FAC3704

FAC1502

STUDY UNIT 8

CASH AND CASH

EQUIVALENTS

Financial Accounting 1:

Financial Accounting
Concepts, Principles and
Procedures
TOPIC C
ACCOUNTABILITY FOR CURRENT AND NON-CURRENT
ASSETS

Learning outcome

You should be able to exercise control, t o record transactions, and to record the
necessary calculations for valuation (where applicable) and adjustments relating to current
and non-current assets.

CONTENTS

Study units
8 CASH AND CASH EQUIVALENTS
9 TRADE AND OTHER RECEIVABLES
10 INVENTORY
11 PROPERTY, PLANT AND EQUIPMENT
12 OTHER NON-CURRENT ASSETS

2
STUDY UNIT

8
Cash and cash equivalents

Learning outcome

You should know how to treat all transactions related to cash and cash equivalents
apart from cash receipts and payments.

Contents
Key concepts 4
8.1 The nature of cash and cash equivalents 4
8.2 Internal control over cash 5
8.3 Reconciliation of the bank statement balance with the bank account balance 5
8.3.1 Introduction 5
8.3.2 Why a bank reconciliation is necessary 6
8.3.3 Procedure to follow in the reconciliation process 7
8.3.4 VAT claimed on service fees 8
8.4 The petty cash journal 17
8.5 Revision exercises and solutions 20
8.5.1 Revision exercise 1 20
8.5.2 Revision exercise 2 25
8.5.3 Revision exercise 3 27
8.5.4 Revision exercise 4 27
8.5.5 Revision exercise 5 27
Self-assessment 27

3
KEY CONCEPTS

• Outstanding cheque
• Deposit
• Bank charges
• Interest on overdraft
• Direct deposit
• Dishonoured cheque
• Stale cheque
• Stopped/cancelled cheque
• Bank reconciliation statement
• Balance per bank account
• Balance per bank statement
• Petty cash float
• Imprest system
• Petty cash journal
• Electronic Funds Transfer (EFT)

8.1 THE NATURE OF CASH AND CASH EQUIVALENTS

Cash, in the accountancy environment, includes not only coins and notes but also postal
orders (no longer in use), cheques (most of the commercial banks have informed their
clients that they no longer accept cheques as a legal payment method) and credit cards.
We live in a digital era where cashless transactions are now the legal way of paying for
goods and services. People can, for example, scan barcodes or tap with their smartphones
to pay at business establishments such as restaurants and retail stores, using apps like
Apple Pay, Google Pay, Zapper and SnapScan. Persons who do not have a bank account
can be paid by eWallet (some banks call it CashPay), as long as they have a valid South
African cellphone number. Electronic Funds Transfers (EFTs) replaced cheques as the
most convenient way of paying for goods and services. Cash equivalents include savings
accounts or any investment that can be converted into cash in a period shorter than 12
months. Cash and cash equivalents qualify as current assets.

GOLDEN RULE
Cash must be handled carefully since a lack of cash may lead to the “downfall” of an
entity, accompanied by a loss of job opportunities and various other troubles.

4
8.2 INTERNAL CONTROL OVER CASH
Since money is necessary for survival, the internal controls applicable to cash are very
important in a business. The following are measures that a business can implement for
control purposes:

• Employees' duties should be divided in such a way that an error by one employee
will be detected by another employee in the normal performance of his/her duties.
It should take at least two employees to embezzle cash. A payment request must
be completed for each payment. A payment request must be signed off by at least
two different employees (the person making the payment will be one of the
employee’s signing off the payment after the payment has been made). If a
payment is for an amount bigger than, say, R10 000, then at least three different
people, of which one is a senior employee, must sign off the payment request. All
the necessary proof such as original invoices, as well as proof that the payment
has been made, must be attached to the payment request.
• Cash receipts should be recorded in such a way that the actual cash received can
be checked against an independent daily record. The cash receipts journal will
then be done daily from the bank statement since a lot of transactions will be direct
payments (EFTs) into the bank account of the entity.
• Cash received should be banked daily.
• All payments except petty cash payments (refer to section 8.4) should be made by
EFT.
• The bank statement should be compared with the cash receipts and cash
payments journals.
• The bank statement balance should be reconciled with the bank account balance.

8.3 RECONCILIATION OF THE BANK STATEMENT BALANCE WITH

THE BANK ACCOUNT BALANCE
8.3.1 Introduction
For purposes of safekeeping and cash control, all monies received by an entity are
deposited at a bank. Although a bank is a financial institution, it is managed like a
business. Every entity that entrusts its money to a bank is a creditor of the bank. People or
entities can also borrow money from a bank and are then debtors of the bank.

