Accounting controls are the checks that show whether your records can be trusted. In SPM Accounting this chapter covers matching the cash book to the bank statement, proving ledger balances with control accounts, and explaining why a business sets up internal controls.
This page sits inside SPM Accounting. Start here to see how the lessons connect and where you should begin.
What does this chapter cover?
Three ideas run through the chapter: two records of the same thing should agree, every difference has an explanation, and a business sets up routines to catch differences early.
The lessons follow that order:
- Reconciling the cash book and the bank statement shows the standard layout and the usual reconciling items.
- Preparing receivables and payables control accounts applies the same matching idea to totals in the ledgers.
- Explaining the purpose of internal controls gives you the reasoning for the written questions.
- Tracing unmatched items without double counting teaches the sorting habit that stops a reconciliation from drifting.
How do the parts connect?
Bank reconciliation and control accounts are the same skill at two scales. One compares a single cash balance with the bank’s record, and the other compares a ledger total with the list of individual balances.
Internal controls explain why you do either. A business that reconciles every month and keeps control accounts can spot a missing cheque or an omitted receipt before the year-end accounts are drawn up.
One small example to orient you
A cash book shows RM1 000 and the bank statement shows RM1 250, a gap of RM250. The gap is not one error. A cheque for RM400 has not yet been presented, which leaves the statement RM400 higher than the true balance, and RM150 of bank charges has not been entered in the cash book, which leaves the cash book RM150 too high.
Adjust the cash book for that item and it reads RM850. Adjust the statement for the cheque and it also reads RM850. The gap was two separate causes, and each one belongs to a different record.
Where should you start?
If bank statements are new to you, begin with the first lesson and work down the list. If you already reconcile correctly but lose marks when a figure will not agree, go straight to finding the cause of a reconciliation difference.
When you are ready to test yourself, use the accounting controls practice set. Keep a note of each slip in the mistake log and paper-error review so you can see which step repeats.
For a teacher to go through your own reconciliation questions, see online one-to-one Accounting tuition.