ACCOUNTI NG & F I N A N C E / TASK 14 : P R O V I N G C A S H : R E C O N C I L I N G
THE CASH BALANCE IN THE ACCOUNTING RECORDS WITH THE CASH
BALANCE IN THE CHECKING ACCOUNT
VE Departments Involved
Accounting
Month for Activity/Time Frame
November/One day
Outcomes
Students will ensure that the accounting record’s cash balance agrees with the checking account balance.
Activities/Strategies
Have the VP convene a meeting with the accounting department.
1. Explain that you would like to verify some of the information contained in the accounting records.
Specifically, you would like to verify that the cash balance reported in the accounting records agrees
with the cash balance in the online checking account.
— Ask: Where is the cash balance reported in the accounting records? (In the cash ledger. If a ledger
is not available, or if the ledger does not reflect all transactions that have taken place (as
evidenced in the details section of the online checking account) then the accounting records are
not up-to-date and must be brought up-to-date before you can continue.)
2. Frequently, the cash balance reported in the online checking account will not agree with the cash
balance reflected in the cash ledger.
— Ask the department members to offer possible explanations for this condition. Encourage students
to use logical reasoning to solve this problem. What are the possibilities?
1) The cash balance reported in the checking account is correct; therefore the cash balance
reported in the accounting records is incorrect (the most likely scenario).
2) The cash balance reported in the accounting records is correct; therefore the cash balance
reported in the checking account is “incorrect.”
3) The cash balance reported in the accounting records is incorrect and the cash balance reported
in the checking account is “incorrect.”
Note: In VE, firms (and individuals) do not receive bank statements. Without a bank statement, it is
not possible to reconcile the cash balance reported in the bank statement with the balance reported in
the “checkbook.” There is no “checkbook” in the usual sense because paper checks are not used. In
most cases, the cash balance that is reported in the online checking account is the “correct” balance
- correct in the sense that that is how much money is actually in the account.
Outside VE, the process of proving cash involves extra steps. One step requires that you compare the
cash balance in the ledger with the cash balance in the checkbook. Another requires that you
reconcile the cash balance shown on the bank statement with the cash balance reported in the
checkbook (in the check register).
Although you do not receive bank statements from the VEC Bank, you are able to determine your
balance in real-time, and all account activity is archived (for approximately 18 months), so you have
all the information that would have been included in the bank statement.
Is it possible for the online bank balance to be “wrong"? Banking software is like any software, so
there is always the possibility of errors in the code (bugs). As such, it is prudent for each firm to
maintain a check register that would show each separate increase and decrease to the account along
with a running balance.
ACCOUNTING & FINANCE • 2 6
In addition, there is the case where the bank account balance may be misleading as there is a twentyfour hour delay on all payments and transfers. When you first make a payment or transfer, you can
view the transaction in pending transactions, but the money will not actually be removed from the
account until the next day. If you compare the ending balance in the checking account with the cash
balance in the accounting records at anytime within twenty-four hours of any payments or transfers,
the balance will be overstated and will not reflect the payment or transfer. To overcome this obstacle,
check to see if there are any pending transactions. If there are, adjust the balance in the checking
account to reflect them.
In most cases, the cash balance reported in the online bank account is correct, and if that balance
does not agree with the balance in your accounting records, the accounting records are incorrect and
you need to determine why.
3. Suggest to the students that the Scenario I from above is the most likely case, and proceed by asking
them to provide reasons for the discrepancy. Try to frame the discussion so that students use logical
reasoning to conclude that the balances don’t agree because:
— the beginning cash balance, as reported in the accounting records for the period, was incorrect; or
— there are increases and/or decreases shown in the checking account that are not included in the
cash journal and/or not reflected in the cash ledger; or
— there are increases and/or decreases shown in the cash journal and/or cash ledger that are not
reflected in the checking account; or
— of any combination of the above.
4. Provide the department members with a copy of the following table and ask them to follow the
guidelines to prove the cash account.
When the cash balance in your accounting records does not agree with the cash balance in your
checking account
because:
then you should:
The beginning cash balance for the period,
according to your accounting records, was
incorrect.
Increase or decrease the cash balance in the
accounting records. In order to keep accounting
records in balance, make a corresponding entry
to retained earnings. Increase (or decrease)
retained earnings by the amount of the increase
(or decrease) in cash.
There are increases shown in the checking
account that are not included in the cash journal
and/or not reflected in the cash ledger.
Enter the missing transactions into the
accounting records.
There are decreases shown in the checking
account that are not included in the cash journal
and/or not reflected in the cash ledger.
Enter the missing transactions into the
accounting records.
There are increases shown in the cash journal
and/or cash ledger that are not reflected in the
checking account.
Check the source document that was used to
validate the entry that was entered into the
accounting records.
There are decreases shown in the cash journal
and/or cash ledger that are not reflected in the
checking account.
Check the source document that was used to
validate the entry that was entered into the
accounting records.
ACCOUNTING & FINANCE • 2 7
Internet Activity
Go to www.veinternational.org to access VEC Bank account information.
Materials/Resources
•
•
Guide to Keeping Financial Records in the Virtual Enterprise
Guerrieri, D.J., Haber, F.B., Hoyt, W.B., Turner, R.E., Accounting.
Mastery and Assessment
The cash balance in the accounting records agrees with the checking account balance.
ACCOUNTING & FINANCE • 2 8