Banks issue, as often as requested or at least once a month, statements to entities that
show their record of transactions with the entities. In the case of internet banking, a
business can request an online bank statement daily to be able to do all the entries
regarding direct payments into the bank account of the business daily.

The following will be reflected on the bank statement of an entity:

• the opening balance (beginning of the month)

• deposits credited during the month
• cheques paid (debited) during the month
• bank charges for the month

5
• interest charged (debit) on overdraft or paid on a favourable (credit) bank balance
• debit and stop orders for the month
• direct payments by debtors into the bank account of the entity
• dishonoured cheques for the month (cheques deposited but not paid by the
drawers' banks)
• correction of errors made by the bank in the previous month
(For now, we will keep the information about cheques should you still get some cheque
transactions. We will do one example with cheques; the rest of the exercises are without
cheques.)

8.3.2 Why a bank reconciliation is necessary

If a bank and an entity keep record of the same transactions the balance of the bank
statement and the bank account in the books of the business must be the same.
In order to ascertain if the bank account in the books of the entity corresponds to the bank
statement, a bank reconciliation statement is prepared. This means the balance of the
bank account in the books of the entity is reconciled with the balance on its bank
statement.

The reconciliation process involves two steps:

• First, the entity's records are updated to account for actual transactions
reflected in the bank statement.
• Secondly, those transactions that the bank must still attend to are recorded in
the bank reconciliation statement.

The bank reconciliation could be seen as an extension of the bank statement. An

outstanding item that will be credited on the bank statement must be credited on the bank
reconciliation statement and vice versa.

REMEMBER
• A favourable bank account balance is on the debit side of the bank account, as
well as on the bank reconciliation statement.
• An unfavourable or overdrawn bank account balance is on the credit side of the
bank account, as well as on the bank reconciliation statement.
• A favourable bank statement balance is on the credit side of the bank
statement, as well as on the bank reconciliation statement.
• An unfavourable or overdrawn bank statement balance (indicated by DT, DR or
OD) is on the debit side of the bank statement, as well as on the bank
reconciliation statement.
• An EFT cannot be reversed. The business can contact the bank and the bank can
try to contact the person to whom the payment was made to ask him/her to pay
back the money. However, banks do not want to get involved in these types of
disputes. To prevent payments from being made into the wrong accounts, a small
amount is deposited into the bank account of a creditor when the profile of the
creditor is created on internet banking. When the business receives confirmation

6
 that the amount has been received by the creditor, a large amount can be paid
over. If a wrong payment was made to a creditor of the business the creditor can
be contacted directly by the business with the request to pay back the money. It is
usually a long process; the business needs a confirmation letter from the bank
(bearing the official stamp of the bank) as proof of the bank account details of the
business, as well as proof of the payment made, before the amount will be paid
back.
• Credit card and debit card transactions will be deposited automatically during the
day - credit cards as credit card deposits and debit cards as debit card deposits.

8.3.3 Procedure to follow in the reconciliation process

• Where a bank reconciliation statement was completed for the previous
month, the bank statement must first be compared with that bank reconciliation
statement to ascertain if the outstanding items and corrections have been
attended to by the bank. Remember to compare the items on the debit side of the
bank reconciliation statement with the entries on the debit side of the bank
statement and credit entries on the reconciliation with credit entries on the
statement.
• Compare the amounts in the cash receipts journal for the current month with the
entries on the credit side of the bank statement.
• Compare the amounts in the cash payments journal for the current month with
entries on the debit side of the bank statement.
The differences between the bank statement, the previous month's reconciliation statement
and the cash journals will then be corrected.

GOLDEN RULE

Transactions or corrections that the entity must attend to, for example, bank charges,
interest, debit/stop orders, errors in the books of the entity or stale cheques must be
recorded in the two cash journals of the entity.
This means that entries in the bank statement but not in the books of the entity must be
recorded in the books of the entity, that is the cash receipts journal or the cash payments
journal.

GOLDEN RULE

Transactions or corrections that the bank must (or will) attend to, for example, deposits not
yet credited, unpaid cheques and errors made by the bank to be corrected must be
recorded in the bank reconciliation statement.

The business cannot record these transactions, the bank has to record them. The business
will therefore show the transactions that need to be recorded by the bank in a bank
reconciliation statement. The business can then check if the transactions have been
recorded by the bank in the next month’s bank statement.

7
8.3.4 VAT claimed on service fees
A bank, as a registered VAT vendor, must pay VAT (VAT output) over to SARS if they
charge transaction fees on services rendered, for example, ledger fees and commission on
debit and credit card transactions. The VAT amount is shown on the bank statement of an
entity. The entity, that is registered as a VAT vendor, can then claim the amount (VAT
input) from SARS. The bank charges will be recorded in the CPJ in the bank column (full
amount), the sundry accounts column as bank charges (at cost less VAT input) and the
VAT in the VAT input column.

