Financial Accounting

Higher Nationals
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Programme title Higher National Diploma in Business Management
Shashi Thennakoon
Assessor Internal Verifier
Unit 10: Financial Accounting

Unit(s)
Prepare final accounts and perform bank reconciliation

Assignment title
R M Maneesha P Ratnayake
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Higher Nationals - Summative Assignment Feedback Form
Student Name/ID R M Maneesha P Ratnayake/NH09143

Unit Title Financial Accounting
Assignment Number Assessor
Submission Date 22/09/2021 Date Received 1st

submission
Re-submission Date Date Received 2nd

submission
LO1 Record business transactions using double entry bookkeeping, and be able to extract a trial balance.
Pass, Merit & Distinction P1 P2 M1 D1

Descripts
LO2 Prepare final accounts for sole traders, partnerships and limited companies in accordance with
appropriate principles, conventions and standards.
Pass, Merit & Distinction P3 P4 M2 D2

Descripts
LO3 Perform bank reconciliation to ensure company and bank records are correct.
Pass, Merit & Distinction P5 M3 D3

Descripts
LO4 Reconcile control accounts and shift recorded transactions from the suspense account to the right
account.
Pass, Merit & Distinction P6 M4 D4
Descripts
Grade: Assessor Signature: Date:
Resubmission Feedback:
Grade: Assessor Signature: Date:
3|Page NH09143-FA Maneesha Ratnayake

Internal Verifier’s Comments:
Signature & Date:
* Please note that grade decisions are provisional. They are only confirmed once internal and external moderation has taken place
and grades decisions have been agreed at the assessment board.
Assignment Feedback
Formative Feedback: Assessor to Student
Action Plan
23rd May, 2021-I got the Financial Accounting guideline. And one month I learned
basics of financial accounting, General Journal, General Ledger and how it works. On
20th June, 2021 we discussed the first activity. I learned week by week Sole
Proprietorship, Partnership, Limited liability company, Cash flow, Bank
reconciliation and other financial accounting theory. And I try myself how to do the
activities. I done my Financial Accounting assignment on 4th September, 2021. My
teacher corrects my answer and reply me on 12th September, 2021. I corrected my
assignment again and final document send to my teacher on 21st September, 2021.
Summative feedback

Feedback: Student to Assessor
Classes with teacher Shashi have been so worthwhile.
Firstly, what I don’t like is the speed at which she teaches accounting equations.
Last but not the least, teacher has an amazing way of breaking things down so that
they are understandable, and always keeping it light and fun. She was very patient-
which anyone that takes a language needs-and it’s very comfortable to learning. I
recommend her highly.
Assessor Date
signature
Maneesharatz97@gmail.com Date 21/09/2021
Student
signature
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I hereby, declare that I know what plagiarism entails, namely to use another’s work and to
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Maneesharatz97@gmail.com 21/09/2021
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Acknowledgement
I would like to express my special thanks of gratitude to my lecturer Mrs.

Shashi Thennakoon who gave me the golden opportunity to do this Financial
Account case study review, which also helped me in doing a lot of researches
and I came to know about so many things.
Also, I thank my lecturer Mrs. Shashi Thennakoon once again for her
invaluable guidance, friendly advices, effective feedbacks and encouragement
given to me during my case study. To be honest, she I have learnt a lot during
my preparation of this case study, and I am truly grateful to her as she helped
me to see my case study in a new light. I also wish to my gratitude ESOFT
Metro Campus Negombo-friends to complete my report works. Finally thank
you Mr. Christopher Shockman sir for giving me special/extra knowledge to
complete this assignment. Lastly, I thank to my parents and friends who
assisted me to get to the end of the process within the limited time period.
Maneesha Ratnayake

Executive Summary
This report applied the double entry book-keeping system of debits and
credits. And recorded sales and purchases transactions in the general ledger.
Produced a trial balance applying the use of the balance off rule to complete
the ledger and also prepared final accounts from given trial balance figures
adjusting for accruals, depreciation and prepayments.
Further, applied the bank reconciliation process to prepare a number of bank

reconciliations. And explained the process taken to reconcile control accounts
and clear suspense accounts using given account examples. Demonstrated
understanding of the different types of accounts and how and why they are
reconciled.
Analysed sales and purchase transactions to compile a trial balance using

double entry book-keeping appropriately and effectively. And also analysed
profit and loss accounts, balance sheet and cash flow statements appropriate
for the given examples. Applied the reconciliation process demonstrating the
use of deposit in transit, outstanding cheques and NSF cheques.

Contents
Acknowledgement................................................................................................................8
Executive Summary.............................................................................................................9
List of Tables......................................................................................................................11
List of Figures....................................................................................................................12
LO 01: Record business transactions using double entry book-keeping, and be able
to extract a trial balance.............................................................................................29
LO 02: Prepare financial accounts for Sole Traders, Partnerships or Limited

companies in accordance with appropriate principles, conventions and standards.. .44
LO 03: Perform bank reconciliations to ensure company and bank records are correct
....................................................................................................................................75
LO 04: Reconcile Control Accounts and Shift Recorded Transactions from the
suspense accounts to the right accounts.....................................................................81
Explain the process taken to reconcile control accounts and clear suspense accounts
using given account examples. (P6)...........................................................................81
References..........................................................................................................................87
10 | P a g e NH09143-FA Maneesha Ratnayake

List of Tables
Table 1 General Journal.....................................................................................................30
Table 2 Trial Balance.........................................................................................................35
Table 3 Balance Sheet........................................................................................................42
Table 4 Income Statement..................................................................................................43
Table 5 Summary...............................................................................................................43
Table 6 Saman Trading, Income Statement for the year ending 31st March 2019............45
Table 7 Saman Trading, Statement of Financial Position for the year ending 31st March
2019....................................................................................................................................46
Table 8 ABN Association Income Statement of the year ending 31st March 2018..........48
Table 9 ABN Association balance sheet of balance sheet as at 31st March 2018.............49
Table 10 Wiskam PLC Comprehensive Income Statement 31st March 2015...................51
Table 11 Wiskam PLC Financial Position 31st March 2015.............................................53
Table 12 Wiskam PLC Statement of changing of Equity..................................................54
Table 13 Statement Cash Flows for the year ended 31st March 2015...............................60
Table 14 differences between statements in terms purpose, structure and content............72
Table 15 Araliya Business, adjusted Cash Book for the month ended 31.03.2015...........73
Table 16 Ahinsa Business Bank Reconciliation Statement 31.03.2015.............................73
Table 17 Ahinsa (Pvt) Ltd Adjusted Cash Book for the month ended 31.03.2017............74
Table 18 Ahinsa Business Bank Reconciliation Statement 31.03.2017.............................75

List of Figures
Figure 1 Income Statement.................................................................................................64
Figure 2 Statement of Financial Position...........................................................................66
Figure 3 Statement of Cash Flows.....................................................................................68
Figure 4 Statement of Changing Equity..........................................................................69

Pearson
Higher Nationals in
Business
Unit 10: Financial Accounting
Assignment 01

Assignment Brief
Student Name /ID Number R M Maneesha Prabani Ratnayake/NH09143
Unit Number and Title Unit 10: Financial Accounting
Academic Year 2021/2022
Unit Tutor
Assignment Title Prepare final accounts and perform bank

reconciliation
Issue Date 22/09/2021
Submission Date 22/09/2021
IV Name & Date
Submission Format:
The submission should be in the form of an individual written report. This should be
written in a concise, formal business style using single spacing and font size 12. You
are required to make use of headings, paragraphs and subsections as appropriate, and
all work must be supported with research and referenced using the Harvard referencing
system. Please also provide a bibliography using the Harvard referencing system.
Unit Learning Outcomes:
LO1. record business transactions using double entry book-keeping, and be able to
extract a trial balance;
LO2. prepare final accounts for sole-traders, partnerships or limited companies in
accordance with appropriate principles, conventions and standards;
LO3. perform bank reconciliations to ensure company and bank records are correct;
LO4. reconcile control accounts and shift recorded transactions from the suspense
accounts to the right accounts.
Assignment Brief and Guidance:

Activity 01. Record business transactions using double entry book keeping and
be able to extract a trial balance (Covers LO 01 and P1, P2, M1, D1)
XYZ PLC has begun professional practice as a system analyst on July 1. He plans to
prepare a monthly financial statement. During July, the owner completed following
transactions.
July 1. Owner invested LKR 500,000 cash along with computer equipment that had a
market value of LKR 120,000 two years ago, but was now worth LKR 100,000 only.
July 2. Paid LKR 15,000 cash for the rent of office space for the month.
July 4. Purchased LKR 12,000 of additional equipment on credit (due within 30 days).
July 8. Completed a work for a client and immediately collected the LKR 32,000 cash.
July 10. Completed work for a client and sent a bill for LKR 27,000 to be paid within
30 days.
July 12. Purchased additional equipment for LKR 8,000 in cash.
July 15. Paid an assistant LKR 6,200 cash as wages for 15 days.
July 18. Collected LKR 15,000 on the amount owed by the client.
July 25. Paid LKR 12,000 cash to settle the liability on the equipment purchased.
July 28. Owner withdrew LKR 500 cash for personal use.
July 30. Completed work for another client who paid only LKR 40,000 for 50% of the
system design.
July 31. Paid salary of assistant LKR 7000.
July 31. Paid PLDT bill LKR 1,800 and Meralco bill LKR 3,800.
Requirement
 Apply book keeping technique and develop relevant journal entries for given
transactions and prepare general journal. /P1
 Apply the double entry book-keeping system of debits and credits for above given
transactions in general ledger. /P1/M1
 Produce a trial balance applying the use of the balance off rule to complete the
ledger./M1
 Apply trial balance figures to show which statement of financial accounts they will
end up in./D1

Activity 02. Prepare final accounts for sloe traders, partnerships and limited
companies in according with appropriate principles, conventions and standards.
Part (A) – Sole Proprietorship
Saman Trading is a sole proprietorship owned by saman. The trial balance of Saman
Trading as at 31st March 2019 is as follows.
2018/4/1- 2019/3/31
Saman Trading
Trial Balance as at 31st March 2019
Description Dr (Rs. ‘000) Cr (Rs. ‘000)
Property Plant and Equipment (at cost)

Land and Building 51000
Motor Vehicle 8800
Office Equipment 5500
Accumulated Depreciation as at 01st April 2018
Building 10000
Motor Vehicle 2880
Office Equipment 1080
Trade Receivables (debtors) / Trade Payables 13000 15200
Purchases/ Sales 30000 71000
Provision for doubtful debts (adamana Naya) as at
01st April 2018 1240
Stocks as at 01st April 2018 opening cost 7700
Drawings 2400
Sales Commission 4300
Telephone and Electricity (administration
expenses) 7600
Insurance 3660
Salaries and Wages 13000
Bank loan – 14% 19000
Cash in hand assets 5240
Bank Overdraft 3800

