Unit-2 Correction of Errors-Business Accounting | BBA First Year

Unit-2 Correction of Errors-Business Accounting | BBA First Year- Welcome to the pencilchampions.com website. This website Provide Unit-2 Correction of Errors – Business Accounting | BBA First Year Notes , MBA, B.COM . This website helpful for all student. Thankyou for visiting.

Correction of Errors, Preparation Of Bank Reconciliation Statement

Errors and omissions

• Some differences in the cash book and the bank statement may be the result of errors made by the bank or by the person responsible for writing the cash book. These errors have to be corrected properly. The following are some examples of such errors and omissions.
• Some differences in the cash book and the bank statement may be the result of errors made by the bank or by the person responsible for writing the cash book. These errors have to be corrected properly. The following are some examples of such errors and omissions.
  

  ---

  Read More- https://pencilchampions.com/unit-2-preparing-journals-and-cash-book-ba-bba-first-year/

  ---

1. Errors in cash book and bank balance

• Given below are some examples of such errors and omissions that result in excess bank balance in the cash book.

Cheque/cheques left to be sent to the bank for collection

• Sometimes we receive checks from debtors, enter it in the cash book (on the debit side in the Bank column), but forget to send this check to the bank for collection. Due to this omission the cash book shows higher bank balance while the bank statement shows lower bank balance.

Check issued not entered in the cash book or entered wrongly in the cash column

• Checks are issued daily to make payments to creditors. Sometimes checks issued to creditors are not entered in the cash book (on the credit side in the bank column) or are entered incorrectly in the cash column of the cash book. This error or omission results in more detail being displayed. bank balance in bank

Incorrect casting of bank column or cash book

• Sometimes errors may occur in casting (adding the total) the bank column of the cash book. If the debit side of the cash book (bank column) is underdrafted, or if the credit side of the cash book (bank column) is underdrafted, the cash book will show a higher bank balance statement. compared to the bank
• The deposited check is not entered in the debit column of the bank statement or is entered incorrectly by the bank.
• Sometimes an error or omission is committed by the bank employees. Suppose on receiving checks from debtors we deposit them in the bank after recording them in the cash book. But the bank omitted to enter it in the bank statement or it got entered wrongly in the debit column of the bank statement. Due to this error or omission, the cash book will show higher bank balance and the bank statement will show lower bank balance.

The bank account has been erroneously debited by the bank

• If the bank has incorrectly debited the account in the bank statement then the cash book will show a higher bank balance than that shown by the bank statement.
• Treatment of errors and omissions resulting in excess bank balance in the cash book while preparing bank reconciliation statement.
• Whenever due to any error or omission the cash book shows higher bank balance than the bank statement balance, the amount of the errors and omissions will be credited to reduce the balance at the bank statement level while preparing the bank reconciliation statement. .

2. Bank balance reduced due to errors in cash book

Following are some examples of such errors and omissions which result in reduction of bank balance in the cash book.

Check deposited/not entered in check cash book

• We receive checks from our debtors daily and deposit them in the bank. Sometimes after receiving checks from debtors we deposit it in the bank but forget to enter it in the cash book (on the debit side in the bank column). Due to this error the cash book shows less bank balance and the bank statement shows more.

Wrong casting of cash book (bank column)

• If the debit side of the cash book (bank column) is undercast or if the credit side of the cash book (bank column) is overcast, the cash book will show lower bank balance than the bank statement balance.

 Check issued not entered by bank

• A business concern issues checks to its creditors every day and pays these cheques. Sometimes we issue a check to our creditor and the bank pays the amount of the check but forgets to enter it in the bank statement (in the withdrawal column). For such an error, the cash book shows the bank balance less than the bank statement balance.
• If the bank has wrongly credited our bank account in the bank statement, then the cash book will show less bank balance and the bank statement will show more bank balance. Remediation of errors and omissions resulting in low bank balance in the cash book while preparing bank reconciliation statement.
• Whenever due to any error or omission the cash book shows lower bank balance than the bank statement balance, the amount of errors and omissions will be debited to bring the balance to the bank statement level while preparing the bank reconciliation statement.
• On a specific date when the BRS is prepared, if for any reason the cash book shows a bank balance less than the bank statement balance, the amount of the item is debited in the BRS. On the other hand if for some reason the cash book shows more bank balance than the bank statement balance then the amount of that item is credited to BRS

Types of Negotiable Instruments: Promissory Note, Bill of Exchange and Cheque

• Negotiable instruments are written contracts whose benefits can be passed on from their original holder to a new holder. In other words, negotiable instruments are documents that promise payment to the assignee (the person to whom it is assigned/given) or to a specified person. These instruments are transferable signed documents that promise to pay a sum of money to the bearer/holder when demanded or at any time in the future.
• As mentioned above, these instruments are transferable. The end holder takes the funds and can use them as per his needs. This means, once an instrument is transferred, the holder of such instrument acquires full legal rights over such instrument.

Promissory Notes

• For example, A buys goods worth Rs 10,000 from B. If A is not able to pay cash for the purchase, or does not wish to do so, he may give a promissory note to B. It is A’s promise to pay B on a specified date or on demand. In another possibility, A may have a promissory note which has been issued by C. He can endorse this note and deliver it to B and thus clear his dues.
• However, the seller is not bound to accept the promissory note. The reputation of the buyer is very important to the seller in deciding whether to accept the promissory note.

Bill of exchange

• Bills of exchange are used in transactions involving goods as well as services.
•  And if it is issued by an individual, it is commonly known as a trade draft.

Cheques

• Checks can be a good way to pay a variety of bills.  Checks are also a good way to keep everything on paper. Track transactions. On the other hand, checking is a comparatively slow mode of payment and may take some time to process.

Negotiable Instruments (Amendment) Bill, 2017

• The Negotiable Instruments (Amendment) Bill, 2017 was introduced in the Lok Sabha earlier this year on January 2, 2018. The Bill seeks to amend the existing Act. The Bill defines promissory note, bill of exchange and cheque. The Bill also specifies penalties for dishonor of checks and various other violations relating to negotiable instruments.
• Such interim compensation shall not exceed 20 percent of the total check value.