EXERCISE 8.1

The bank reconciliation statement for June 20.0 and the cash receipts journal (CRJ), the
cash payments journal (CPJ), the bank account and the bank statement of Benson Traders
for July 20.0 reflect the following:
NB: The ticks () indicate that the entries that appear in the books of the entity (i.e., the
bank reconciliation as at 30 June 20.0 and the two cash journals for July 20.0) also appear
on the bank statement for July 20.0. They do not require any further attention. You should
check these entries by yourself.

BENSON TRADERS
BANK RECONCILIATION STATEMENT AS AT 30 JUNE 20.0
Debit Credit
R R
Favourable balance per bank statement 11 350
Deposit not yet credited (deposited 1/7/20.0)  2 000
Cheques not yet presented for payment:
No 11 — dated 23/6/20.0 (donation)* 200
No 13 — dated 30/6/20.0 (ABC Stores)  350
Favourable balance per bank account 12 800
13 350 13 350
* Cheque no 11 was not presented for payment in July and must again be shown as outstanding on the July 20.0 bank reconciliation
statement.

8
BENSON TRADERS
CASH RECEIPTS JOURNAL - JULY 20.0 (BANK COLUMN ONLY) CRJ 7
Document Date Details Bank
number
R
CRR01 15 Cash sales  6 700
CRR02 25 Cash sales  3 300
CRR03 30 Cash sales 1 800
Pencil total 11 800
B/S 07/R01 Rental income 850
B/S 07/R02 Interest income 80
12 730
B15

Amounts in italics are amounts entered as a result of the amounts reflected on the bank statement but not yet
in the CRJ. This updates the CRJ.
The amount highlighted in yellow does not appear on the bank statement for July 20.0.

BENSON TRADERS
CASH PAYMENTS JOURNAL -- JULY 20.0 (BANK COLUMN ONLY) CPJ 7
Document Date Details Bank
number
R
PR P14 5 Municipality  900
PR P15 7 John's Wholesalers  2 500
PR P16 9 ABC Stores  1 200
B/S 07 14 S Swan (R/D cheque)*  200
PR P17 15 Cash (wages)  450
PR P18 30 Telkom 180
PR P19 Cash (wages)  450
Pencil total 5 880
B/S 07 P Saxo (R/D cheque)* 300
B/S 07 Insurance 500
B/S 07 Bank charges R(20 + 23) 43
6 723
B15

Amounts in italics are amounts entered as a result of the amounts reflected on the bank statement but not yet
in the CPJ. This updates the CPJ.
The amount highlighted in yellow does not appear on the bank statement for July 20.0.

* The accounts of S Swan and P Saxo in the trade receivables ledger must be debited with the amounts of
R200 and R300, respectively. If any discount was involved on receipt of the cheques, the discount must be
cancelled via a general journal entry. The accounts of S Swan and P Saxo would be debited and the
settlement discount granted would be credited.

9
COMMENTS
• All the entries not ticked in the cash journals do not appear on the
bank statement and must therefore be included in the bank
reconciliation statement as at the end of the month. The entity
needs to check at the end of the next month to see if the
transactions went through on the bank statement.
• The bank reconciliation statement is an extension of the bank
statement, that is, the account of the entity from the viewpoint of the
bank.
• Therefore, transactions in the CRJ will be credited in the bank
reconciliation statement.
• Transactions in the CPJ will be debited in the bank reconciliation
statement.
• Any mistakes made by the entity must be corrected by the entity in
its own books.

10
 REAL BANK LIMITED

Real Bank Limited Registered

Bank Reg no 93/2571
VAT-Reg No: 2600101432
Tel: (012) 555–5555
Fax: (012) 555–5556
BENSON TRADERS
PO Box 12345
PRETORIA
0001

Account no 01/200/998/9 Statement no 3

July 20.0

Details Cheque no Fee Date Debit Credit Balance

R R R R
Balance b/f 01/07 11 350
Deposit 01/07 2 000  13 350
Cheque 13 1,20 02/07 350  13 000
Unpaid cheque: S Swan 1,00 07/07 200  12 800
Cheque 15 3,50 09/07 2 500  10 300
Deposit 7,00 15/07 6 700  17 000
Cheque 14 1,50 15/07 900  16 100
Cheque 17 1,20 15/07 450  15 650
Cheque 16 1,20 20/07 1 200  14 450
Deposit 3,10 25/07 3 300  17 750
Unpaid cheque: P Saxo 1,60 30/07 300 17 450
Interest 30/07 80 17 530
Deposit: R Charles 30/07 850 18 380
Cheque 19 1,20 30/07 450  17 930
XYZ Insurance Co 0.50 30/07 500 17 430
Deposit book 20 17 410
Service fees: July 23 17 387

The unticked debit entries were entered in the CPJ before the journal was closed off for July 20.0.
The unticked credit entries were entered in the CRJ before the journal was closed off for July 20.0.
The balance highlighted in yellow is the “balance according to the bank statement” and will be
entered in the bank reconciliation statement as the opening balance.

