Chapter 10
Cash Controls
305
ACCOUNTS
RECEIVABLE
ACCOUNTS
PAYABLE
INVENTORY
ASSETS
BALANCE SHEET
LIABILITIES
CASH
OWNER’S EQUITY
UNEARNED
REVENUE
LOANS
PAYABLE
–
$360 CR
+
$360 DR
Journal
Page 1
Date
2016
account title and explanation
Debit Credit
Jun 30 Cash
360
Inventory
360
Correct error in ledger
______________
FIGURE 10.22
When an error is made by the bookkeeper, the bookkeeper must go back into the records to
determine what the original entry was for. This will determine which account will be used to
offset the cash account. In our example, the payment was for inventory. If the payment was to
pay off an account, use accounts payable; if it was to pay this month’s rent, use rent expense; if it
was to pay a telephone bill, use telephone expense, etc.
As with the previous examples, any
discrepancy between the bank statement
and the ledger record should be examined
and then corrected with the appropriate
entries.
Incorrect amounts in the ledger can be
more or less than the amounts shown
on the bank statement. Each error must
be analyzed carefully for appropriate
adjustments.
Bank reconciliation summary
Once all the items on a bank statement and the ledger have been matched up, only a few items
should remain that need to be reconciled. Figure 10.23 summarizes how items will be treated on a
bank reconciliation. Remember that all items that must be added to or subtracted from the ledger
balance must be recorded in a journal entry.
In a computerized accounting system, errors in the
ledger, such as the one described in Figure 10.22, are
corrected using two entries instead of one. The first
entry would be a $950 debit to cash and a $950 credit to
inventory. This entry reverses the original incorrect entry.
The second entry would be a $590 debit to inventory
and a $590 credit to cash to record the correct amount
of the June 3 cheque. The net result is the same as the
single entry in the amount of $360 shown above. Manual
accounting systems may not use this method because it
requires more entries and provides more room for error.
