Financial Accounting

What is the primary purpose of preparing a bank reconciliation statement?

• To calculate the interest earned

• To identify errors and differences between bank and cash book

• To pay off bank overdraft

• To prepare a trial balance

Answer explanation

The primary purpose of preparing a bank reconciliation statement is to identify errors and differences between the bank's records and the cash book, ensuring accurate financial reporting.

Which of the following items would cause a difference between the bank statement and the cash book?

• Depreciation of machinery

• Closing stock valuation

• Outstanding cheques

• Accrued income

Answer explanation

Outstanding cheques create a timing difference between the cash book and bank statement, as they are recorded in the cash book but not yet cleared in the bank, leading to discrepancies.

A cheque deposited by the company but not yet cleared by the bank is called:

• Dishonoured cheque

• Outstanding cheque

• Unpresented cheque

• Deposit in transit

Answer explanation

A cheque deposited by the company but not yet cleared is referred to as a 'Deposit in transit'. This indicates that the funds are on their way to being processed by the bank.

A company buys equipment for R50,000. It uses the reducing balance method at a rate of 20% per annum. What is the depreciation for the second year?

• R8000

• R7000

• R3000

• R2022

Answer explanation

In the first year, depreciation is R50,000 x 20% = R10,000. The book value at the start of the second year is R50,000 - R10,000 = R40,000. In the second year, depreciation is R40,000 x 20% = R8,000, which is the correct answer.

An asset costs R10,000 with a residual (salvage) value of R2,000 and a useful life of 4 years. What is the annual depreciation using the straight-line method?

• 2500

• 1000

• 3000

• 2800