Additional information
(a) S Swan and P Saxo are debtors of the business.
(b) The deposit on 30/07/20.0 pertains to rent received.

11
 COMMENTS
• The bank statement is the account of the business from the
viewpoint of the bank, as a business entity.
• Every entity that entrusts its money to a bank is a creditor of the
bank. In the books of the entity, the bank will be an asset (debtor)
because the bank owes the entity its money. That is why the amounts
in the cash receipts journal for the current month will be compared with
the entries on the credit side of the bank statement.
• The amounts in the cash payments journal for the current month
will be compared with the entries on the debit side of the bank
statement.
• Entries in the bank statement but not in the books of the entity must
be recorded in the books of the entity, that is the cash receipts
journal or the cash payments journal.
• All the transactions that were not ticked in the credit column of the
bank statement will be entered in the CRJ.
• All the transactions that were not ticked in the debit column of the
bank statement will be entered in the CPJ.
• If there is an entry that the bank made that is incorrect on the bank
statement, the entity will inform the bank and then the entity will do a
correction-of-error entry in the bank reconciliation statement. The
entity can check at the end of the next month if the bank has
corrected the error.

SOLUTION EXERCISE 8.1

BENSON TRADERS
GENERAL LEDGER
Dr Bank B15 Cr
20.0 R 20.0 R
Jul 1 Balance a/b 12 800 Jul 31 Total payments CPJ 7 6 723
31 Total receipts CRJ 7 12 730 Balance c/d 18 807
25 530 25 530
Aug 1 Balance b/d 18 807

See page 8 for the calculation of total receipts in the cash receipts journal.
See page 9 for the calculation of total payments in the cash payments journal.

12
 COMMENTS
• The balance brought down on the debit side of the bank accounts is
the same as the final balance calculated in the debit column of the
bank reconciliation statement.
• The balances were different before we did the reconciliation. Now
we know why the balances were different and that the differences
was not due to fraud.

BENSON TRADERS
BANK RECONCILIATION STATEMENT AS AT 31 JULY 20.0
Debit Credit
R R
Favourable balance per bank statement 17 387
Deposit not yet credited (deposited 1/8/20.0) 1 800
Cheques not yet presented for payment:
no 11 — dated 23/6/20.0 (donation) 200
no 18 — dated 30/7/20.0 (Telkom) 180
Favourable balance per bank account 18 807
19 187 19 187

EXERCISE 8.2

The following information relates to Cool Cat Carter Traders:

(a)
COOL CAT CARTER TRADERS
BANK RECONCILIATION STATEMENT AS AT 31 MAY 20.9
Debit Credit
R R

Debit balance as per bank statement 460

Deposit not yet credited  115
Incorrect entry by the bank  20
Credit balance as per bank account 325
460 460

The “credit balance as per bank account” will be the opening balance of the bank account in the General
ledger. In this case it is a liability, namely, a bank overdraft.

13
(b)
COOL CAT CARTER TRADERS
GENERAL LEDGER
Dr Bank Cr
20.9 R
Jun 1 Balance b/d 325

(c)

COOL CAT CARTER TRADERS

CASH RECEIPTS JOURNAL (bank column only) – JUNE 2.09 CRJ6
Document
Date Details Fol Amount
number
R
CRR01 2 Sales 600 
B/S 06/R01 15 K Nkome/Trade receivables control 90 
CRR02 25 Sales 240 
CRR03 28 Sales 70
1 000

The amount highlighted in yellow does not appear on the bank statement for June 20.0.