Capital as at 01st April 2018 28000
152200 152200
Additional Information –
01. Land Value of Rs. 11,000,000(1100) included in the Land and Building cost.
02. The deprecation(expense) policy of the Saman Trading is straight line basis on
cost. Depreciation rates as follows.
Building 5%
Motor Vehicle 20%
Office Equipment 12%
03. Closing Inventory as at 31st March 2019 was Rs. 6,900,000(closing stock)
04. The telephone and electricity bill of Rs. 710,000 for the month of March 2019
was not paid as at 31st March 2019.
05. Insurance expense of Rs. 1,060,000 is relevant for the next financial year of
2019/20.
06. Trade Receivables from Nuwan Distributors amounting Rs 300,000 to be
written off as a bad debt and provision for doubtful debts to be made for the
remaining receivable balance at the yearend. (Rate 2%)
07. The bank loan was obtained on 01st April 2018, payable in two equal
instalments with the interest it is due as at 31st march 2019.And it has been paid
on 10th April 2019.
You are required to prepare following –
(a) Statement of Comprehensive 9 (profit and loss) Income for the year ended
31st March 2019.
(b) Statement of Financial position as at 31st March 2019.
Part (B) – Partnership

The summarized trial balance of ABN Associates (Partnership Business) as at
31st March 2018 is given below.
ABN Associates
Trial Balance as at 31st March 2018
Rs.
Dr Cr
Partners' Capital Accounts
Amal 500,000
Bimal 400,000

Nimal 400,000
Partners' Current Accounts
Amal 225,000
Bimal 125,000
Nimal 85,000
Partners' loan Account – Nimal 200,000
Property, Plant & Equipment 900,000
Drawings
Amal 275,000
Bimal 175,000
Sales 3,800,000
Inventory 585,000
Cost of sales
Initial inventory
+Purchases
-closing inventory 1,900,000
Trade Receivables / Trade Payables 280,000 150,000
Cash at bank 500,000
Operational Expenses 850,000
5,675,000 5,675,000
Adjustments need to be made for the following
01. Depreciation for the year was Rs. 180,000.

02. The profit sharing ratio of Amal, Bimal and Nimal is 4 : 3 : 3 respectively.
03. Interest is payable on Fixed Capital Accounts balances 10% per annum.
04. No entries have been made for Inventory costing Rs. 120,000 taken by
Amal.
05. Interest on the partners loan is 20% per annum.
06. Amal took away the other equipment for his own use on 31st March 2018 at
a valuation of Rs. 100,000. The book value of the equipment is Rs. 50,000.
Requirement
Prepare the financial statements for a partnership including appropriation
accounts

Part (C) – Limited Liability Company
The trial balance as at 31.03.2015 of Wiskam PLC which trades electric equipment is
given below.
Property, Plant and equipment as at 2014.04.01

Dr. (Rs'000) Cr. (Rs'000)
Land 16,000.00
Building 5,000.00
Motor Vehicle 4,200.00
Computer system 600.00
Accumulated depreciation on property, plant and Equipment as at
2014.04.01
Building
Motor Vehicle
Computer system
Sales
Cost of sales 12,000.00
Trade receivables 1,240.00
Tax paid 175.00
10% bank loan
Lease deposit account 300.00
Advertising expense 200.00
Inventory as at 2015.03.31 (at cost) 350.00
Trade payables
Salary and wages 1,800.00
Stated capital (ordinary share) - share price Rs. 50.00
Dividends paid 500.00
Revaluation reserves as at 2014.04.01

Retained earnings
Discounts 50.00
Provisions for doubtful debts as at 2014.04.01
Sales commission 20.00
Director's fuel and telephone allowances 175.00
Audit fee 60.00
Donations 30.00
Cash Balance 895.00
Bank overdraft
Additional information:
Before preparing the financial statements for the year ending 31.03.2015 the following
adjustments have to be made.
 The cost of inventory as at 31.03.2015 has been valued at First in First out (FIFO)
method.
 A debtor of Rs. 80 000 from trade receivable amount as at 31.03.2015 was
bankrupted on 10.04.2015 and out of this amount only 50% could be recovered.
Further 10% on the remaining balance of trade receivable was decided to provide as
doubtful debts.
 An agreement was signed with an advertising company for two years by the
company to promote the products on 01.04.2014. Rs 200 000 of paid amount for a
period of two years was recorded in the advertising expense account.
 All property, plant and equipment should be depreciated 10% on cost based on
straight line method annually. All property, plant and equipment are used for
administrative purpose.
 Computers of Rs 400 000 which purchased on 01.10.2014 were recorded in the
purchase account.
 A machine was acquired on 01.04.2014 under a finance lease for a period of 4 years.
A down payment of Rs 300 000 was paid on this date and it has been recorded in a
lease deposit account. Annual lease installment of Rs 400 000 including of Rs 100
000 annual interest is to be paid at the end of each year. The bank loan was obtained
on 01.04.2014.
 It is reported that land revaluation loss of Rs 1 000 000 on 31.03.2015. Because
there is a highway in front of the land but no entrance was to the highway in near the
land. The revaluation reserve consists of land revaluation surplus on 31.03.2010.
 The building of the business was revalued for the first time on 01.04.2015 for its fair

value of Rs 4 500 000.
 It has been estimated that the income tax for the current year 2014/15 is Rs 220 000.
 The employer and employee contribution to the EPF are 15% and 10% on gross
salary and wages respectively and the employer contributes 3% to ETF. Only the net
amount after reducing employees. Contribution has been recorded in salaries and
wages account.
 It is decided to capitalize retained earnings 1/5th of the ordinary shares on
31.03.2015.
 The following decisions have been made by the board of directors.
 To pay a dividend of Rs. 1,500 000 to the ordinary shareholders of the company.
 To Transfer Rs. 300 000 for the general reserve
Requirement
Prepare final accounts from given trial balance figures

The final accounts should cover following statements;
 Statement of P/L and Other comprehensive income

 Statement of Financial Position
 Statement of Changes in Equity
 Notes to the financials
Part (D) – Cash Flow Statement

Extractions of the summarized statement of comprehensive income and statement of
changes in Equity for the year ended 31.03.2015 of Ruba PLC are as follows;
Income Statement Rs. (‘000)

Sales 20,500.00
Cost of sales (14,000.00)
Gross Profit 6,500.00
Other income (Fixed deposit interest) 75.00
Operating expenses (3,500.00)
Other expenses (Computer disposal) (50.00)
Rs.
Financial Expenses (Loan interest) (‘000)
(760.00)
Profit before tax 2,265.00
Income tax (1,200.00)
Profit for the period 1,065.00
Statement of changes in Equity

Balance as at 01.04.2015 540.00
Total comprehensive income 1,065.00
Dividends (605.00)
Balance of retained earnings as at 31.03.2015 1,000.00
Additional information
1. Carrying amount of computer disposed on 01.04.2015 was Rs. 120,000.00
2. The depreciation of Rs. 300,000.00 was included in operating expenses
3. Following balances were extracted from the statement of financial position

4. Rs.120
Rs. (‘000) ,000.0
0
2015.03.31 2014.03.31 worth
Ordinary share capital 15,500.00 15,000.00 of a
Preference share capital 10,000.00 10,000.00
Property, Plant and equipment 7,700.00 8,000.00
Cash and cash equivalents 1,440.00 300.00
Loan interest receivable 40.00 50.00
Other current assets 3,200.00 2,900.00
Provision of income tax 150.00 100.00
Proposed dividends 200.00 250.00
Accrued loan interest 120.00 60.00
Trade Payables/Creditors 860.00 750.00
photocopy machine was purchased during the period but it was not revealed under
property plant and equipment during the year
5. Note that other current assets include stocks worth 1000 and debtors/trade
receivables worth 2200 as at 31.03.2015 and stocks worth 1500 and debtors/trade
receivables worth 1400 as at 31.03.2014
Requirement
Prepare Cash flow statement of Ruba PLC. Find the cash balance for the year
ended by using relevant accounting formats.
Part (E)
Compare the essential features of each financial statement (Complete set of

Financial Statements) to analyses the differences between them in terms of
purpose, structure, content Etc.
Activity 03. Prepare bank reconciliations

Part (A)

The credit balance of the banks account of Araliya Business as at 31.03.2015 was Rs.
21,500.00. The book balance was not agreed with the bank statement on that date. The
following information were revealed in the investigations.
(i) Cheque’s deposit and date f realization are as follows
Cheque number Deposit date Realization date Value (Rs)

043250 30th march 2015 2nd April 2015 4,500.00
215412 31st March 2015 3rd April 2015 33,500.00
721210 31st March 20150 3rd April 2015 16,000.00
(ii) The following deductions were made by bank from business as bank
account
Deduction type Value (Rs.)

Cheque book charges 400
Overdraft interest 1800
Bank charges 450
(iii) Leasing installment of Rs. 20,000.00 was paid by bank on 20th March 2015
on standing order. But it has not been recorded in a bank account of the
business.
(iv) Cheques issued and dates of presented for the payment were as follows;
Cheque number Deposit date Realization date Value (Rs)

010253 26th March 2015 10th April 2015 95,000.00
010262 31st March 2015 04th April 2015 16,500.00
010284 31st March 2015 04th April 2015 21,500.00
(v) Business requested from the bank to stop for the payment for cheque issued
for a creditor of Rs. 12,000.00 on 20th March 2015 and relevant adjustment
was made in the business account, but it is revealed that payment was made
by bank.
(vi) An issued cheque of Rs. 8,900.00 already on 15th March 2015 was recorded
in bank account of the business as Rs. 9,800.00
(vii) Rs. 40,300.00 was directly deposited to the bank by a debtor.
Requirement
Apply relevant accounting procedures to check the book balance with the bank
statement balance. You are required to provide relevant notes and extra
calculations to support your answer.
Part (B)
Tharindu (Pvt) Ltd.’s cash book as at 31st March 2017 had a credit balance of Rs.
227,700. Bank Statement was not agreed with the cash book balance, Bank Statement
had a balance of Rs. 90,000 (Credit balance). Following issues were identified through
investigations.
(i) Bank Statement did not include cheques amounting Rs. 522,000 issued by
Tharidu (Pvt) Ltd.
(ii) Following cheques deposited during the march 2017.But Its shown in the bank
statement of April 2017.
Cheque Number Amount (Rs.)

