Directorate: Curriculum FET

Grade 12 ACCOUNTING Term 2: Week 7

TOPIC: Reconciliations (Bank, Creditors, Debtors and Age analysis)

In Gr 10 and 11 you have learnt about...
Reconciliation of:
Debtors'/Creditors' lists with Control accounts | Bank statements with our Bank accounts |
Creditor statements with Creditors' accounts in the Creditors' Ledger (CL)
This lesson will enable you to analyse / interpret: Bank statements and Bank Reconciliation Statements |
Creditor statements reconciled with CL accounts | Debtors' age analysis | Debtors'/Creditors' lists compared to
Control accounts | Ethical and internal audit/control issues relating to cash/debtors/creditors' management

READ in your textbook on the topic of Bank, Debtors and Creditors Reconciliations
Use the Gr 12 Revision Pack for more notes and activities to do (pg. 18)
ALTERNATIVE digital resources:
Gr 12 Revision Pack Via Afrika Gr 12 Study Guide Lucem Gr 12 Teachers Guide
bit.ly/Gr12RevisionENG bit.ly/Gr12ViaENG1 (text and work book in one)
bit.ly/Gr12LucemAE
Pg. 18 (Pg. 119 -149)

RECONCILIATIONS...
• ... form part of the internal control processes where different sets of information are
compared, differences identified, investigated (if necessary) and corrected.
• The purpose is to identify differences, errors and omissions and to verify the
accuracy of all transactions recorded.

Types of
Reconciliations

Bank Debtors Creditors

THE NEED FOR RECONCILIATIONS:

BANK
• The Bank account balance
in the General Ledger of the
business may differ from the
Bank Statement balance
received from the bank.
DEBTORS
• The Debtors’ Control a/c
balance in the General
Ledger should be the same
as the Debtors List total.
(An internal control measure).
CREDITORS
• The Creditors’ Control a/c
balance in the General Ledger
should be the same as the
Creditors’ list total.
• A Creditor’s Ledger account
in the books of the business
should match the information in
the monthly Statement of
Account received from the
creditor.

Gr 12 Accounting Term 2, 2020 1

 BANK RECONCILIATION
• The CRJ and CPJ are reconciled (compared) with the Bank Statement on a monthly basis in order to
prepare a BANK RECONCILIATION STATEMENT (monthly!)
• This is the internal control tool of transactions between the business and his bank.
• It confirms the accuracy of ALL transactions in the cash journals and the bank statement.
• The business can keep track of:
o outstanding EFT payments and deposits made (‘outstanding’ = does not appear on the Bank
statement yet)
o EFTs received via direct deposits/online payments made by customers
o bank charges and all service fees
o interest earned on credit balances and/or paid on overdrafts
• The Bank account balance is KEPT up to date with monthly reconciliation, resulting in a realistic bank
balance (Principle of prudence!)
• Fraud and any cash manipulations, e.g. cash roll over, can be detected early to act pro-actively.

CREDITORS RECONCILIATION
Types of Creditors' Reconciliation
1. Compare the entries in the individual Creditor’s account (Creditors’ Ledger) of the business with the
monthly statement received from the Creditor (an external set of information). It is the internal control
measure to ensure that the Creditors’ accounts are properly maintained, updated and controlled.
2. The second type involves comparing the Creditors' Control account balance in the General Ledger with
the total of the Creditors List. Differences need to be investigated and corrected. This process supports
internal control to ensure that all creditors' accounts are updated and accurate on a monthly basis.
DEBTORS RECONCILIATION
• Normal procedure is to compare the balance of the Debtor’s Control account with the total of the
Debtor’s List on a monthly basis in order to send out statements to debtors to remind them to pay on
time.
• Most errors and omissions should be identified this way and corrected to update the Debtors control a/c
and the individual accounts in the Debtors' list.

DEBTORS’ AGE ANALYSIS

• This internal control tool is used to manage the outstanding debts and identify debtors who are not
performing according to their individual credit terms.
• The purpose is to determine at a glance whether debtors are paying their accounts in the stipulated period
(usually 30 days) or are taking longer periods to pay.
• Debtors Age analysis is useful for credit control and helps a business to anticipate any cash flow problems.