(d)
COOL CAT CARTER TRADERS
CASH PAYMENTS JOURNAL (bank column only) - JUNE 20.9 CPJ6
Document
Date Details Fol Amount
number
R

PR P450 3 B Nkura/Trade payables control 40 

PR P451 8 R Swart/Trade payables control 160 
PR P452 17 GEM Builders/Trade payables control 300 
PR P453 18 K Kum & Co/Trade payables control 170 
PR P454 27 S Soul/Trade payables control 200 
870

14
(e)
BANK STATEMENT — JUNE 20.9

Date Details Debits Credits Balance

R R R

1 Balance 460 Dr
Cash Deposit 115  345 Dr
3 ABC Deposit 950 012 CC 300  45 Dr
ABC Deposit 950 012 DC 150  105 Cr
Cash Deposit 150  255 Cr
EFT PR P450 40  215 Cr
8 EFT PR P451 160  55 Cr
15 EFT - K Nkome 90  145 Cr
17 EFT PR P452 300  155 Dr
18 EFT PR P453 170  325 Dr
19 EFT - J Dlamini 200 125 Dr
26 Cash deposit 200  75 Cr
ABC Deposit 951 013 CC 40  115 Cr
27 EFT PR P454 200  85 Dr
28 Debit order - insurance 50 135 Dr
EFT – T Nkwe 40 95 Dr
Error corrected 20  75 Dr
29 Bank interest 20 95 Dr
Commission on CC 6 101 Dr
Commission on DC 1 102 Dr
30 Service fees 10 112 Dr
CC = Credit card deposit
DC = Debit card deposit

The amounts highlighted in yellow do not appear in the cash receipts journal or the cash payments journal for
June 20.9.

REQUIRED
(1) Complete only the Bank column of the cash receipts and cash
payments journals of Cool Cat Carter Traders for June 20.9.
(2) Show the bank account in the general ledger of Cool Cat Carter
Traders properly balanced at 30 June 20.9.
(3) Prepare the bank reconciliation statement of Cool Cat Carter
Traders as at 30 June 20.9. Commence with the balance as per the
bank statement.

15
 SOLUTION EXERCISE 8.2

(1)
COOL CAT CARTER TRADERS
CASH RECEIPTS JOURNAL (bank column only) - JUNE 20.9 CRJ 6
Document
Date Details Fol Amount
number
R
CRR01 2 Sales 600 
B/S-06/01 15 K Nkome 90 
CRR02 25 Sales 240 
CRR03 28 Sales 70
B/S-06/02 30 J Dlamini/Trade receivables control 200
B/S-06/03 T Nkwe/Trade receivables control 40
1 240

COOL CAT CARTER TRADERS

CASH PAYMENTS JOURNAL (bank column only) - JUNE 20.9 CPJ 6
Document
Date Details Fol Amount
number
R

PR P450 3 B Nkuna/Trade payables control 40 

PR P451 8 R Swart/Trade payables control 160 
PR P452 17 GEM Builders/Trade payables control 300 
PR P453 18 K Kum & Co/Trade payables control 170 
PR P454 27 S Soul/Trade payables control 200 
B/S-06 30 Insurance (debit order) 50
B/S-06 Interest expenses 20
B/S-06 Bank charges R(10 + 6 + 1) 17
957

(2)
COOL CAT CARTER TRADERS
GENERAL LEDGER
Dr Bank Cr
20.9 R 20.9 R
Jun 30 Total receipts CRJ6 1 240 Jun 1 Balance b/d 325
Balance c/d 42 30 Total payments CPJ6 957

1 282 1 282
20.9
Jul Balance b/d 42

The bank has a credit balance, which is therefore a liability. The rules for liabilities in T-accounts will
therefore be applied. Liabilities will decrease on the debit side and increase on the credit side. The
rules for liabilities will be applied until the balance brought down is on the debit side (asset), in which
case the rules for assets in T-accounts will be applied. Assets will increase on the debit side and
decrease on the credit side.

16
(3)
COOL CAT CARTER TRADERS
BANK RECONCILIATION STATEMENT AS AT 30 JUNE 20.9
Debit Credit
R R
Debit balance as per bank statement 112
Deposit not yet credited by the bank 70
Credit balance as per bank account 42
112 112

COMMENTS
• Bank reconciliations are complicated by the fact that sales can
consist of cash sales, credit card sales, debit card sales, Zapper
sales, buying-aid sales (e.g., Koopkrag and Petroleum Trust) and
coupon sales, and all these amounts are deposited separately into
the bank account of the business. Some businesses have the
advantage that their cash register roll indicates the different sales
methods. In the above exercise, the sales of R600 in the CRJ
consisted of ABC Deposit 950 012 CC of R300, ABC Deposit
950 012 DC of R150 and a cash deposit of R150. Usually, a bank
will indicate same-date deposits for a specific business with the
same code, in this case, ABC Deposit 950 012. The deposit on
27 June is indicated as ABC Deposit 951 013 CC. If there had been
a debit card sale, the bank would have used for the same code for
the debit card deposit, that is, ABC Deposit 951 013 DC.
• Buying-aid sales are similar to credit card sales. In the case of
buying-aid sales, registered financial institutions like Koopkrag and
Petroleum Trust provide buying-aid cards.
• The sales on 25 June consisted of cash sales of R200 and credit
card sales of R40 (see the bank statement).
• The debit card sales and credit card sales are deposited
automatically, usually during the night, into the bank account of the
business.