111201 50000
450222 60000
650108 82000
(iii) Dividend Received Rs. 15,000 to the bank account directly. Which is
not recorded in the cash book.
(iv) Customer deposited Rs. 5,400 directly in the bank during the month of March.
Tharindu (Pvt) Ltd recorded this amount on 06th April 2017 when the bank
statement was received.
(v) Cheque issued to a supplier amounting Rs. 76,800 was showed in the bank
statement correctly. But Tharindu (Pvt) Ltd recorded this as a Rs. 78,600 in
their books incorrectly.
(vi)Total payment side of a cash book was recorded Rs. 24,000 less.
(vii) Bank Charges was Rs. 10,500. Company has not recorded in the cash book.
Requirement

(i) Prepare the adjusted cash book of Tharindu (Pvt) Ltd for the
month ended 31st March 2017.
(ii) Prepare the bank reconciliation statement as at 31st March 2017.
Activity 04. Reconcile control accounts and clear suspense accounts

Creditor Ledger balance of XYZ business as at 01.03.2014 are as follows;
Creditor Name Value (Rs.)

Asitha 25,000.00
Visitha 44,000.00
Lasith 12,000.00
Total 81,000.00
The summary of the transaction done with the creditors during the month of March
2014 is given below;
Creditor Purchases (Rs.) Purchases Payment Discount

Return (Rs.) (Rs.) Received
(Rs.)
Asitha 160,000.00 - 130,000.00 6,000.00
Visitha 300,000.00 4,000.00 300,000.00 -
Lasitha 120,000.00 - 120,000.00 2,000.00
Rakitha 50,000.00 - 16,000.00 -
Total 630,000.00 4,000.00 566,000.00 8,000.00
As at 01.03.2014 the total of the creditor’s ledger balance agreed with the balance of
the creditor control account. As at 31.03.2014 the total of the creditors ledger balance
did not agree with the balance of the creditors control account. The reasons for this
difference are given Below;
(i) Discount received from Asitha for Rs. 3,000.00 have been debited to
creditors control account and credited to discount received account. No
other entries had been made in this regard.
(ii) Debited note of Rs. 4,000.00 sent to Visitha has not been recorded in his
account.

(iii) Cash sales of Rs. 20,000.00 have been credited to creditors control account.
(iv) Purchase invoice dated 28.03.2014 raised for goods purchased of
Rs.12,000.00 from Muditha. Has not been recorded in the purchase journal.
(v) The total of the purchase journal has been posted to the creditors control
account as Rs. 603,000.00.
Requirement
Explain the process taken to reconcile control accounts and provide relevant control
accounts with reconciliation statements to obtain the correct creditor balance in the
accounts
Grading Rubric - Pass

Feedback
Outcome(s)/criteria Achieved
Outcome 1: Record business transactions using double entry book-keeping, and

be able to extract a trial balance.
P1. Apply the double entry book-
keeping system of debits and
credits. Record sales and
purchase transactions in a
general ledger.
P2. Produce a trial balance
applying the use of the balance off
rule to complete the ledger.
Outcome 2: Prepare final accounts for sole-traders, partnerships and limited
companies in accordance with appropriate principles, conventions and
standards
P3. Prepare final accounts from

given trial balance.

P4. Produce final accounts for a
range of examples that include sole
traders, partnerships or limited
companies
Outcome 3: Perform bank reconciliation to ensure company and bank

records are correct.
P5. Apply the bank reconciliation

process to prepare a number of
bank reconciliations.
Outcome 4: Reconcile control accounts and shift recorded transactions from the
suspense accounts to the right accounts.
P6. Explain the process taken to

reconcile control accounts and
clear suspense accounts using
given account examples
Grading Rubric - Merit
Grade Description (Merit) Achieved Feedback
M1. Analyse transactions to show

the progression from previous trial
balance to the next one using
double entry bookkeeping.
M2. Make adjustments to balances
of sum accounts. For example,
accruals, depreciations and
prepayments before preparing the
final accounts.
M3. Apply the reconciliation
process demonstrating the use of
deposit in transit, outstanding
checks and NSF check.
M4. Demonstrate understanding of

the different types of accounts and
how and why they are reconciled.

Grading Rubric - Distinction
Grade Description (Distinction) Achieved Feedback
D1. Apply trial balance figures to

show which statement of
financial accounts they will end
up in.
D2. Compare the essential

features of each financial account
statement to analyse the
differences between them in
terms purpose, structure and
content.
D3. Prepare accurate bank

reconciliations that apply
appropriate tools and techniques
to check general accounts and
balance sheets
D4. Produce accurate accounts

that have been reconciled
applying the appropriate methods
LO 01: Record business transactions using double entry book-keeping, and be able
to extract a trial balance.
Apply the double entry book-keeping system of debits and credits. Record sales
and purchase transactions in a general ledger. (P1)
Apply bookkeeping technique and develop relevant journal entries for given
transactions.
XYZ PLC
As at 31st July
General Journal
Date Transaction Re Debit Credit

f
1 July Cash 500,000.0

Dr 0
Computer 100,000.0 600,000.0
Cr 0 0
Owner’s equality
(Owner invested Rs.500,000 cash and Rs.
100,000 worth of computer in the company)
2 July Rent 15,000.00

Dr 15,000.00
Cash
(Paid monthly rent Rs. 15,000)
4 July Purchase 12,000.00

Dr 12,000.00
Creditors
(Purchased Equipment worth of Rs. 12,000)
8 July Cash 32,000.00

Dr 32,000.00
Sales
(Provide a service and collected the money
from a client Rs. 32,000)
10 July Debtors 27,000.00

Dr 27,000.00
Sales
(Provide a service to client on credit Rs.
27,000)
12 July Purchase Account 8,000.00

Dr 8,000.00
Cash
(Purchased Equipment worth of Rs. 8,000)
15 July Assistant wages 6,200.00

Dr 6,200.00

Cash
(Paid Assistant wages Rs. 6,200)
18 July Cash 15,000.00

Dr 15,000.00
Debtors
(Collected the money from Debtors Rs.
15,000)
25 July Creditors 12,000.00

Dr 12,000.00
Cash
(Paid money for creditors Rs. 12,000)
28 July Withdrawals 500.00

Dr 500.00
Cash
(Owner withdraw Rs. 500)
30 July Cash 40,000.00

Dr 40,000.00
Debtors 80,000.00
Dr
Sales
(Provides service for client 50% on cash Rs.
40,000 and on credit Rs. 40,000)
31 July Salary 7,000.00

Dr 7,000.00
Cash
(Paid salary for Assistant Rs. 7,000)
31 July PLDT Bill 1,800.00

Dr 3,800.00
Meralco Bill 5,600.00
Dr
Cash
(Paid PLDT bill Rs. 1,800 and Meralco bill

Rs. 3,800)
Table 1 General Journal
Apply the double entry book-keeping system of debits and credits for above given.
(P1)
Dr Cash Account Cr
Date Description Amount Date Description Amount
1 – July Capital 500,000.00 2 – July Rent 15,000.00

8 – July Sales 32,000.00 12 – July Equipment 8,000.00
18 – July Debtors 15,000.00 15 – July Wages 6,200.00
30 - July Sales 40,000.00 25 – July Creditors 12,000.00
28 – July Drawings 500.00
31 – July Salary 7,000.00
31 – July PLDT Bill 3,800.00
31 – July Meralco Bill 1,800.00
587,000.00 31 – July Balance B/F 532,700.00
1 - Aug Balance B/F 532,700.00 587,000.00
Dr Service Income
31 – July Profit & Loss 139,000.00 8 – July Cash 32,000.00

10 - July Debtor 27,000.00
30 - July Cash 40,000.00
30 - July Debtor 40,000.00
Balance/B/D 139,000.00 139,000.00

Dr Salaries and Wages Cr
15 – July Cash 6,200.00 31 -July P/L 13,200.00

31 - July Cash 7,000.00
13,200.00 13,200.00
Dr Equity Cr
31 – Balance C/D 600,000.00 1 – July Cash 500,000.00

July 1 – July Equipment 100,000.00
600,000.00 600,000.00
Dr Drawings Cr
28 - July Cash 500.00 31 - July Profit & Lost 500.00

500.00 500.00
Dr Equipment Cr
1 – July Equity 100,000.00 31 - July Balance C/D 120,000.00

3 – July Creditors 12,000.00
12 – July Cash 8,000.00
120,000.00 120,000.00
Dr Creditors Cr
25 – Cash 12,000.00 4 – July Equipment 12,000.00

July
12,000.00 12,000.00
Dr Rent Cr
2 – July Cash 15,000.00 31 - Profit & 15,000.00

15,000.00 July Lost 15,000.00
Dr Debtors Cr
10 – July Sales 27,000.00 18 - Cash 15,000.00

30 – July Sales 40,000.00 July Balance 52,000.00
67,000.00 31 - C/D 67,000.00
July
Dr PLDT Bill Cr
31 – July Cash 1,800.00 31 - July Profit & Lost 1,800.00

1,800.00 1,800.00
Dr Meralco Bill Cr
30 – July Cash 3,800.00 31 - July Profit & Lost 3,800.00

3,800.00 3,800.00
Produce a trial balance applying the use of the balance off rule to complete the
ledger
A trial balance is a bookkeeping worksheet in which the balance of

all ledgers are compiled into debit and credit account column totals that are

equal. A company prepares a trial balance periodically, usually at the end of
every reporting period. The general purpose of producing a trial balance is to
ensure the entries in a company's bookkeeping system are mathematically
correct. (Anon., 2021)
A trial balance is a list of all the balances in the nominal ledger accounts. It
serves as a check to ensure that for every transaction, a debit recorded in one
ledger account has been matched with a credit in another. If the double entry
has been carried out, the total of the debit balances should always equal the
total of the credit balances. Furthermore, a trial balance forms the basis for
the preparation of the main financial statements, the balance sheet and the
profit and loss account. (Anon., 2021)
In order to prepare a trial balance, we first need to complete or ‘balance off’

the ledger accounts. Then we produce the trial balance by listing each closing
balance from the ledger accounts as either a debit or a credit balance. Below
are the T-accounts in Edgar Edwards’ nominal ledger. We need to work out
the balance on each of these accounts in order to compile the trial balance.
(Anon., 2021)
Companies initially record their business transactions in bookkeeping

accounts within the general ledger. Depending on the kind of business
transactions that have occurred, accounts in the ledgers could have been
debited or credited during a given accounting period before they are used in a
trial balance worksheet.
XYZ PLC, Trail Balance of the month ended July (LKR)

Name of the
Account LF Dr. Balance (Rs.) Cr. Balance (Rs.)
Cash 532700
Computer 100000
Capital 600000
Rent 15000
Service Income 139000
Trade Receivable 52000
Equipment 20000
Wage 6200
Drawings 500
Salary 7000
Utility Bill 5600
Total 739000 739000
Table 2 Trial Balance
Application of Transactions in accounting Equation to show the impact on next trail

Balance(M1)
When a business carries out its activities, it requires to exchange resources with various
parties. For example, when a business purchases goods on cash basis, cash and goods are
exchanged between the business and the supplier. Accordingly, a transaction can be
identified as an exchange of resources between a business and other parties.
In a business, there can be various types of transactions. Among those transactions, the
transactions of which their value can be measured in terms of money, are considered in
accounting.