Explanation of related terminology:

− Credit limit: Total amount a debtor is allowed to spend/owe on his account. Credit is stopped once this
amount is reached.
− Current: The amount the debtors have bought on credit during the current month, e.g. June 2020.
− 30 days: The amount debtors still owe for goods sold to them on credit during the 'previous' month, e.g. May 2020.
− 60 days: The amount debtors still owe for goods sold on credit two months ago, e.g. Apr 2020.
− The above-mentioned dates are determined on a statement basis and not invoice basis, i.e. 30/60/90 days from the
date of the statement of account and not a transaction date.

Gr 12 Accounting Term 2, 2020 2

EXAM TIPS FOR RECONCILIATION
BANK RECONCILIATION
• Calculate correct Bank balance in General Ledger (Think 'receipts' (CRJ) and 'payments' (CPJ))
• Prepare a Bank Reconciliation Statement using the previous month’s bank reconciliation statement, the
current month's CRJ and CPJ and the current bank statement received from the bank. Look out for the
DATES and sub-headings in the question as some differences may be summarised and provided in the
question.
• Identify improvement on internal control processes based on irregularities given in the question. Usually
you will be required to comment on issues regarding handling of cash received, outstanding deposits,
outstanding EFTs, omissions and errors in journals and on source documents.
• NOTE: Your comment MUST be relevant to the information in the question and should not be a general
answer from your class notes.

CREDITORS’ RECONCILIATION
Look out for reasons for the differences, e.g.
o The statement date (25th of the month) differs from the closing date in the Creditors Ledger (30th )
o Transactions (purchases; returns/allowances; payments; discounts) could have been omitted or
entered incorrectly in the Creditors Ledger account and/or the statement of account.
o A discount could have been deducted in the ledger account but not accepted by the creditor.
o Posting and/or recording errors in either the creditor’s ledger and/or the statement.
o Addition or subtraction errors in either the creditor’s ledger and/or the statement.
• A Creditors' Reconciliation Statement can be in various formats, e.g. on column where '+' and '-' needs to
be clearly indicated, or two columns (debit and credit) that need to balance at the end.
• Some questions will require that you indicate the amount of the difference in either the Statement
AND/OR Creditors' Ledger columns.
DEBTORS’ RECONCILIATION
• The balance of the Debtor’s Control account are compared with the total of the Debtor’s List at the end
of a month. Differences will be listed and you will be required to either make corrections in the Control
account or in each individual debtor's account in the list. The final balance in the account and the list total
should match.
• IF you cannot match these figures in the exam, add /balance the accounts and list and move to the next
question. Do not spend too much time on balancing as it only counts one or two marks.

DEBTORS’ AGE ANALYSIS

• Identify debtors who are slow payers; who exceed their credit limits; defaulting debtors to whom continued
credit sales are allowed. Usually a very easy scoring question, but you need to be able to 'read' the
Debtors' Age analysis.

'General' internal control measures

Bank Reconciliation Creditors
• Safeguarding of cash
• Division of duties
• Proper authorisation of EFT
payments
• Daily / regular depositing of cash
• Requesting notification for deposits
and payments from bank via SMS
• Division of duties
• Proper documentation with
receiving of goods (order vs.
delivery note)
• Paying creditors on time to avoid
interest being charged (by EFT)
• If a creditor is not reliable, source
for alternative suppliers, but
consider switching costs e.g. extra
transport, etc.
Debtors
• Division of duties
• Check creditworthiness of debtors
before granting credit
• Send regular statements on time
• Give discount for prompt payments
• Charge interest on overdue
accounts
• Limit credit sales for slow payers

Gr 12 Accounting Term 2, 2020 3

 EXAMPLE (Debtors Age analysis)

The debtors' age analysis on 31 March 2020 is provided. Credit terms are 30 days.

REQUIRED:
1. Explain how a debtors' age analysis can assist with internal control over debtors.
2. Calculate the percentage of total debts exceeding the credit terms.
3. Explain ONE problem (with figures) relating to EACH of the following debtors:
• D Pillay
• W Patel
4. Explain TWO problems (with figures) relating to debtor D Gouws.