8.4 THE PETTY CASH JOURNAL

For purposes of control, most of the payments in a business are made by EFT.

There are, however, smaller amounts to be paid daily, for example, amounts for postage,
carriage and wages for day workers, where the amounts are too small for EFTs and cash is
needed for the transactions.
Entities usually draw money from their accounts at ATMs to provide for a petty cash float to
pay for these types of expenses.

17
Items purchased out of the petty cash float of an entity are recorded in the petty cash
journal, which is part of the cash records but is separate from the cash payments journal.
Recording is done from suitable petty cash vouchers authorised by responsible officials of
the entity.
The so-called imprest system is preferable for controlling petty cash. The petty cashier is
provided with a float of, say, R100. Payments are made during the month and, when
necessary, cash is drawn to restore the float to R100.

EXERCISE 8.3

Books of Dickson Traders --- June 20.9

Drew R300 cash as petty cash on 1 June.

DICKSON TRADERS
PETTY CASH PAYMENTS - JUNE 20.9
Date Details Cash voucher Amount

R
4 Stationery 001 25,20
8 Stamps 002 18,10
12 Cleaner's wages 003 60,00
17 Pro-advertising poster 004 26,50
19 Cleaner's wages 005 60,00
21 Stamps 006 8,50
23 Paper 007 21,95
26 Cleaner's wages 008 60,00
27 Taxi fare for messenger 009 10,00

Drew cash on 30 June 20.9 to restore the petty cash float to R300.

REQUIRED
(1) Prepare a petty cash journal for June 20.9 with the following
payment analysis columns: total, wages, postage, stationery, and
sundries.
(2) Post to the petty cash control account in the general ledger and
balance this account

18
 SOLUTION EXERCISE 8.3

(1)
DICKSON TRADERS
PETTY CASH JOURNAL - JUNE 20.9 PCJ 1
Receipts Payments
Petty Sundries
Statio-
Date Fol Total Date Details cash Fol Total Wages Postage Amount Fol Details
nery
voucher
20.9 R 20.9 R R R R R
Jun CPJ8 300,00 4 Stationery 001 25,20 25,20
1
CPJ8 290,25 8 Stamps 002 18,10 18,10
30
1 Wages 003 60,00 60,00
2
17 Pro-ad 004 26,50 26,50 Advertising
19 Wages 005 60,00 60,00
21 Stamps 006 8,50 8,50
23 Paper 007 21,95 21,95
26 Wages 008 60,00 60,00
27 Messenger 009 10,00 10,00 Travelling
expenses
290,25 180,00 26,60 47,15 36,50
30 Balance c/d 300,00
590,25 590,25
20.9
Jul 1 Balance b/d 300,00

(2)
DICKSON TRADERS
GENERAL LEDGER

Dr Petty cash control Cr

20.9 R 20.9 R
Jun 1 Bank CPJ8 300,00 Jun 30 Sundry payments PCJ1 290,25
30 Bank CPJ8 290,25 Balance c/d 300,00
590,25 590,25
20.9
Jul 1 Balance c/d 300,00

19
8.5 REVISION EXERCISES AND SOLUTIONS

8.5.1 REVISION EXERCISE 1

The following information for January 20.9 relates to Monday Trading:
(a)
MONDAY TRADING
BANK RECONCILIATION STATEMENT AS AT 31 DECEMBER 20.8
Dr Cr
R R
Debit balance as per bank statement 2 300
Deposit not yet credited
2 100
Credit balance as per bank account 200
2 300 2 300

(b)
MONDAY TRADING
CASH RECEIPTS JOURNAL - JANUARY 20.9 (EXTRACT) CRJ 8
Document Date Details Amount Bank
number
R R
CRR01-01 1 Sales 1 250
R01/01 S Singh/Trade receivables control 300 1 550
CRR01-02 5 Sales 1 500
R01/02 Rental income 500 2 000
CRR01-03 19 Sales 2 000 2 000
BS-01/02 M Nkosi/Trade receivables control 400
CRR01-04 25 Sales 3 000 3 000
CRR01-05 30 Sales 1 200 1 200

10 150

The amount highlighted in yellow does not appear on the bank statement for January 20.9.

20
(c)
MONDAY TRADING
CASH PAYMENTS JOURNAL - JANUARY 20.9 (EXTRACT) CPJ 8
Document Date Details Amount Bank
number
R R
PR P851 3 Big Sales Traders - Purchases 1 500
PR P852 S Sono 100
PR P853 6 Municipality 150
Water and electricity 100
Property rates 50
PR P854 10 Big Sales Traders - Purchases 1 300
PR P855 15 Salaries 2 000
PR P856 18 B Small 400
PR P857 20 H Ebrahim 50
PR P858 Big Sales Traders - Purchases 4 000
PR P859 25 Furniture 2 000
PR P860 30 Petty cash 100
PR P861 R Seema 600

The amount highlighted in yellow does not appear on the bank statement for January 20.9.

