O-LevelAccountingVerification of accounting records7707/23 · Oct/Nov 2020 · Q220 Marks

Eniola compared her bank statement for July 2020 with the bank columns of her cash book. She provided the following information. Overdrawn balance shown in the cash book at 31 July 2020 $3420 Direct debit payment dated 25 July 2020, had not yet been entered in the cash book $350 A cheque received from a customer on 12 July 2020 was dishonoured. This dishonoured cheque had not yet been recorded in the cash book $665 Bank charges on the bank statement had not yet been entered in the cash book $45 Unpresented cheques at 31 July 2020 $1290 Uncredited deposits at 31 July 2020 $410 Eniola is concerned that her bank balance has decreased significantly during the last year. She is considering how to improve her liquidity. Eniola's financial year end is 31 July 2020. She provided the following information about the rent and rates of her business. On 1 August 2019, she owed two months' rent totalling $900. On the same date, rates of $260 were prepaid up to 30 September 2019. During the year ended 31 July 2020 the following payments were made by credit transfer. 2019 August 1 Seven months' rent $3150 October 1 Twelve months' rates $1860 2020 March 1 Six months' rent $2700

(a)Calculate the corrected balance of the bank columns in the cash book at 31 July 2020.[4]
(b)Prepare a bank reconciliation statement at 31 July 2020. Clearly identify the bank statement balance at that date.[4]
(c)(i)Suggest one effect of each of the following proposals. Hire new non-current assets instead of purchasing them.[1]
(c)(ii)Delay paying credit suppliers.[1]
(d)Prepare the rent and rates account for the year ended 31 July 2020. Balance the account and bring down the balances on 1 August 2020.[6]
(e)Identify the sections of the statement of financial position at 31 July 2020 in which each of the balances on the rent and rates account would appear.[2]
(f)(i)Name one accounting principle Eniola would apply when recording the rent and rates in her financial statements.[1]
(f)(ii)State how Eniola would apply the accounting principle named in (f)(i).[1]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). The mark or mark type is shown in brackets.

[1] (a) Direct debit payment (350)
[1] (a) Dishonoured cheque (665)
[1] (a) Bank charges (45)
[1]OF (a) Revised balance at 31 July 2020 (4480)
[1]OF (b) Balance in cash book (4480)
[1] (b) Cheques not yet presented 1290
[1] (b) Amounts not yet credited (410)
[1]OF (b) Balance on bank statement (3600)
[1] (c)(i) Do not have to pay the purchase price of these assets / Will pay a monthly/yearly hire charge which spreads the outlay / Will possibly have to pay more than the actual cost if hire for a long time / Will never own these assets / Possibly will not have any repair costs / There will be no depreciation charge
[1] (c)(ii) Money will be retained in the business for longer / Money is available for other purposes / May not be able to obtain cash discount / May be charged interest on an overdue balance / May damage relationship with suppliers
[1] (d) Correct dates for all entries in the account
[1] (d) Correct recording of all bank payments (3150, 1860, 2700)
[1]OF (d) Income statement - Rent 5400
[1]OF (d) Income statement - Rates 1810
[1] (d) Correct balance c/d/b/d for Rent (310)
[1] (d) Correct balance c/d/b/d for Rates (450)
[1] (e) Rent: Current liabilities or OF from (d)
[1] (e) Rates: Current assets or OF from (d)
[1] (f)(i) Matching or prudence
[1] (f)(ii) Matching - the expense for the year is matched to the revenue for the year OR Prudence – ensures that the profit for the year is not overstated

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