INFORMATION:
DEBTORS' AGE ANALYSIS ON 31 MARCH 2020
CREDIT AMOUNT CURRENT
30 DAYS 60 DAYS 90 DAYS
LIMIT OWING MONTH
R R R R R R
D Pillay 10 000 11 800 1 980 9 820
D Gouws 14 000 13 450 4 100 3 902 5 448
Z Ngosi 2 800 2 550 2 550
W Patel 14 000 11 192 9 112 2 080
P Peters 5 000 2 608 1 408 1 200
41 600 7 488 17 472 14 560 2 080
100% 18% 42% ?% ?%

% of total debtors owing per period

SOLUTION TO THE EXAMPLE

1. Explain how a debtors' age analysis can assist with internal control over debtors.
• Indicate overdue accounts and possible bad debts.
• Gives a clear idea of reliable/unreliable debtors so that action can be taken.
• To review credit limits allowed to debtors.
• Decision to refuse additional credit sales until accounts are paid.
2. Calculate the percentage of total debts exceeding the credit terms.
16 640
14 560 + 2 080 x 100 = 40%
41 600
3. Explain ONE problem (with figures) relating to EACH of the following debtors
Problem with figures
D. Pillay Exceeded the credit limit of R10 000 (owing R11 800) by R1 800
W. Patel Exceeded credit terms. Balance of R11 192 is more than 30 days overdue.
4. Explain TWO problems (with figures) relating to debtor D Gouws.
• Exceeding credit terms/slow payer (5 448/13 450) 40,5% of his account is more than 30 days overdue
• The business allowed him to buy R4 100 more goods even though he does not pay on time.

Gr 12 Accounting Term 2, 2020 4

 ACTIVITY 1A: BANK RECONCILIATION
The following information relates to Moon Traders for July 2019.

REQUIRED:
1.1 Calculate the correct balance of the Bank Account in the General Ledger on 31 July 2019. State if this balance is
favourable or unfavourable.
1.2 Prepare the Bank Reconciliation Statement on 31 July 2019.
1.3 Refer to Information F.
Explain ONE internal control measure that the business should implement to ensure that this will not happen in the
future.

INFORMATION:
A. Extract from the Bank Reconciliation Statement on 30 June 2019:
Favourable balance as per Bank Statement R42 555
Outstanding deposit: (dated 11 June 2019) R37 800
Outstanding EFTs:
No. 286 (dated 29 June 2019) R450
No. 305 (future-dated for 30 August 2019) R8 400

B. The balance in the Bank Account reflected a favourable balance of R16 785 on 31 July 2019, before
considering the items listed below:
C. EFT No. 286 does appear on the bank statement for July 2019.
D. The following items appeared on the July Bank Statement only (not in the journals):
• Interest earned on favourable bank balance, R285
• Bank charges, R950
• Unidentified debit order of R1 950. The bank will correct this in August 2019.
E. EFT No. 374 appeared correctly on the Bank Statement as R8 450. The CPJ shows it as R4 850.
F. The outstanding deposit of R37 800 does not appear on the July Bank Statement. An investigation
revealed that this money was never deposited. The cashier has disappeared.
G. The following entries appeared in the July Cash Journals only:
• A deposit of R27 180 made on 31 July 2019
• EFT No. 401 (dated 2 August 2019), R18 600
H. The balance on the Bank Statement on 31 July 2019 is the missing figure.

ACTIVITY 1A: ANSWER SHEET

1.1 Calculate the correct balance of the Bank Account in the General Ledger on 31 July 2019.
(Clearly indicate the positive and negative entries)
Provisional Bank balance R17 235

Correct Bank balance

Favourable/Unfavourable:

Gr 12 Accounting Term 2, 2020 5

 1.2 Bank Reconciliation Statement as at 31 July 2019

DEBIT CREDIT

1.3 Explain ONE internal control measure that the business should implement to ensure that this
does not happen in the future.

ACTIVITY 1B: BANK RECONCILIATION

As the internal auditor, you are presented with information on the Bank Reconciliation Statement of Covido
Traders. The owner is Covido Coronna.

A. Extract from Bank Reconciliation Statement on 31 March 2020

Deposits not yet recorded
12 March 2020 24 000
31 March 2020 12 760
Outstanding EFTs:
No. 713 (28 March 2020) 7 880
No. 738 (15 May 2020) 15 400
Credit amount wrongly debited 2 500
Balance as per Bank Statement ?

