Chapter 8
Cash and Internal Controls
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Reconciling Items
Bank Statement Balance
 Add:
Deposits in transit
 Deduct:
Outstanding
Checks
 Add or Deduct:
Bank errors
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McGraw-Hill/Irwin
Book Balance
Add: Collections
made by the bank
Add: Interest earned
on checking account
Deduct:
Nonsufficient funds
check (NSF)
Deduct: Bank
service charge
Add or Deduct:
Book errors
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Bank Reconciliation Example


Let’s prepare a November 30 bank
reconciliation statement for Jamboree
Enterprises.
The November 30 bank statement
indicated a balance of $38,520.
The cash general ledger account on that
date shows a balance of $16,380.
Additional information necessary for the
reconciliation is shown on the next two
screens.
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Bank Reconciliation Example
a)
Then book and bank balances were as detailed on the
preceding slide.
b)
Checks No. 2024 for $4,810 and no. 2036 for $5,000 are
outstanding.
c)
A $1,000 rent check was erroneously recorded in the
records as $880.
d)
The Nov. 30 deposit of $17,150, which had been
deposited the previous night did not appear on the bank
statement.
e)
A check written by Jumbo enterprises in the amount of
$160 was erroneously drawn against Jamborees acct.
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Bank Reconciliation Example
f)
A credit memo indicated a collection of $30,000 plus $900
interest was collected on Jamboree’s behalf, but hadn’t
been recorded in the accounting records.
g)
A debit memo for $1,100 lists a $1,100 NSF check
received from a customer, Marilyn Welch. Jamboree had
not recorded the item.
h)
Bank service charges for November total $40. These
charges have not been recorded by Jamboree.
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11/30/2008
Bank Balance, Nov. 30
Add: Deposit in Transit
Bank Error
Less: Outstanding Checks
Adjusted Balance,Nov. 30
Book Balance, Nov. 30
Add: Collection of note
Interest
Less: NSF Check (Welch)
Recording error (#2025)
Service Charge
Adjusted Balance, Nov. 30
a
d
$
e
17,150
160
b
$ 38,520
17,310
(9,810)
$ 46,020
$ 16,380
$f
$g
$c
h
30,000
900
1,100
120
40
30,900
(1,260)
$ 46,020
Recording Adjusting Entries from
a Bank Reconciliation
Only amounts shown on the book portion of the
reconciliation require an adjusting entry. Here is
the entry to record the increase to cash.
Nov
30 Cash
Notes Receivable
Interest Earned
to record collection
McGraw-Hill/Irwin
30,900
30,000
900
© The McGraw-Hill Companies, Inc., 2009
Recording Adjusting Entries from
a Bank Reconciliation
Only amounts shown on the book portion of the
reconciliation require an adjusting entry. Here are
the entries to record the decreases to cash.
Accounts Receivable-Welch
Cash
NSF check M Welch
1,100
Rent Expense
Cash
to correct recording
error on #2025
120
Bank Service Charge
Cash
to record bank fees
40
McGraw-Hill/Irwin
1,100
120
40
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