Those events are also considered as transactions in a border sense in accounting. Most of
the transactions that occur in a business are associated with purchases and sales of goods
and providing services. Such transactions could be made either on cash or credit basis. If
the value of the transaction is settled at the point of the transaction, it will be considered
as transaction on cash basis. On the other hand, if the settlement is made later, it will be
considered as a transaction on credit basis.
Below are the five important characteristics of a valid business transaction that every
bookkeeper or accountant must take care of before entering the transaction in the journal.
 It is a monetary event.
 It affects financial position of the business.
 It belongs to business not to the owner or any other person managing the business.
 It is initiated by an authorized person.
 It is supported by a source document.
Types of Business Transactions
In accounting, the transaction may be classified as:
1. Cash transactions and credit transactions

2. Internal transactions and external transactions
 Cash Transactions and Credit Transactions
A cash transaction can have many different definitions. Essentially, it is an

immediate cash payment in exchange for the receipt of an item. Under some
definitions, market stock transactions can be considered cash transactions
because they happen close to instantly in the marketplace at whatever the
current price is at that point in time. The trade is executed, and the parties
involve exchange money for shares, despite the fact that the trade may not
settle for a few days. (Anon., 2021)
‘Buying on credit’ means receiving goods or services straight away and

paying for them later. Similarly, for ‘selling on credit’: goods or services are
sold to a customer, who will pay for them later. A credit transaction doesn’t
require the use of a credit card. This is a how the credit card holder can turn a

cash purchase into a credit purchase. For the merchant, the transaction is still
treated like a cash sale. Many stores don’t offer ‘credit terms’ to their
customers. They require full payment immediately in cash or using a debit or
credit card. If the business does offer credit terms, they will assess each
customer and set a credit limit. In other words, how much the customer can
buy on credit before payment is required. (Anon., 1992)
 Internal Transactions and External Transactions
An internal transaction is an economic activity within in a company that can

affect the accounting equation. In other words, it’s an exchange from one
department to another in the same company that changes something in the
accounting equation.
Supplies were taken from the shipping department and expensed by the office
department. This can also occur with shipping department assets. For
example, if the office department wanted to upgrade its computers and
decided to give its older office computers to the shipping department, the
shipping department would receive a new asset. (Anon., 2021)
An external transaction is an exchange of value between two entities that

changes the accounting equation. In other words, an external transaction takes
place between two entities or companies in which an account is changed. If
one company transfers a product from one department to another inside the
company, it would not be considered an external transaction. This is an
internal transaction. External transactions must take place between two
separate entities. External transactions must change the accounting
equation in order to exist. Activities like a company reaching a deal with the
union and renewing the contract for an additional year doesn’t change the
accounting equation. Thus, it isn’t considered an external transaction even
though the contract is made between two entities. If, however, there were a
monetary exchange, the activity would change the equation. is an exchange of
value between two parties that affects the equation. (Anon., 2021)

According to the XYZ PLC Company, below are the business transactions:
 July 01
According to this transaction Cash and Computer Equipment are assets

therefore after finalizing its accounts these would be recorded in the
statement of financial position; cash under Current Assts and computer
equipment under Non-Current Assts. This transaction is an internal
transaction because the owner has invested money and computer Equipment
into the business and this is done by a cash transaction.
 July 02
In this transaction Expense of rent recorded as debit and the decrease of cash
recorded as credit. We are taking the cash as Current and Rent as Expense.
This transaction we called External transaction because business paid rent for
the outside parties.
 July 04
In this transaction of purchased equipment on credit and purchase account

recorded as current assets and the creditors or payable account recorded as
liability account. Equipment purchased from third parties hence this
transaction is an external transaction.
 July 08
According to this transaction cash taken as assts and sales taken as income. In
here client paid cash immediately, so it’s a cash transaction and received
from third party hence this is an external transaction.
 July 10
In this transaction, debtor recorded under current assts and the sales taken as
income. This is a credit external transaction because sales income received
from outside parties on credit.
 July 12
According to this, owner purchased equipment on cash purchased account

taken as assts and the equity, owner purchase equipment to the business, so
this transaction we recorded as internal transaction.

 July 15
In this transaction, assistant wages recorded as expense and the cash recorded
as an asset. Business paid these wages for the third party; it means this is an
external transaction and paid for credit.
 July 18
According to this transaction, cash and debtors taken as assets and collected
the money from debtors hence this transaction recorded as external
transaction and received by cash.
 July 25
In this transaction, creditors recorded as liability and cash recorded as asset.

Business paid cash to the third party hence this transaction we called as
external transaction.
 July 28
According to this owner withdraw the cash from the business. This is drawing
account and internal transaction because involving by the owner.
 July 30
According to this transaction, provide service for client 50% on cash and 50%
on credit base. Owner received by cash and it received from third party hence
this we recorded as external transaction.
 July 31
In this transaction paid salary and bills for external parties and paid by cash.
Paid bills we recorded as expense and cash recorded as current asset.

Transaction Transaction Type Category
No
Internal/ Cash/Credit Assets Liability Income Expense Equity
External
1-July Internal Cash √ √
2-July External Cash √ √
4-July External Credit √ √
10-July External Credit √ √
28-July Internal Cash √ √
Apply trial balance figures to show which statements of financial accounts they will
end up in. (D1)
A ledger account contains a record of business transactions. It is a separate

record within the general ledger that is assigned to a specific asset, liability,
equity item, revenue type, or expense type.

When a business expends, the resources invested by owners would not be
adequate. Therefore, the business will have to obtain resource from external
parties. When the business borrows money, liabilities arise. When there are
liabilities in the business, a part of its assets belongs to debt holders.
Remaining of the assets belongs to owners in such a situation, accounting
equation can be built as follows.
Assets = Equity + Liabilities
Assets Accounts (Debit)
The resources that are generated as a result of a past transaction are simply
called assets.
Expense Accounts (Debit)
Expenses are known as a resource outflow on rooting basics from the

company or loses that happen within the company.
Liability Accounts (Credit)
Payable of a business that had arose as a result of past transaction could be

simply considered as liabilities.
Income Accounts (Credit)
Income is a resource inflow to the organization this can be in forms of

revenue and giants.
Equity Account (Credit)
The value of assets that belongs to owners of the business is termed as equity.
If the business has liabilities, a part of its assets has to be used to settle those
liabilities. After the settlement of such liabilities the assets that remain
belongs to the owners of the business.

XYZ PLC, Balance Sheet for the month ended of July
Assets
Non-current assets
Current assets
Cash 532,700.00
Equipment 120,000.00
Debtors 52,000.00 704,700.00
704,700.00
Capital/Equity
600,000.00
-Withdraws
500.00
599,500.00
105,200.00
704,700.00
Table 3 Balance Sheet
XYZ PLC, Income statement for the month ended July
Sales 139,000.00
Expense
Rent 15,000.00
Wages 6,200.00
PLDT Bill 1,800.00
Meralco Bill 3,800.00
Salary 7,000.00 33,800.00

105,200.00
Table 4 Income Statement
As per the income statement of XYZ company having profit for the month
ended July. Profit – Rs.105,200.00
Furthermore, summarize above information as below:
Details Type Financial Statement
Cash Assets Statement of Financial Position
Equipment Assets Statement of Financial Position
Service Income Income Statement of Income & Expenses
Debtors Assets Statement of Financial Position
Equity/Capital Equity Statement of Financial Position
Rent Expense Statement of Income & Expenses
Salaries and Expense Statement of Income & Expenses

Wages
Drawings Expense Statement of Financial Position
PLDT Bill Expense Statement of Income & Expenses
Meralco Bill Expense Statement of Income & Expenses
Table 5 Summary

LO 02: Prepare financial accounts for Sole Traders, Partnerships or Limited
companies in accordance with appropriate principles, conventions and standards.
Make adjustment to balances of sum accounts and produce financial accounts for a
range of examples that include sole traders, partnerships or limited companies.
(P3, P4 and M2)
Part (A)Sole Traders
Saman trading Income Statement for the year ending 31 st March 2019
Sales 71,000

Cost of Sales
Opening Inventory 7,700
Purchases 30,000
37,700
(-) Closing Inventory (6,900) (30,800)

Gross Profit 40,200

Other income
Provision for Doubtful Debt 986
41,186
Office and Administration Expenses
Building Depreciation 2,000

Office Equipment Depreciation 660
Telephone and Electricity Bill 8,310
Insurance 2,600
Salaries and Wages 13,000 26,570
Sales and Distribution Expenses
Bad Debt 300
Motor Vehicle Depreciation 1,760
Sales Commission 4,300 6,360

Finance Expenses
Bank Loan Interest 2,660 2,660 (35,590)
Net profit 5,596
Table 6 Saman Trading, Income Statement for the year ending 31st March 2019
Saman Trading, Statement of Financial Position for the year ending 31st March 2019
(‘000)
Cost Accumulated Net Value

Depreciation
Non-Current Assets
Land 11,000 N/A 11,000
Building 40,000 12,000 28,000
Motor Vehicle 8,800 4,640 4,160
Office Equipment 5,500 1,740 3,760

65,300 18,380 46,920
Current Assets
Inventory
6,900
Trade Receivables
12,700
(-) Doubtful Debt (-254) 12,446
Prepaid Insurance
1,060
Cash in hand
5,240
Equity 25,646
Capital
28,000 72,566
(-) Drawings
(-2,400) 25,600
Net Profit
5,596
31,196
Non-Current Liabilities
Bank Loan 19,000

Current Liabilities
Trade Payables 15,200

Accrual Telephone & Elec. Bill 710
Accrual Bank Loan Interest 2,660
Bank Overdraft 3,800
4,1370
72,566
Table 7 Saman Trading, Statement of Financial Position for the year ending 31st March 2019
Working
1. Building Value
51,000 – 11,000 = 40,000