21
(d)
BANK STATEMENT - JANUARY 20.9

Date Details Debits Credits Balance

R R R
1 Balance 2 300 Dr
Cash Deposit 2 100 200 Dr
2 Cash Deposit 850 650 Cr
ABC Deposit 900 001 CC 500 1 150 Cr
ABC Deposit 900 001 DC 200 1 350 Cr
3 EFT PR P851 1 500 150 Dr
EFT PR P852 100 250 Dr
5 EFT – S Baloyi 500 250 Cr
6 Cash Deposit 500 750Cr
ABC Deposit 900 002 CC 750 1 500 Cr
ABC Deposit 900 002 DC 250 1 750 Cr
EFT PR P853 150 1 600 Cr
10 EFT PR P854 1 300 300 Cr
15 EFT PR P855 2 000 1 700 Dr
18 EFT PR P856 400 2 100 Dr
20 EFT – M Nkosi 400 1 700 Dr
EFT PR P857 50 1 750 Dr
EFT PR P858 4 000 5 750 Dr
Cash Deposit 500 5 250 Dr
ABC Deposit 900 003 CC 1 500 3 750 Dr
25 EFT PR P859 2 000 5 750 Dr
26 ABC Deposit 900 004 CC 1 750 4 000 Dr
ABC Deposit 900 004 DC 550 3 450 Dr
EFT – T Naidoo 5 000 1 550 Cr
28 Interest 15 1 535 Cr
30 ATM Cash – PR P860 100 1 435 Cr
EFT – R Amer 400 1 835 Cr
EFT PR P861 6 000 4 165 Dr
Bank charges 35 4 200 Dr
Commission on CC 52 4 252 Dr
Commission on DC 18 4 270 Dr
Debit order – Pay Insurance Co 500 4 770 Dr

(e) Additional information:

• The debit order of R500 represents the annual inventory insurance premium with
Pay Insurance Co.
• The deposit of R5 000 (26 January 20.9) was made by the tenant of an office,
T Naidoo, in respect of the rental for January and February 20.9.
• The cash deposit for the sales on 25 January 20.09 in the CRJ, deposited on
26 January 20.09, did not appear on the bank statement for January 20.9 received
from the bank. An investigation by the bank revealed that the amount had been
deposited in the bank account of Monday Furnitures. The bank will correct this
error.
• On 30 January 20.9, R Amer made a direct payment to the business in full
settlement of his account of R410.
• The bookkeeper investigated the fact that the amount paid to a creditor, R Seema,
was indicated as R600 in the CPJ and reflected as R6 000 on the bank statement.

22
 The investigation revealed that the bookkeeper had added an extra zero when
paying the amount to the creditor. The bookkeeper contacted the creditor, who said
the matter will be investigated and requested the bookkeeper to put a pay-back
request on a letterhead of Monday Trading. The creditor also asked for a
confirmation letter, stamped by the bank confirming the banking details of Monday
Trading. The bookkeeper adhered to these requests and requested that the
amount be paid back.

REQUIRED
(1) Prepare the cash receipts and cash payments journals of Monday
Trading for January 20.9.
(2) Show the bank account in the general ledger of Monday Trading,
properly balanced at 31 January 20.9.
(3) Prepare the bank reconciliation statement of Monday Trading as at
31 January 20.9. Begin with the balance as per the bank statement.

SOLUTION: REVISION EXERCISE 1

(1)
MONDAY TRADING
CASH RECEIPTS JOURNAL - JANUARY 20.9 (EXTRACT)
Document Date Details Bank
number
R
31 Subtotal 10 150
BS-01/03 T Naidoo – Rental income 5 000
BS-01/04 R Amer/Trade receivables control 400
15 550

MONDAY TRADING
CASH PAYMENTS JOURNAL - JANUARY 20.9 (EXTRACT)
Document Date Details Bank
number
R
31 Subtotal 12 200
BS 01/P01 Interest expenses 15
BS 01/P02 Bank charges R(35 +52 + 18) 105
BS 01/P03 Pay Insurance Co - Insurance 500
BS 01/P04 R Seema/Trade payables control R(6 000 – 600) 5 400
18 220

23
(2)
MONDAY TRADING
GENERAL LEDGER
Dr Bank Cr
20.9 R 20.9 R
Jan 31 Total receipts CRJ 15 550 Jan 1 Balance b/d 200
Balance c/d 2 870 31 Total payments CPJ 18 220
18 420 18 420

