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Explaining Bank Reconciliation in Accounting
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Bank Reconciliation StatementBank Reconciliation Statement
Bank Statements
Debit MemorandumBank service charge
NSF (not sufficient funds)
SO 6 Indicate the control features of a bank account.
Illustration 8-10
Credit MemorandumCollect notes receivable.
Interest earned.
Control Features: Use of a BankControl Features: Use of a Bank
Bank Statements
Debit MemorandumBank service charge
NSF (not sufficient funds)
SO 6 Indicate the control features of a bank account.
Illustration 8-10
Credit MemorandumCollect notes receivable.
Interest earned.
Control Features: Use of a BankControl Features: Use of a Bank
Reconciling the Bank Account
SO 7 Prepare a bank reconciliation.
Reconcile balance per books and balance per bank to their adjusted (corrected) cash balances.
Reconciling Items:
1. Deposits in transit.
2. Outstanding checks.
3. Errors.
4. Bank memoranda.
Control Features: Use of a BankControl Features: Use of a Bank
Reconciliation Procedures
SO 7 Prepare a bank reconciliation.
+ Deposit in Transit
- Outstanding Checks
+- Bank Errors
+ Notes collected by bank
- NSF (bounced) checks
- Check printing or other service charges
+- Company Errors
CORRECT BALANCE CORRECT BALANCE
Illustration 8-11
Control Features: Use of a BankControl Features: Use of a Bank
Illustration: The bank statement for Laird Company (Illustration 8-10), shows a balance per bank of $15,907.45 on April 30, 2010. On this date the balance of cash per books is $11,589.45. Using the four reconciliation steps, Laird determines the following reconciling items.
Control Features: Use of a BankControl Features: Use of a Bank
Illustration: a) Prepare a bank reconciliation at April 30.
SO 7 Prepare a bank reconciliation.
Cash balance per bank statement $15,907.45
Add: Deposit in transit 2,201.40
Less: Outstanding checks (5,904.00)
Adjusted cash balance per bank $12,204.85
Cash balance per books $11,589.45
Collection of notes + interest - fee 1,035.00
Add: Error in recording check no. 443 36.00
Less: NSF check (425.60)
Bank service charge (30.00)
Adjusted cash balance per books $12,204.85
Control Features: Use of a BankControl Features: Use of a Bank
Illustration 8-12
The company records each reconciling item used to determine the adjusted cash balance per books.
Collection of Note Receivable: Assuming interest of $50 has not been accrued and collection fee is charged to Miscellaneous Expense, the entry is:
SO 5 Describe the operation of a petty cash fund.
Cash 1,035.00Apr. 30
Miscellaneous expense 15.00
Notes receivable 1,000.00
Interest revenue 50.00
Control Features: Use of a BankControl Features: Use of a Bank
Book Error: The cash disbursements journal shows that check no. 443 was a payment on account to Andrea Company, a supplier. The correcting entry is:
SO 5 Describe the operation of a petty cash fund.
Cash 36.00Apr. 30
Accounts payable 36.00
Control Features: Use of a BankControl Features: Use of a Bank
NSF Check: As indicated earlier, an NSF check becomes an account receivable to the depositor. The entry is:
SO 5 Describe the operation of a petty cash fund.
Accounts receivable 425.60Apr. 30
Cash 425.60
Bank Service Charges: Depositors debit check printing charges (DM) and other bank service charges (SC) to Miscellaneous Expense. The entry is:
Miscellaneous 30.00Apr. 30
Cash 30.00
Control Features: Use of a BankControl Features: Use of a Bank