2. 40,000*5/100 = 2,000
8,800*2/100 = 1,760
5,500*12/100 = 600
3. Closing Balance = 6,900

4. Telephone Expense = 7,600 + 710 = 8,310
5. Insurance Expense = 3,660 + 1,060 = 2,600
6. Trade receivable Bad debt
13,000 – 300 = 12,700
12,700*2/100 = 254
12,700 – 254 = 12,446 (Final Trade Receivable)
7. Doubtful debt provision = 1,240 – 254 = 986 (Over provision doubtful debt)
8. Bank Loan Interest = 19,000*14/100 = 266
Part (B) Partnership
ABN Association Income Statement of the year ending 31st March 2018 (‘000)
Sales 3,800,000
(-) Cost of Sales (1,780,000)
2,020,000
Other Income
Gain of Equipment 50,000

50,000
2,070,000
Expense
Depreciation 180,000

Other Expense 850,000 1,030,000
1,040,000
Profit
Interest Capital
Amal 50,000
Bimal 40,000 (130,000)
Nimal 40,000
910,000
Interest on Nimal
(40,000)
Profit
870,000
Share on Profit
Amal
348,000
Bimal
261,000
Nimal
261,000
(870,000)
0 0
Table 8 ABN Association Income Statement of the year ending 31st March 2018
ABN Association balance sheet of balance sheet as at 31st March 2018
Non-current Assets
P/Plan Equipment 670,000
Current Assets
Closing stock 585,000
Receivables 280,000
Cash 500,000 1,365,000
2,035,000

Capital account
Amal 500,000
Bimal 400,000
Nimal 400,000 1,030,000
Current account
Amal 128000
Bimal 1000
Nimal 256000 385,000
Non-current Liabilities
Loan – Nimal 200000
Current Liabilities
Loan 150000
350000
2,035,000
Table 9 ABN Association balance sheet of balance sheet as at 31st March 2018

Workings
Current account
Amal Bimal Nimal Amal Bimal Nimal
B/B/F B/F
- 125 85 225 - -
Drawings Interest on
120 - - 50 40 40
Capital
Drawings
275 175 - - - 40
Interest on Loan
Drawings
100 - - 348 261 261
Share on Profit
B/C/D
128 1 256 623 301 341
623 301 341 B/B/D 128 1 256
Capital account
Amal Bimal Nimal Amal Bimal Nimal
C/D B/B/F 500 400 400
500 400 400 500 400 400

B/F
500 400 400
1. Calculating cost of sales = 1900 - 120 = 1780

2. Interest on Capital
Amal = 500*10/100 = 50
Bimal = 400*10/100 = 40
Nimal = 400*10/100 = 40
3. Interest on the partners
Loan Nimal = 200*20/100 = 40

4. Share on profit
Amal = 870*4/100 = 348
Bimal = 870*3/100 = 261
Nimal = 870*3/100 = 261
5. P/Plant Equipment
= 900 - 50 = 850
= 850 - 180 = 670
Part (C) Limited Liabilities Company

Wiskam PLC Comprehensive Income Statement 31st March 2015 (‘000)
Sales 19,300
Sales return
19,300
Cost of sales
(11,600)
Gross Profit 7,700

Other Income
Trade income 120
7,820
Expenses
Administrative Expenses
3,715
Selling and Distribution Expenses
230
Financial Expenses
220
Other Expenses
330 (4,495)
Profit before Tax 3,325
Income Tax (220)
Profit for the year 3,105

Table 10 Wiskam PLC Comprehensive Income Statement 31st March 2015

Wiskam PLC Financial Position 31st March 2015 (‘000)
Assets
Non-Current Assets
Property plant & Equipment (Note 1) 23,900

Current Assets
Closing Inventory 350
Trade Receivables (Refer working 02)

1,200
Doubtful debt
(120) 1,080
Prepayment-promotional cotrayc (Refer working 03) 100
Cash at bank 895 2,425
Total Assets 26,325

Capital & Liabilities
12,00
Share Capital 0 12,000

Reserves
Revaluation Reserves 1,500

General Reserves 300
Retained Earnings Reserves 7,805 9,605

Non-Current Liability
Bank Loan - 10% 1,200
Lease (Refer working 05) 600

Current Liabilities
Bank overdraft 145
Trade Payables 1,650
Accruals
Accrual lease installment (Refer working 05) 300
Accrual lease interest (Refer working 05) 100
Accrual tax 45
Accrual EPF and ETF (Refer working 09) 560
Accrual loan interest 120 2,920
Total Equity & Liability 26,325
Table 11 Wiskam PLC Financial Position 31st March 2015

Wiskam PLC Statement of changing of Equity
Description Share Revaluation General Retained Total

Capital Reserve Reserve Earnings
Balance 10,000 700 7,500 18,200
Bonus issue 2,000 (2,000) 0
Transfer to General 300 (300) 0

Reserve
Land revaluation (700) (700)

loss recovery
Building 1,500 1,500

revaluation profit
Profit of the year 3,105 3,105
Interim dividend (500) (500)

paid
Total 12,000 1,500 300 7,805 21,605

Table 12 Wiskam PLC Statement of changing of Equity
Workings
7 Land 16,000
Revaluation Loss (1,000)
Actual cost of Land 15,000
Revaluation Surplus 700

Revaluation Loss (1,000)
Revaluation Loss 300
8 Building Revaluated 4,500
9 Income Tax 220

Tax Paid (145)

Note 1-Property, Plant and Equipment (‘000)
Description Land Building Motor Computer New Total

Vehicle System Machine
Balance- 16,000 5,000, 4,200 600 25,800

01.04.014
Lease 1,200 1,200
Purchases 400 400
Removals/sales (2000) (2000)
Revaluation (1,000) 1,500 500
15,000 4,500 4,200 1,000 1,200 25,900
Depreciation
Balance- 1,500 1,260 120 2,880

01.04.014
Depreciation for 500 420 80 150 1,120

the year 10%
Removals (2,000) (2,000)
0 0 1,680 200 150 2,030
Total = 25,900-2,000 = 23,900

Note 2-Wiskam PLC uses FIFO to value the inventory.
Note 3-All property, plant and equipment are depreciated 10% on cost using
straight line basis.
Note 4-The board of directors has decided to pay a divided of Rs. 1,500,000 to the
ordinary shareholders of the company
Description Administration Sales & Dis. Finance Other
Bad debt 40
Under provision of doubtful 20

debt
Advertising expense 100

Lease interest 100
Revaluation loss of land 300
Salary and wages 2,000
EPF and ETF 360
Interest Loan 120
Discounts offered 50
Sales commission 20
Director’s fuel & telephone 175

allowances
Audit fee 60
Donations 30
Depreciation-Building 500
Depreciation-Motor Vehicle 420
Depreciation-Computer 80
Depreciation-Machinery 120
3,715 230 220 330
Working 2: Bad debt and doubtful debt adjustment (LKR “000)
Value of the debtor = 80
50% recovered = (40)
Bad debt = 40
Deducting bad debt from total trade receivables:
Trade Receivables for the year = 1,240
Bad debt = (40)

Trade Receivables after deducting bad debt = 1,200
Provisions for doubtful debt - opening balance = 100
Doubtful debt for the year (10%) = 120 (1,200 *10%)
Under provision of doubtful debt = 120-100 = 20
Working 3: Promotional agreement (LKR “000)
Total product promotional agreement value= 200
Promotional expense allocated for the year = (100)
Prepayment = 100
Working 4: Depreciation for the year (LKR “000)
Land depreciation - Land is not generally depreciated as land assumed to have an

unlimited life time.
Building depreciation for the year
Since building is revalued at the end of the financial period, building should be
depreciated for the value in the beginning of the year.
5,000 * 10% = 500
Motor Vehicle depreciation for the year
4,200 * 10% = 420
Computer depreciation
Depreciation for the existing computer (600 * 10%) = 60
Depreciation for the newly purchased computer (400 * 10% * 6/12) = 20
Total depreciation for the year = 80

Machinery depreciation for the year
1,200 * 10% = 120
Working 5: Lease (LKR “000)
Total value of the lease (300 * 4) = 1,200
Down payment = (300)
Annual installment for the year = (300)
Remaining lease liability = 600
Annual installment for the year = 300
Annual lease interest for the year = 100
Accruals = 400
Working 6: Revaluation of land (LKR “000)
Revaluation loss generated = 1,000
Revaluation reserve – opening surplus = (700)
Actual revaluation loss = 300
Working 7: Building revaluation (LKR “000)
Building account
Balance 5,000
Depreciation for the year 2,000
Profit 1,500 Balance B/F 4,500
6,500 6,500
Balance B/F 4,500
Working 8: Income tax (LKR “000)

Tax for the year = 220
Tax paid = (175)
Accrued tax = 45
Working 9: EPF and ETF (LKR “000)
Gross salary 100% = 2,000 (1,800 * 100/90)
EPF 10% = (200)
Net salary 90% = 1,800
EPF 15% - Employer = 2,000 * 15% = 300
EPF 10% - Employee = 2,000 *10% = 200
ETF 3% - Employer = 2,000 *3% = 60
Total = 560
Working 10: Bonus issue/capitalizing retained earnings (LKR “000)
10,000 * 1/5 = 2,000
Part (D) Cash Flow Statement

Ruba PLC
Statement Cash Flows for the year ended 31st March 2015
Cash Flows from operating activities

Profit before tax 2,265
Non-cash adjustment to reconcile loss before tax to net
cash flows:
Depreciation 300
Interest 760
Computer disposal loss 50
FD interest income (75) 1,035

3,300
Operating Profit/ (loss) before working capital changes
Working capital adjustment: (800)
(Increase) / decrease in another debtors 500
(Increase) / decrease in another stocks 110
Increase / (decrease) in creditors
(190)
Cash generated in operations

(700)
Finance expenses paid
(1,150)
Income tax paid
1,340
Net cash flows from operating activities
Cash flows from investing activities

120
Purchase of photocopy machine
75
FD interest income
Net cash flows from investing activities (35)
Cash Flows from finance activities

Issue of shares 500
Dividends paid (655)
(155)
Net cash flows from financing activities
1,140
Net increase in cash and cash equivalents
300
Cash and cash equivalents at 1st April
Cash and cash equivalents at 31st March 1,440
Table 13 Statement Cash Flows for the year ended 31st March 2015

Compare the essential features of each financial account statement to analyze the
difference between them in term purpose, structure and content (D2)
1. Identify about the main Financial Statement

