## **Learning Outcomes**

After reading this article, you will be able to explain the purpose and steps of key reconciliation procedures required for the ACCA FA1 exam. You will learn to identify errors and omissions in accounting records, distinguish between timing differences and actual mistakes, and apply practical methods to reconcile cash and supplier accounts effectively.

## **ACCA Recording Financial Transactions (FA1) Syllabus**

For ACCA Recording Financial Transactions (FA1), you are required to understand why regular reconciliations are essential and how to identify and correct common errors and omissions. In particular, focus your revision on:

- The purpose of reconciliations (bank and supplier statements) as control checks
- How to identify and resolve errors and discrepancies between internal records and external documents
- The process for reconciling the cash records to the bank statement
- The procedure for reconciling supplier account balances to supplier statements

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which type of error is NOT usually revealed by a bank reconciliation statement?
   a) An unpresented cheque
   b) Incorrect addition in the cash book
   c) A payment recorded twice in the bank statement
   d) A cash sale not entered in the cash book

2. If the balance per bank statement and the balance per cash at bank general ledger account do not agree, what is the first step you should take?

3. What is the correct double-entry to correct a payment of \$250 that was omitted from the cash at bank general ledger account but appears on the bank statement?

4. True or false? All timing differences between the bank statement and the cash book are evidence of an error.

## **Introduction**

Businesses need confidence that their accounting records are complete and accurate. One of the main ways to achieve this is to reconcile key balances—such as cash at bank and supplier accounts—to independent external records. Without regular checks, errors and omissions can remain undetected, causing problems in reporting, payments, or even fraud detection.

This article explains how to carry out reconciliations, how to identify and correct errors or omissions, and the distinctions between timing differences and actual mistakes.

> **Key Term: reconciliation**
> The process of comparing internal accounting records with external documents to identify and explain differences, ensuring all transactions are accurately recorded.

## **Why Are Reconciliations Necessary?**

Reconciliations act as a control device to provide assurance that records are accurate. They help identify:

- Errors (such as omissions, duplications, or incorrect amounts)
- Timing differences between recording and banking of money or payments
- Unauthorised or unusual transactions

Two reconciliation procedures most frequently tested in ACCA FA1 are:

- Bank (cash) reconciliation
- Supplier statement reconciliation

## **Reconciling the Cash Records to the Bank Statement**

A bank reconciliation compares the balance within the internal cash at bank ledger account against the balance shown on the bank statement. Discrepancies may arise due to:

- Outstanding lodgements: Receipts recorded in the ledger but not yet showing on the bank statement.
- Unpresented cheques: Payments recorded in the ledger, not yet cleared by the bank.
- Timing differences: Bank transactions (such as charges or interest) not yet recorded in the ledger.

However, not every discrepancy is a timing difference—errors or omissions may also exist.

> **Key Term: timing difference**
> A difference between internal records and external statements that will be resolved when all items have been processed by both parties.
>
> **Key Term: error**
> A mistake in the accounting records, such as a transaction being omitted, duplicated, posted to the wrong account, or entered with the wrong amount.
>
> **Key Term: omission**
> Failure to record a legitimate transaction in the accounting records.

### **Worked Example 1.1**

**A business’s bank statement at 30 April shows a balance of \$4,800. Its cash at bank ledger account shows \$5,290. Unpresented cheques total \$1,400, and outstanding lodgements amount to \$900. During reconciliation, a direct debit of \$100 for insurance was found on the bank statement but had not been posted in the ledger. What adjustments are necessary?**

> **Answer:**
> The missing direct debit is an error of omission and must be entered in the ledger: Debit Insurance \$100, Credit Cash at bank \$100. The rest are timing differences to be listed in the bank reconciliation statement.

### **Steps to Perform a Bank Reconciliation**

1. Compare each entry in the cash book against the bank statement, ticking off items that appear in both.
2. Identify outstanding lodgements and unpresented cheques—these are timing differences.
3. Check for items on the bank statement not recorded in the ledger (e.g., direct debits, bank charges, interest).
4. Record discovered omissions or errors in the ledger through adjusting entries.
5. Prepare a reconciliation statement listing the adjusted ledger balance and reconcile any remaining timing differences to the bank statement.

### **Worked Example 1.2**

**During a bank reconciliation, you discover that a \$500 payment to a supplier was entered twice in the cash book. How should this be corrected?**

> **Answer:**
> Reverse the duplicate payment: Debit Cash at bank \$500, Credit Payables \$500. This will remove the excess entry and correct the ledger balance.

### **Exam Warning**

> Errors may not always be due to bank mistakes. Always check both the internal cash book and the original bank statement for missed postings before contacting the bank.

## **Supplier Statement Reconciliation**

A supplier statement reconciliation checks the balance of your payables account for a supplier against the statement they send, listing all invoices, credit notes, and payments. Differences can arise from:

- Invoices or credit notes not yet received or processed
- Payments in transit
- Errors (such as invoices recorded in the wrong amount)

The aim is to confirm that all legitimate transactions are captured and to identify any that have been missed or incorrectly recorded.

### **Worked Example 1.3**

**Your supplier statement at 30 June shows an outstanding balance of \$2,750. Your ledger shows \$3,050. Investigation reveals a supplier invoice for \$300 was mistakenly omitted from the ledger. What is the reconciliation adjustment?**

> **Answer:**
> Record the missing invoice in the ledger: Debit Purchases \$300, Credit Payables \$300. After adjustment, the balances will agree.

## **Identifying and Correcting Errors and Omissions**

The main categories of errors revealed by reconciliations are:

- Omitted transactions (missed postings)
- Duplicated entries
- Incorrect amounts
- Wrong accounts posted
- Timing differences

For each error, the correction is to make the appropriate journal entries in the accounts so that the reconciliation balances.

### **Revision Tip**

> Reconciliations are not just about correcting errors—they help prevent fraud and improve the reliability of financial reports. Set a routine to review key ledgers monthly.

## **Summary**

Reconciliation procedures are central controls for accuracy in accounting records. Comparing internal accounts to independent statements allows businesses to spot both errors and legitimate timing differences. Systematic reconciliations ensure all entries are recorded properly and that discrepancies are dealt with quickly and professionally.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Understand why bank and supplier reconciliations are essential control checks
- Distinguish between errors, omissions, and timing differences
- Apply procedures for performing a bank reconciliation
- Use supplier statement reconciliation to identify missing or incorrect entries in payables
- Recognise and correct typical errors with suitable journal entries
- Ensure errors and omissions are addressed promptly to maintain accurate financial records

## **Key Terms and Concepts**

- reconciliation
- timing difference
- error
- omission

Reconciliation procedures and checks - Identifying errors and omissions