20.9
Feb 1 Balance b/d 2 870

(3)
MONDAY TRADING
BANK RECONCILIATION STATEMENT AS AT 31 JANUARY 20.9
Debit Credit
R R
Debit balance as per bank statement 4 770
Correction of error R(3 000 – 2 300) 700
Credit outstanding deposit 1 200
Credit balance as per bank account 2 870

4 770 4 770

(4) (For explanation purposes only - not required)

MONDAY TRADING
GENERAL JOURNAL – JANUARY 20.9
Date Details Fol Debit Credit
R R
31 Settlement discount granted 10
R Amer/Trade receivables control 10
Take the settlement discount granted into account because
R Amer paid his account within 30 days.

24
8.5.2 REVISION EXERCISE 2
The following information relates to Ontario Traders:

Pencil totals of the bank column of the cash journals at 31 December 20.8:
R
• Cash receipts journal 25 718
• Cash payments journal 27 115
(a) An item that appeared on the bank reconciliation statement as at 30 November
20.8 but not on the bank statement:
• A cash deposit not yet credited by the bank because the bank deposited the
money into the bank account of Ontario Distributors. 1 350
(b) Items that appeared in the cash receipts and cash payments journals but not on
the bank statement:
• A deposit entered in the cash receipts journal on 30 December 20.8, banked
on 3 January 20.9 792
• A payment in the amount of R679 to a creditor, J Khoza. A payment with the
same cash payment request reference number as shown in the CPJ appears
in the bank statement, but the amount is for R769. An investigation showed
that the bookkeeper had paid the wrong amount.
(c) Items that appeared on the bank statement but not in the cash journals:
• Bank charges 62
• Interest on a bank overdraft 70
• A stop order for an annual donation to a primary school 220
• A direct deposit by a debtor, P Zobo 535
• A deposit paid directly into the bank account of Ontario Traders by a tenant,
F Flee 1 100
(d) Balance of the bank account in the general ledger at 30 November 20.8 (debit)
3 336
(e) Balance as per the bank statement at 31 December 20.8 (favourable) 990

REQUIRED
(1) Complete the cash receipts and cash payments journals of Ontario
Traders for December 20.8.
(2) Show the bank account in the general ledger of Ontario Traders
properly balanced at 31 December 20.8.
(3) Prepare the bank reconciliation statement of Ontario Traders as at
31 December 20.8. Begin with the balance as per the bank
statement.

25
 SOLUTION: REVISION EXERCISE 2

(1)
ONTARIO TRADERS
CASH RECEIPTS JOURNAL - DECEMBER 20.8 (EXTRACT)
Document Date Details Bank
number
R
31 Subtotal 25 718
BS-12/10 P Zobo/Trade receivables control 535
BS-12/11 Rental income 1 100
27 353

ONTARIO TRADERS
CASH PAYMENTS JOURNAL - DECEMBER 20.8 (EXTRACT)
Document Date Details Bank
number
R
BS 12/P10 31 Subtotal 27 115
J Khoza/Trade payables control R(769 – 679) 90
BS 12 Bank charges 62
BS 12 Interest on bank overdraft 70
BS 12 Donations 220
27 557

(2)
ONTARIO TRADERS
GENERAL LEDGER
Dr Bank Cr
20.8 R 20.8 R
Dec 1 Balance b/d 3 336 Total payments CPJ 27 557
31 Total receipts CRJ 27 353 Balance c/d 3 132
30 689 30 689
20.9
Jan 1 Balance b/d 3 132

26
(3)
ONTARIO TRADERS
BANK RECONCILIATION STATEMENT AS AT 31 DECEMBER 20.8
Debit Credit
R R
Credit balance per bank statement 990
Correction of error by the bank 1 350
Deposit not yet credited by the bank 792
Debit balance per bank account 3 132
3 132 3 132

8.5.3 REVISION EXERCISE 3

Please attempt 8.5.3_REVISION EXERCISE 3 under the heading “CONTENT”. The
answer will be provided at a later stage.

8.5.4 REVISION EXERCISE 4

Please attempt 8.5.4_REVISION EXERCISE 4 under the heading “CONTENT”. The
answer will be provided at a later stage.

8.5.4 REVISION EXERCISE 5

Please attempt 8.5.5_REVISION EXERCISE 5 under the heading “CONTENT”. The
answer will be provided at a later stage.

SELF-ASSESSMENT
Now that you have studied this study unit, can you

• describe the nature and the importance of cash?

• describe how control is exercised over cash?
• reconcile the bank statement balance with the bank account balance
of an entity?
• prepare a petty cash journal?

27