2. Identify purpose structure & Content of each and every statement.
Final Accounts are the accounts, which are prepare at the end of a financial year. It gives
a precise idea of the financial position of the business/organization to the owners,
management, or other interested parties. Financial statements are primarily recorded in a
journal; then transferred to a ledger; and thereafter the final account is prepared.
Usually, a final account includes the following components:
 Income Statement
 Balance Sheet/ Statement of Financial Position
 Cash Flow Statement
 Statement of Change Equity
Incorporated business is required to include balance sheets, income statements, and cash
flow statement in financial reports to shareholders and tax and regulatory authorities.
 Income Statement
The income statement is one of a company’s core financial statements that shows their
profit and loss over a period of time. The profit or loss is determined by taking all
revenues and subtracting all expense from both operating and non-operating activities.
(Anon., 2015)
The income statement is one of three statements used in both corporate finance
(including financial modeling) and accounting. The statement displays the company’s
revenue, costs, gross profit, selling and administrative expenses, other expenses and
income, taxes paid, and net profit in a coherent and logical manner. (Anon., 2015)
Components of an Income Statement
The income statement may have minor variations between different companies, as
expenses and income will be dependent on the type of operations or business conducted.
However, there are several generic line items that are commonly seen in any income
statement. (Anon., 2015)
The most common income statement items include:

Revenue/Sales
Sales Revenue is the company’s revenue from sales or services, displayed at the very
top of the statement. This value will be the gross of the costs associated with creating
the goods sold or in providing services. Some companies have multiple revenue streams
that add to a total revenue line. (Anon., 2015)
Cost of Goods Sold
Cost of Goods Sold (COGS) is a line-item that aggregates the direct costs associated
with selling products to generate revenue. This line item can also be called Cost of Sales
if the company is a service business. Direct costs can include labor, parts, materials, and
an allocation of other expenses such as depreciation. (Anon., 2015)
Gross Profit
Gross Profit is calculated by subtracting Cost of Goods Sold (or Cost of Sales) from
sales revenue. (Anon., 2015)
Marketing, Advertising and Promotion Expenses
Most business have some expenses related to selling goods and/or services. Marketing,
advertising, and promotion expenses are often grouped together as they are similar
expenses, all related to selling. (Anon., 2015)
General and Administrative Expenses
General and Administrative Expenses include the selling, general and administrative
section that contains all other indirect costs associated with running the business. This
includes salaries and wages, rent and office expenses, insurance, travel expenses, and
sometimes depreciation and amortization, along with other operational expenses.
Entities may, however, elect to separate depreciation and amortization in their own
section. (Anon., 2015)
Operating Income
Operating Income represents what’s earned from regular business operations. In other
words, it’s the profit before any non-operating income, non-operating expenses, interest
or taxes are subtracted from revenue. EBIT is a term commonly used in finance and
stands for Earnings Before Interest and Taxes. (Anon., 2015)
Interest

Interest Expense, it is common for companies to spilt out interest expense and interest
income as a separate line item in the income statement. This is done in order to
reconcile the difference between EBIT and EBT. Interest expense is determined by the
debt schedule. (Anon., 2015)
Other Expenses
Business often has other expenses that are unique to their industry. Other expenses may
include fulfillment, technology, research and development (R&D), stock-based
compensation (SCB), implement charges, gains/losses on the sale of investments,
foreign exchange impacts and may other expenses are industry or company-specific.
(Anon., 2015)
Income Taxes
Income Taxes refer to the relevant taxes charged on pre-tax income. The total tax
expense can consist of both current taxes and future taxes. (Anon., 2015)
Net Income
Net Income is calculated by deducting income taxes from pre-tax income. This is the
amount that flows into retained earnings on the balance sheet, after deductions for any
dividends. (Anon., 2015)
Purpose of Income Statement
The purpose of the income statement is to show the reader how much profit or
loss an organization generated during a reporting period. This information is
more valuable when income statements from several consecutive periods are
grouped together, so that trends in the different revenue and expense line
items can be viewed. (Anon., 2021)
The purpose of the income statement may differ somewhat, depending on the
user. An investor wants to see a consistent profit that proves the viability of
the business. A lender is most interested in a business generating a sufficient
profit to pay for interest expenses and a return of the loaned amount. (Anon.,
2021)
Structure & Content of Income Statement
XYZ Company Income Statement for the month ending 31 s t March 2019

Figure 1 Income Statement
 Balance Sheet/ Statement of Financial Position
The statement of financial position is another term for the balance sheet. The
statement lists the assets, liabilities, and equity of an organization as of the report
date. The information on the statement of financial position can be used for a number
of financial analyses, such as comparing debt to equity or comparing current assets to
current liabilities. It is one of the financial statements, and so is commonly presented
alongside the income statement and statement of cash flows. (Anon., 2021)
The format of the statement of financial position follows the basic accounting
equation, which states that:
Assets = Liabilities + Equity
This means that all asset line items are presented first, with a total that matches the
totals for liabilities and equity, which are presented next.
As in the balance sheet example shown below, assets are typically organized into
liquid assets: those that are cash or can be easily converted into cash and non-liquid
assets that cannot quickly be converted to cash, such as land, buildings and
equipment.

The list of assets may also include intangible assets, which are much more difficult
to value. Generally accepted accounting principle guidelines only allow intangible
assets to be listed on a balance sheet if they are acquired assets with a lifespan and a
clearly identifiable fair market value (the probable price at which a willing buyer
would buy the asset from a willing seller) that can be amortized. These are reported
on the balance sheet at the original cost minus depreciation.
Liabilities
Liabilities are funds owned by the business and are broken down into current and
long-term categories. Current liabilities are those due within one year and include
items such as:
 Accounts payable
 Wages
 Income tax deductions
 Building and equipment rents
 Customer deposits (advance payments for goods or services to be deilivered)
 Utilities
 Tempory loans, lines of credit or overdrafts
 Interest
 Maturing debt
 Sales tax and/or goods and services tax changed on purchases
Long-term liabilities are any that are due after a one-year period. These may include
deferred tax liabilities, any long-term debt such as interest and principal on bonds,
and any pension fund liabilities.
Purpose of Balance sheet/ Statement of Financial Position
The purpose of the statement of financial position is to present true information about the
company’s assets, liabilities, and equity. It helps to reveal the financial position of the
company as at a particular date. (Anon., 2020)

The information contained in the statement helps the investors and the other stakeholders
for financial analysis based on which they make investment decisions. Further, investors
can also compare the year-end statement of financial position with the past year’s
statement to know how much deviation is there. This can give them an understanding of
how the company is performing. The statement of the company can also be compared
with those of other companies that are working in a similar industry to understand
whether the company is better off than the others. (Anon., 2020)
The statement is also useful for the management as it helps them track the company’s
financial position and take measures for improvement. (Anon., 2020)
Structure & Content of Balance Sheet/ Statement of Financial Position
ACB Company Financial Statement as at 31 st March 2018

Figure 2 Statement of Financial Position
 Cash Flow Statement
A cash flow statement is a financial statement that provides aggregate data regarding all

cash inflows a company receives from its ongoing operations and external investment
sources. It also includes all cash outflows that pay for business activities and investments
during a given period. (Anon., 2021)
A company's financial statements offer investors and analysts a portrait of all the
transactions that go through the business, where every transaction contributes to its
success. The cash flow statement is believed to be the most intuitive of all the financial
statements because it follows the cash made by the business in three main ways-through
operations, investment, and financing. The sum of these three segments is called net cash
flow. (Anon., 2021)
 A cash flow statement provides data regarding all cash inflows a company
receives from its ongoing operations and external investment sources. (Anon.,
2021)
 The cash flow statement includes cash made by the business through operations,
investment, and financing-the sum of which is called net cash flow. (Anon., 2021)
 The first section of the cash flow statement is cash flow from operations, which
includes transactions from all operational business activities. (Anon., 2021)
 Cash flow from investment is the second section of the cash flow statement, and is
the result of investment gains and losses. (Anon., 2021)
 Cash flow from financing is the final section, which provides an overview of cash
used from debt and equity. (Anon., 2021)
Purpose of Cash Flow
The most important purpose of the cash flow statement is the determination of the
cash balance of the entity at some specific period of time. When we say the cash

balance, it contains the details of only the cash movements of the organization. The
accounting function of every organization contains various methods of recording
revenue and expenses like accruals and prepayments. In accruals, the revenue is
already earned but yet to be received in some future period, or the expense is already
incurred but to be paid in some future date. So, whatever the movement of cash is
there, it will take place in some future date. Hence, we cannot determine the actual
cash movement for that particular time period in the case of accruals. Likewise, in
prepayments, the cash is already paid in the current period of time; however, the
expense is yet to be incurred at some future date. Here also, the cash for the future
period is paid in the current period, and therefore the actual cash balance of the
present period of the organization cannot be determined in case of prepayments also.
So, the main purpose of the cash flow statement is the determination of the actual cash
movement of the organization without taking into account the accruals and
prepayments or any other non-cash transaction of the organization and only following
the cash method of accounting. (Anon., 2020)
Structure & Content of Cash Flow Statement
ABC Company Statement of Cash Flows for the year ended 31st March 2020

Figure 3 Statement of Cash Flows
 Statement of Changing Equity
The statement of changes in equity is a reconciliation of the beginning and ending

balances in a company’s equity during a reporting period. It is not considered an
essential part of the monthly financial statements, and so is the most likely of all
the financial statements not to be issued. However, it is a common part of the
annual financial statements. The statement starts with the beginning equity
balance, and then adds or subtracts such items as profits and dividend payments to
arrive at the ending balance. The general calculation structure of the statement is
as follows:
Beginning equity + Net income – Dividends +/- Other change = Ending equity
Purpose of Statement of Changing Equity

 To show an entity’s assets, liabilities and equity at the end of an accounting
period.
 To show an entity’s income expense and profit for an accounting period.
 To show how each component of an entity’s equity has changed during an
accounting period.
 To show an entity’s total equity at the end of an accounting period.
Structure & Content of Changing Equity
XYZ Company statement of Changing Equity as at 31 st March 2019

Figure 4 Statement of Changing Equity
3. Compare the essential features of each financial account statement to analyze the
differences between them in terms purpose, structure and content.
Each statement has different data and a different purpose. And, while financial reporting
software can be used to prepare these statements for you, it is still important to
understand what each statement includes and the differences between them. Below is a
review of each financial statement and their major differences:
Name of the Purpose Content

