Lecture Notes on Data Reconciliation

Overview

• Focus on data control and data ledger.
• Understand the purpose and function of the data control account.

Data Control Account

• Captures the total of all entries posted to each debtor's account in the debtors ledger.
• Represents the total amount owed by all debtors.
• The balance at the end of the period should match the total balances of individual debtor accounts.
• If not equal, reconciliation is required.

Identifying Errors

• Errors occur when the balance of the data control account does not equal the sum of individual debtor accounts.
• Types of errors to identify:
  1. Affecting both data control and ledger:
     • Incorrect or omitted journal entries.
  2. Affecting data control only:
     • Wrong amounts posted from journal.
  3. Affecting ledger only:
     • Posted to the wrong debtor account.
• Correct identification is crucial for successful reconciliation.

Example of Reconciliation

• Scenario: Given records of Ferrero Mia, a VAT registered vendor at 15%.
• Tasks:
  1. Prepare and balance the data control account as of May 31, 2020.
  2. Reconcile the balance with the corrected total of the debtors list.

Data Provided

• Subsidiary Books totals as of May 31, 2020:
  • Cash Receipts Journal (CRJ): Money received from debtors.
  • Sales Journal: Sales made on credit.
  • Sales Returns Journal: Goods returned by debtors.
• Debtors Control Balance as of April 30, 2020.

Steps in Example

1. Prepare the Data Control Account:
   • Start with the balance from the previous month.
   • Include all amounts from subsidiary books:
     • Adjust for any undercasts or errors.
   • Key entries include:
     • Bank: Derived from CRJ.
     • Sales: Derived from Sales Journal.
     • Sales Returns: From Returns Journal.
2. Identify and Correct Errors:
   • Correct any errors by adjusting entries as necessary.
   • Example error: Cash Receipts Journal undercast by 300.
3. Reconcile:
   • Balance the T-account.
   • Ensure totals match between data control account and debtors list.

Final Outcome

• Successful reconciliation when both accounts match.
• Result: Correct totals on both data control and debtors list indicate error-free accounting.

Conclusion

• Reconciliation ensures accuracy in financial statements.
• Important for identifying discrepancies and ensuring all transactions are accurately recorded.