Question 2

Bank reconciliations and cash

It is now January 2020, and Harry Smith has come to you for some assistance as he is having trouble reconciling the bank account as at 31 December 2019.The December 2019 bank statement appeared as follows:

Bank statement for December 2019:
Date	Description	Deposit	Withdrawal	Balance
1/12/2019	Opening balance			$14,550.00
1/12/2019	Loan application fee		300.00	$14,250.00
2/12/2019	EFT - Harry Smith Drawings		1,000.00	$13,250.00
5/12/2019	Deposit	1,650.00		$14,900.00
5/12/2019	Cheque 43		440.00	$14,460.00
11/12/2019	EFT - Super Kites Ltd		5,500.00	$8,960.00
14/12/2019	Deposit	2,200.00		$11,160.00
18/12/2019	Cheque 44		330.00	$10,830.00
18/12/2019	Deposit	3,300.00		$14,130.00
20/12/2019	Cheque 45		220.00	$13,910.00
21/12/2019	Cheque 46		110.00	$13,800.00
21/12/2019	Deposit	440.00		$14,240.00
21/12/2019	EFT - Harry Smith Drawings		1,000.00	$13,240.00
22/12/2019	EFT - Super Kites Ltd		1,100.00	$12,140.00
23/12/2019	Deposit	660.00		$12,800.00
24/12/2019	EFT - Wages Tom Webb		600.00	$12,200.00
31/12/2019	Direct debit - Telstra internet		99.00	$12,101.00
31/12/2019	Interest	6.00		$12,107.00
31/12/2019	Monthly bank fee		20.00	$12,087.00

Kites Galores accounting records for December 2019 showed an opening balance for the bank account of $14,110. The bank reconciliation from November 2019 showed a bank balance of $14,550, less one outstanding cheque (Cheque 43) for $440. Following is a summary of deposits and withdrawals recorded in the accounting records during December:

Withdrawals:				Deposits:
					Amount
Date	Detail	Amount		Date	banked
2/12/2019	EFT - Harry Smith Drawings	$1,000.00
11/12/2019	EFT - Super Kites Ltd	$5,500.00		5/12/2019	$1,650.00
16/12/2019	Cheque 44	$300.00		14/12/2019	$2,200.00
18/12/2019	Cheque 45	$220.00		18/12/2019	$3,303.00
18/12/2019	Cheque 46	$1,100.00		21/12/2019	$440.00
21/12/2019	EFT - Harry Smith Drawings	$1,000.00		23/12/2019	$606.00
22/12/2019	EFT - Super Kites Ltd	$1,100.00		31/12/2019	$880.00
27/12/2019	Cheque 47	$220.00
28/12/2019	Cheque 48	$495.00			________
		$10,935.00			$9,079.00

As Harry reviewed the bank statement for the month, he noticed one bank error: the bank had incorrectly charged the business $300 for a loan application fee on 1 December 2019. Harry has contacted the bank, and they will refund the fee charged in January 2020. The bank did not make any other errors.

Required: i.Prepare the bank reconciliation for Kites Galore as at 31 December 2019.ii. Prepare the journal entries to correct any errors made by Kites Galore, and to record transactions that have not yet been entered into the businesss accounting records. (Note: The correction of any errors relating to the recording of cheque payments should be made to Accounts payable. The correction of any errors relating to deposits (other than interest received) should be made to Accounts receivable.) iii. Prepare the bank T-Account account for December 2019, in order to determine the balance in the ledger account after the above journal entries have been recorded and posted.

In addition to requesting your assistance with the bank reconciliation at 31 December 2019, Harry Smith would also like to discuss an issue that he uncovered as he reviewed the bank account and transactions in his online banking in January 2020:

• There was a duplicate EFT payment made for inventory purchases, for $1,100. A payment was made to Super Kites Ltd for $1,100 on 22 December 2019, and another payment of $1,100 appeared in the online banking records on 2 January 2020. After reviewing the business records and checking with Super Kites Ltd, Harry found out that the second payment had been made into an overseas bank account held by an individual unknown to Harrys business, and the bank account has since been closed... so it looks like the business has been scammed.