Statement
The Income The income statement Income – what a business has

Statement reports the net profit or earned (sales, revenue. Dividends,
lost for a specific period. etc.) for the given period
To show how profitable a Expenses – What a business has

company is. The income paid out in that time period (salaries,
statement also reconciles wages, interest, rent, etc.)
the prior balance sheet Importance:
with the current balance
The income statement shows how
sheet.
well a business is performing during
a particular time period and why.
How much income is coming in and
where is it coming from? How is

money being spent during the time
period? The income statement is
important to both lenders and
investors who want to see that
money is being handled properly.
The Balance Sheet The purpose of the Assets – An asset a resource

statement of financial controlled by the business as a result
position is to present true of a past transaction and from which
information about the future economic benefits are
company’s assets, expected to flow to the business.
liabilities, and equity. It Liabilities – payable of a business
helps to reveal the that had arose as a result of past
financial position of the transactions could be simply
company as at a considered as liabilities.
particular date.
Equity – The value of assets that
belongs to owners of the business is
termed as equity.
Importance: It’s clear that balance

sheets are critical documents
because they keep business owners
like you informed about the
company’s financial standing.
Statement of Cash The most important Operating activities: The principal

flow purpose of the cash flow revenue-generating activities of an
statement is the organization and other activities that
determination of the cash are not investing or financing; any
balance of the entity at cash flows from current assets and
some specific period of current liabilities.
time. Investing activities: Any cash flows
from the acquisition and disposal of
long-term assets and other
investments not included in cash
equivalents.
Financial activities: any cash flows

that result in changes in the size and
composition of the contributed
equity capital or borrowings of the
entity.
Importance: That it measures the

cash inflows or cash outflows during
the given period of time. Such a
detail of the cash position of the
company can not only help the
company or the financial analyst to
plan for the short term or long term
but also in analyzing the optimum
level of cash and working capital
needed in the company. (Anon.,
2021)
Statement of To show an entity’s A reconciliation between the

changes in equity assets, liabilities and carrying amount at the beginning
equity at the end of an and the end of the period of each
accounting period. component of equity, such as share
entity’s capital, retained earnings and

To show an
income expenses and revaluation.
profit for an accounting Error correction in the prior period
period. which requires the adjustment in the
equity account due to the effects of
the retrospective restatement of prior
period errors.
Importance: The statement of

changes in equity is most

commonly presented as a separate
statement, but can also be added to
another financial statement. It is
also possible to provide a greatly
expanded version of the statement
that discloses the various elements
of equity. (Anon., 2021)
Table 14 differences between statements in terms purpose, structure and content.
Activity 03. Bank Reconciliation
Part (A)
Araliya Business, adjusted Cash Book for the month ended 31.03.2015
Dat
e Description Amount Date Description Amount
Direct deposit 40300 31.03.2015 B/B/F 21500
Bank overdraft
Error correction 900 Interest 1800
Bank charges 450
Standing order 20000
Supplier 12000
Cheque book charges 400
B/B/D 14950
56150 56150
B/B/F 14950
Table 15 Araliya Business, adjusted Cash Book for the month ended 31.03.2015
Ahinsa Business Bank Reconciliation Statement 31.03.2015

Adjusted cash book balance (14950)
(CREDIT BALANCE-OD)
Add
Unpresented cheques 10253 95000
10262 16500
10284 21500
118050
Deductions
Unrealized cheques 43250 -4500
215412 -33500
721210 -16000
Bank statement balance 64050
Table 16 Ahinsa Business Bank Reconciliation Statement 31.03.2015
Ahinsa (Pvt) Ltd Adjusted Cash Book for the month ended 31.03.2017
Dat
e Description Amount Date Description Amount
Dividend
Received 15000 31.03.2015 B/B/F 227700
Direct Deposits 5400 Error in Recording 24000

Error in Cheque
Deposit 1800 Bank Charges 10500

B/B/D 240000
262200 262200
B/B/F 240000
Table 17 Ahinsa (Pvt) Ltd Adjusted Cash Book for the month ended 31.03.2017
Ahinsa Business Bank Reconciliation Statement 31.03.2017
Adjusted cash book balance

(CREDIT BALANCE-OD) -240000

Add
Unpresented cheques 522000
282000

Deductions
Unrealized cheques 111201 -50000
450222 -60000
650108 -82000
Bank statement balance 90000
Table 18 Ahinsa Business Bank Reconciliation Statement 31.03.2017

LO 03: Perform bank reconciliations to ensure company and bank records are
correct
Apply the bank reconciliation process to prepare a number of bank reconciliations
(P5)
What is meant by Bank Reconciliation and why is it required?
A bank reconciliation is the process of matching information regarding cash

accounts from accounting records to the corresponding information on bank
statements. Simply put, a reconciliation is how a business makes sure it has
the cash it thinks it has. (Anon., 2021)
While financial statements like the general ledger indicate how much money a
business should have, a bank statement indicates how much money a
business does have because it is a true picture of all the completed
transactions over a specific time that affected the company’s account. (Anon.,
2021)
The general ledger contains a record of a company’s cash transactions, and a

bank statement tracks all money moving in and out of a company’s account.
So, theoretically, these two statements should convey the same information
and result in the same cash balances. However, in practice, this is rarely the
case. Businesses of all sizes need to perform regular reviews, called bank
reconciliations, to ensure that these two documents balance. (Anon., 2021)
How is this achieved?
 The first step is to compare opening balances of both the bank column
of the cash book as well as bank statement; these could be different due
to un-credited or un-presented cheques from a previous period.
 Now, compare credit side of the bank statement with debit side of the
bank column of cash book and debit side of the bank statement with the
credit side of the bank column of the cash book. Place a tick against all
the items appearing in both the records.
 Analyse the entries both in the bank column of the cash book as well as
passbook and look for entries which have been missed to be posted in

the bank column of the cash book. Make a list of such entries and make
the necessary adjustments in the cash book.
 Correct if any mistakes or errors appear in cash book.
 Calculate the corrected and revised balance of cash book’s bank

column.
 Now, start bank reconciliation statement with updated cash book

balance.
 Add the un-presented cheques (Cheques which are issued by the

business firms to its creditors or suppliers but not presented for
payment-Expenses) and deducted un-credited cheques (cheques paid
into the bank but not yet collected-Income).
 Make all the necessary adjustments for the bank errors. In case the
bank reconciliation statement begins with the debit balance as per bank
column of the cash book, add all the amounts erroneously credited by
the bank and deduct all the amounts erroneously credited by the bank.
Do vice-versa in case its start with credit balance.
 The resultant figure must be equal to the balance as per the bank
statement.
Why is it necessary?
Bank reconciliation is incredibly important for a number of reasons. There are

two primary ones that come to mind. The first is preventing mistakes such as
receipts recorded incorrectly, payments that weren’t entered and other events
that could impact on monthly finances. (Anon., 2021)
The second is uncovering fraud. If company credit card details have been
stolen online, for example, and provider doesn’t catch it, keeping up with
reconciliation gives a strong chance of finding these cases sooner. (Anon.,
2021)
 Detecting errors: A bank reconciliation helps you in spotting

accounting errors which are common to every business. These

mistakes include errors such as addition and subtraction, missed
payments and double payments.
 Tracking interest and fee: Banks might add interest payments, fees
or penalties on your account. Monthly bank reconciliation allows you
to add or subtract such amounts in your books.
 Detecting fraud: You may not be able to prevent employees from

stealing your money once, however, you could prevent it in future.
Bank reconciliations statement helps you in detecting and spotting
fraudulent transactions. It is advisable to employ an independent
person to perform the reconciliations for preventing the accounting
employee from falsifying your books and reconciliations.
 Tracking receivables: Bank reconciliation statement allows you to

confirm all your receipts, assisting you to avoid awkward situations
and also identifying entries for receipts which you didn’t deposit.
Apply the reconciliation process demonstrating the use of deposit in transit,

outstanding cheques and NSF cheques. (M3)
The balance on the cash account (which should be the same as the balance in
the cash book) is compared to the balance on the bank statements at a given
date.
Some of the reasons for a difference between the balance on the bank
statement and the balance on the books include:
 Outstanding cheques
 Deposits in transit
 Bank service charges and check printing charges
 Errors on the company's books
 Electronic charges and deposits that appear on the bank statement but
are not yet recorded in the company's records

Therefore, differences between the cash book and the bank statement arise for
3 reasons
Errors – Usually in the cash book
Omission – such as bank charges, standing orders and direct debits not posted
in the cash book
Timing differences – such as unpresented cheques and unrecorded

lodgements
Apply relevant accounting procedures to check the book balance with the bank
statement balance. You are required to provide relevant notes and extra
calculations to support your answer.
When trying to reconcile the cash book with the bank statement, there are
three differences between the cash book and bank statement. They are
unrecorded items, timing differences and errors. We need to check each of
these differences and recorded them when reconciling.
Unrecorded Items
Unrecorded items occur in the bank statements before they are recorded in the
cash book. They are not recorded in the cash book simply because the
business does not know that these items have arisen until they see the bank
statement. Some of the examples for the unrecorded items are, Interest, Bank
charges, Dishonoured cheques and Direct debits etc. In this sum, the
following unrecorded items can be seen. They should be adjusted in the cash
book.
Cheque book charges - 400/-
Overdraft interest - 1800/-
Bank charges - 450/-
Lease instalment - 20,000/-
Direct deposit - 40,300/-
Timing Difference

These items have been recorded in the cash book, but due to the bank clearing
process have not yet been recorded in the bank statement. There are two
types.
Outstanding/unpresented cheques - These are the cheques that are already

sent to suppliers but not yet cleared by the bank. There are three
unrepresented cheques amounting to 95,000/-, 16,500/- and 21,500/-. These
should be added in the bank reconciliation.
Outstanding/uncleared cheques - These are the cheques received by the

business but not yet cleared by the bank. There are three uncleared cheques
amounting to 4,500/-, 33,500/-, and 16,00/-. These should be deducted from
the bank reconciliation statement.
Errors
Two types of errors can be seen.
Errors in the cash book - The business may make a mistake in their cash
book. The cash book balance will need to be adjusted for these items. E.g. An
issued cheque of Rs. 8,900.00 already on 15 th
March 2015 was recorded in
bank account of the business as Rs. 9,800.00. This should be adjusted in the
cash book.
Errors in the bank statement - The bank may make a mistake. The bank
statement balance will need to be adjusted for these items. E.g., Business
requested from the bank to stop for the payment for cheque issued for a
creditor of Rs. 12,000.00 on 20 th March 2015 and relevant adjustment was
made in the business account, but it is revealed that payment was made by
bank. This should be adjusted in the bank statement.

