because it separately shows a negative amount that is directly associated with another account. Depreciation expense is charged against accumulated depreciation. Showing accumulated depreciation separately on the balance sheet has the effect of preserving the historical cost of assets on the balance sheet. If there have been no investments or dispositions in fixed assets for the year, then the values of the assets will be the same on the balance sheet for the current and prior year. Methods for calculating depreciation There are several methods for calculating depreciation, generally based on either the passage of time or the level of activity (or use) of the asset. -Straight-line Method Straight-line depreciation is the simplest and most-often-used technique, in which the company estimates the disposal value of the asset at the end of the period during which it will be used to

generate revenues (useful life) and will expense a portion of original cost in equal increments over that period. The disposal value is an estimate of the value of the asset at the time it will be sold or disposed of; it may be zero or even negative. Disposal value is also known as scrap value or residual value.

-Reducing Balance Method Depreciation may be given as a fixed percentage annually and may be applied on cost in the first year, but in subsequent years applied on the reduced balance or net book value of the previous year. This method is called the reducing balance method.

Below is an Example A motor van was bought on January 1, 2009 for $10 000. It has an estimated life of ten years with an annual depreciation of 10% straight line method. Calculate the annual depreciation for 2009 to 2011 and make entries to Provision for Depreciation AccountMotor Van, and Balance Sheet.