B. The following information appeared on the Bank Statement but the bookkeeper did not take this into
account when calculating the balance of the bank account:
o The bank statement reflected EFT No. 688 as R4 270 (the correct amount). This appeared incorrectly
as R4 720 in the relevant Cash Journal.
o The bank statement showed an EFT for R2 710 received from a debtor.
o A stop order, R1 650, for insurance

Gr 12 Accounting Term 2, 2020 6

 ACTIVITY 1B: ANSWER SHEET

B1.1 Refer to the amount of R24 000 in information A. The bank has no record of this amount ever
being deposited and the money cannot be found.
Explain how this loss would be treated in the books.

Explain how Covido can prevent a loss of this nature in the future. Provide TWO points.

B1.2 Refer to information A and B. The Bank account in the books of Covido Traders reflects a
debit balance of R16 160 on 31 March 2020 before taking any adjustments into account.
Calculate the correct Bank account balance on 31 March 2020.

B1.3 Give a suitable reason for the following entry from the Bank Reconciliation Statement:
“Credit amount incorrectly debited, R2 500”

B1.4 The office assistant of Covido Traders takes money from the cash register to make payments
for business expenses.
Explain why this is bad accounting practice.

Provide ONE point of advice to Covido.

Gr 12 Accounting Term 2, 2020 7

 ACTIVITY 2: CREDITORS Reconciliation

The information below relates to Imali Traders for August 2019.

REQUIRED:
2.1 Explain why the balance of the Creditors’ Control Account and the total of the Creditors’ List should
correspond.
2.2 Reconcile the Creditors Control account with the Creditors list on 31 August 2019. The balance in the
Creditors’ Control account was R108 450 and the total of the Creditors’ list was R104 865.

INFORMATION:
The following errors and omissions were discovered during an investigation:
A. The Creditors’ Journal was overcast by R1 080.
B. A debit note of R825 was entered in the Creditor’s Journal. The correct entry was made in the Creditors’
Ledger.
C. A debtor with a credit balance of R405 was included in the creditors’ list by mistake.
D. An invoice for R981 received from a creditor was incorrectly recorded as R918 and posted accordingly.
E. VAT of R810 was omitted from an invoice received from a creditor.
F. Transfer the credit balance of R180 of a debtor in the Debtors’ Ledger to his account in the Creditors’
Ledger.
G. The amount of R1 260 reflected as a refund in the Creditors’ Control Account was in fact received from a
debtor whose account was previously written off. No entry for this amount was made in the Creditors’
Ledger.

ACTIVITY 2: ANSWER SHEET

2.1 Explain why the balance of the Creditors’ Control Account and the total of the Creditors’ List
should correspond

2.2 CREDITORS CONTROL CREDITORS LIST

DEBIT CREDIT DEBIT CREDIT
108 450 104 865
A.
B.
C.
D.
E.
F.
G.

BALANCE BALANCE

Gr 12 Accounting Term 2, 2020 8

 ACTIVITY 3: DEBTORS AGE ANALYSIS

The information below relates to Mbalula Sportswear. The business sells 80% of their stock on credit. Debtors
are required to settle their accounts by the end of the month following the sales transaction month.

REQUIRED:
3.1 Identify TWO debtors who could have their credit limits increased.
3.2 Explain THREE different problems reflected by the Debtors’ Age Analysis. Give evidence.

DEBTORS’ AGE ANALYSIS ON 31 MARCH 2020

CREDIT AMOUNT CURRENT
DEBTORS 30 DAYS 60 DAYS 90 DAYS
LIMIT OWING MONTH
S Muller R10 000 R12 000 R1 800 R4 200 R2 400 R3 600
L Ndlovu R5 800 R5 000 R3 100 R1 900
P Pillay R3 500 R3 200 R3 200
B Vasco R5 000 R5 000 R2 600 R1 600 R800
C Crooks R4 500 R4 100 R3 500 R600
R Aucamp R1 500 R1 400 R500 R900
R30 700 R12 100 R7 400 R5 900 R5 300
100% 39% 24% 19% 18%

ACTIVITY 3: ANSWER SHEET

3.1 Identify TWO debtors who could have their credit limits increased.

3.2 Explain THREE different problems reflected by the Debtors' Age Analysis. Give evidence to
support your answer.
Explanation of problem with evidence

Problem 1

Problem 2

Problem 3

Solutions: https://wcedeportal.co.za/eresource/112226

Gr 12 Accounting Term 2, 2020 9