Part (B)
Prepare the adjusted cash book of Tharindu (PVT) Ltd for the month ended 31 st
March 2017
Tharindu (PVT) LTD
Adjusted cash book 31st March 2017
Description Amount Description Amount
Discount Received 15,000.00 B/B/F 227,700.00
Debtor 5,400.00 Error 24,000.00
Error recording 1,800.00 Bank charge 10,500.00
B/C/D 240,000.00
262,000.00 262,000.00
B/B/F
240,000.00
Prepare the bank reconciliation statement as at 31st March 2017
Balance as per cash book (240,000.00)
(+) unpresented cheques 522,000.00 522,000.00
282,000.00
(-) uncleared cheques
111201
50,000.00
450222
60,000.00
650108
82,000.00 (192,000.00)
90,000.00
Balance as per Bank Statement

LO 04: Reconcile Control Accounts and Shift Recorded Transactions from the
suspense accounts to the right accounts.
Explain the process taken to reconcile control accounts and clear suspense accounts
using given account examples. (P6)
What are Control Accounts?
A control accounts, often called a controlling account, is a general ledger account that
summarizes and combines all of the subsidiary accounts for a specific type. In other
words, it’s a summary account that equals the sum of the subsidiary account and is used
to simplify and organize the general ledger. (Anon., 2021)
How and why are they used?
 Removes bulky details from the general ledger

 Provides a checking mechanism to detect errors and fraud at an early stage
 Larger companies can set up accounting departments for specific areas
 Minimize the like hood of fraud because different staff independently maintains
control account records and subsidiary ledger.
 Trial balance figures provide a summary of totals, rather than individual accounts.
How do they support effective financial management?
 Control accounts reduce the amount of detail needed in the general ledger.
 Control accounts allow a single trial balance to be extracted from the general
ledger.
 A different person can maintain the control account as a check against fraud.
 If the trial balance does not balance, only the accounts whose control account
does not reconcile need to be checked for errors.
Suspense Accounts how do they differ from control accounts?
A suspense account is an account that host irreconcilable transaction, most ERP also
users this account for take on balances, once the appropriate account is determined it is
expected to move the figure out of suspense account to the appropriate account.

It is also used to represent the difference in trial balance, in the event the trial balance is
not tallying due to differences, finally set off with the identification of the reasons for
such differences are not allowed to be permanently to become part of the accounting
system.
A suspense account is normally located in the Profit & Loss account. Any amount that is
posted to the suspense account should be there on a tempory basis only as this amount
needs to be investigated and posted to the correct code. If you have taken over the
accounting for a company and they have a suspense account it is very important to make
sure these amounts are explained and identified and finally removed and coded to the
correct account. If you are unsure about where to code a transaction to then it can be
coded to the suspense account until your bookkeeper or accountant can be reached for
advice.
Clearing accounts can be used for different clearing purposes and are reviewed to ensure
that all remaining balances are either zeroed out or explained. The main purpose of
clearing accounts is to ensure that accounts are zeroed out and whether or not the
remaining values are valid. Clearing accounts are most useful for occasions or situations
which include:
 Fund that are not transferred to the bank until the new year
 Reversal of certain payments need to be cleared out
 Incorrect amount posting which needs to be cleared out
 All wages need to be banked and cleared to be zeroed out
Why are they required?
 Helps in preparation of trial balance
A trial balance is the closing balance of an account that you calculate at the end of the
accounting period. When debits and credits don’t match, hold the difference in a suspense
account until you correct it. If the credits in the trial balance are larger than debits, record
the difference as a debit. If the debits are larger than credits, record the difference as a
credit. List the suspense account under “Other Assets” on your trial balance sheet. After
you make corrections, close the suspense account so that it’s no longer part of the trial
balance.
 Helps in locating Errors

The amount of Suspense Account helps to locate the errors because with the amount of
Suspense Account, the accountant can find the errors committed in the past.
 Helps in judging the Nature of Errors
The balance of Suspense Account helps the accountant to locate the because the balance
(debit or credit) helps the accountant to determine the possible head of account in which
error might have been committed.
 Helps in Final Accounts
Trial balance is the basic input for preparation of final accounts. In case of disagreement
total of trial balance, the accountant puts the difference on the shorter side of the trial
balance as “Suspense Account” and proceeds for preparation of final accounts. In this
sense, disagreement of total of trial balance does not hamper the preparation of final
accounts.
Demonstrate understanding of the different types of accounts and how and why
they are reconciled. (M4)
Reconciling Control Accounts
Why is reconciliation required?
Reconciliation is a fundamental accounting process that ensures the actual money spent
or earned matches the money leaving or entering an account at the end of a fiscal period.
Reconciling the accounts is a particularly important activity for business and individuals
because it is an opportunity to check for fraudulent activity and to prevent financial
statement errors. Reconciliation is typically done at regular intervals, such as monthly or
quarterly, as part of normal accounting procedures. (Anon., 2021)
 Reconciliation is an accounting process that ensures that the actual amount of

money spent matches the amount shown leaving an account at the end of a fiscal
period.
 Individuals and business perform reconciliation at regular intervals to check of
errors or fraudulent activity.
 Reconciliation is typically done at regular intervals, such as monthly or quarterly,
as part of normal accounting procedures.

 There are two methods of reconciliation: documentation review and analytics
review.
 For small business, the main goal of reconciling your bank statement is to ensure
that the recorded balance of your business and the recorded balance of the bank
match up.
Produce accurate accounts that have been recorded applying the appropriate
methods. (D4)
Provide relevant control accounts with reconciliation statements should calculate to

obtain the correct creditor balance.
Creditors Ledger Control Account

Returns 4000 BBF 81,000
Cash 566000 Purchases 603000
Discounts 8000 Cash sales 20000
Discounts 3000
Debit note 4000
BCD 119,000
704,000 704,000
BBF 119,000

Creditors Ledger Control Account - Adjusted

Cash sales 20000 BBF 119,000
Purchases 12000
Purchases 27000

138,000
158,000 158,000

138,000
Asitha
Return 4,000 BF 25,000
Cash 130,000 Purchase 160,000
Discounts 6,000
Discounts 3,000

BBF 42,000
185,000 185,000
BCD 42,000

Visitha
Cash 300,000 BF 44,000
Debit note 4,000 Purchase 300,000

BBF 40,000
344,000 344,000
BCD 40,000
Lasith
Cash 120,000 BF 12,000
120,00
Discounts 2,000 Purchase 0

BBF 10,000
132,00
132,000 0

10,00
BCD 0

Rakitha
Cash 16,000 Purchase 50,000

34,00
BBF 0
50,00
0 50,000
BCD 34,000

Muditha
Purchase 12,000

BBF 12,000
12,0
12,000 00
BCD 12,000
Creditor’s ledger balance
Asitha 42,000
Visitha 40,000
Lasith 10,000
Rakitha 34,000
Muditha 12,000

138,000
References
Anon., 1992. Color Accounting International. [Online]

Available at: https://www.accountingschool.com
[Accessed 26 08 2021].
Anon., 2015. CFI Education Inc.. [Online]

Available at: https://www.corporatefinanceinstitute.com
[Accessed 28 August 2021].
Anon., 2020. educba. [Online]

Available at: https://www.educba.com
Anon., 2021. accountingtools. [Online]

Available at: https://www.accountingtools.com
Anon., 2021. debitoor. [Online]

Available at: https://debitoor.com
Anon., 2021. investopedia. [Online]

Available at: https://www.investopedia.com
Anon., 2021. Investopedia. [Online]

Available at: https://www.investopedia.com
Anon., 2021. MyAccountingCourse. [Online]

Available at: https://www.myaccountingcourse.com
Anon., 2021. theaspteam. [Online]

Available at: https://www.theaspteam.com

Anon., 2021. wallstreetmojo. [Online]

Available at: https://www.wallstreetmojo.com

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Higher Nationals

Internal verification of assessment decisions – BTEC (RQF)

INTERNAL VERIFICATION – ASSESSMENT DECISIONS

Unit 10: Financial Accounting

Prepare final accounts and perform bank reconciliation

List which assessment Pass Merit Distinction

INTERNAL VERIFIER CHECKLIST

Is the Pass/Merit/Distinction grade awarded

Has the work been assessed

Does the assessment decision need

Assessor signature Date

Internal Verifier signature Date

Programme Leader signature (if

Confirm action completed

Assessor signature Date

Student Name/ID R M Maneesha P Ratnayake/NH09143

Submission Date 22/09/2021 Date Received 1st

Re-submission Date Date Received 2nd

Pass, Merit & Distinction P1 P2 M1 D1

Pass, Merit & Distinction P3 P4 M2 D2

Pass, Merit & Distinction P5 M3 D3

Grade: Assessor Signature: Date:

Grade: Assessor Signature: Date:

3|Page NH09143-FA Maneesha Ratnayake

Signature & Date:

Formative Feedback: Assessor to Student

4|Page NH09143-FA Maneesha Ratnayake

Classes with teacher Shashi have been so worthwhile.

Maneesharatz97@gmail.com Date 21/09/2021

5|Page NH09143-FA Maneesha Ratnayake

Word Processing Rules

6|Page NH09143-FA Maneesha Ratnayake

1. I know that plagiarism is a punishable offence because it constitutes theft.

7|Page NH09143-FA Maneesha Ratnayake

I would like to express my special thanks of gratitude to my lecturer Mrs.

8|Page NH09143-FA Maneesha Ratnayake

Further, applied the bank reconciliation process to prepare a number of bank

Analysed sales and purchase transactions to compile a trial balance using

9|Page NH09143-FA Maneesha Ratnayake

LO 02: Prepare financial accounts for Sole Traders, Partnerships or Limited

10 | P a g e NH09143-FA Maneesha Ratnayake

Table 1 General Journal.....................................................................................................30

Table 2 Trial Balance.........................................................................................................35

Table 3 Balance Sheet........................................................................................................42

Table 4 Income Statement..................................................................................................43

Table 10 Wiskam PLC Comprehensive Income Statement 31st March 2015...................51

Table 11 Wiskam PLC Financial Position 31st March 2015.............................................53

Table 12 Wiskam PLC Statement of changing of Equity..................................................54

Table 14 differences between statements in terms purpose, structure and content............72

Table 16 Ahinsa Business Bank Reconciliation Statement 31.03.2015.............................73

Table 18 Ahinsa Business Bank Reconciliation Statement 31.03.2017.............................75

11 | P a g e NH09143-FA Maneesha Ratnayake

Figure 1 Income Statement.................................................................................................64

Figure 2 Statement of Financial Position...........................................................................66

Figure 3 Statement of Cash Flows.....................................................................................68

Figure 4 Statement of Changing Equity..........................................................................69

12 | P a g e NH09143-FA Maneesha Ratnayake

13 | P a g e NH09143-FA Maneesha Ratnayake

Unit Number and Title Unit 10: Financial Accounting