Bank
Reconciliation
statement
Definition
Bank reconciliation statement is a
statement which is prepared to
reconcile the balances of cash ledger
and bank statement.
Following are the causes of difference
between our cash ledger balance and bank
statement balance
1. Checks paid into bank but not collected
and credited by the bank
(Uncollected checks)
2.
Checks issued but not presented for
payment.
(Un presented checks)
3.
Direct payment by the customers
4.
Interest or dividend on investment
5.
Bank charges (service charges)
6.
Dishonor of a check (NSF)
7.
Checks omitted to be paid into bank.
Procedure For
Preparing a
Bank Reconciliation
Statement
Bank Reconciliation Per Cash Books
(Depositor Ledger)
 Add increases in cash already recorded by
bank but not in books.
 Deduct decreases in cash already recorded by
bank but not in books.
 Add or deduct errors on books.
Bank Reconciliation Per Bank Books
(Bank Statement)
 Deposits in transit
Increases in cash recorded on cash book but not
in bank book.
 Checks outstanding
Decreases in cash already recorded on cash
books but not bank Book.
 Add or deduct errors by bank
Reconciling the Bank Statement
Balance per Bank
Balance per Depositor
+ Deposits in Transit
+ Deposits by Bank
(credit memos)
- Outstanding Checks
- Service Charge
- NSF Checks
± Bank Errors
± Book Errors
= Adjusted Balance
= Adjusted Balance
Reconciling the Bank Statement
All reconciling
items on the
book side
require an
adjusting
entry to the
cash account.
Balance per Depositor
+ Deposits by Bank
(credit memos)
- Service Charge
- NSF Checks
± Book Errors
= Adjusted Balance
BANK
Bank’s
books
Beginning balance
$3,359.78
Depositor’s
records
Beginning balance
$2,549.99
Power Network prepares to reconcile the
monthly bank statement as of July 31, 2006
BANK
Bank’s
books
Beginning balance
Add deposit not
recorded by bank
$3,359.78
Depositor’s
records
Beginning balance
816.20
$4,175.98
A deposit of $816.20 did not
appear on the bank statement.
$2,549.99
BANK
Bank’s
books
Beginning balance
Add deposit not
recorded by bank
$3,359.78
816.20
$4,175.98
Depositor’s
records
Beginning balance
Add note and interest
collected by bank
The bank collected a note in the
amount of $400 and the related
interest of $8 for Power Networking
$2,549.99
408.00
$2,957.99
BANK
Bank’s
books
Beginning balance
Add deposit not
recorded by bank
$3,359.78
816.20
$4,175.98
Depositor’s
records
Beginning balance
$2,549.99
Add note and interest
collected by bank
408.00
$2,957.99
Deduct outstanding
checks:
No. 812 $1,061.00
No. 878
435.39
No. 883
48.60 1,544.99
deposit of
$637.02
did not appear
ThreeAchecks
that
were written
during the
on appear
the bankon
statement.
period did not
the bank statement:
#812, $1,061; #878, $435.39, #883, $48.60.
BANK
Bank’s
books
Beginning balance
Add deposit not
recorded by bank
$3,359.78
816.20
$4,175.98
Deduct outstanding
checks:
No. 812
$1,061.00
No. 878
435.39
No. 883
48.60 1,544.99
Depositor’s
records
Beginning balance
$2,549.99
Add note and interest
collected by bank
408.00
$2,957.99
Deduct check returned
because of insufficient
funds
$300.00
The bank returned an NSF check from one of the
firm’s customers, Thomas Ivey, in the amount of
$300. This was a payment on account.
BANK
Bank’s
books
Beginning balance
Add deposit not
recorded by bank
$3,359.78
816.20
$4,175.98
Deduct outstanding
checks:
No. 812
$1,061.00
No. 878
435.39
No. 883
48.60 1,544.99
Depositor’s
records
Beginning balance
$2,549.99
Add note and interest
collected by bank
408.00
$2,957.99
Deduct check return
because of insufficient
funds
$300.00
Bank service
charges
18.00
The bank service charges totaled $18.00.
BANK
Bank’s
books
Beginning balance
Add deposit not
recorded by bank
$3,359.78
816.20
$4,175.98
Deduct outstanding
checks:
No. 812
$1,061.00
No. 878
435.39
No. 883
48.60 1,544.99
Depositor’s
records
Beginning balance
$2,549.99
Add note and interest
collected by bank
408.00
$2,957.99
Deduct check return
because of insufficient
funds
$300.00
Bank service
charges
18.00
Error recording
Check No. 879 9.00
327.00
Check No. 879 for $732.26 to Taylor Co. on account,
erroneously recorded in journal as $723.26.
BANK
Bank’s
books
Beginning balance
Add deposit not
recorded by bank
$3,359.78
816.20
$4,175.98
Deduct outstanding
checks:
No. 812
$1,061.00
No. 878
435.39
No. 883
48.60 1,544.99
Adjusted balance
$2,630.99
Depositor’s
records
Beginning balance
$2,549.99
Add note and interest
collected by bank
408.00
$2,957.99
Deduct check return
because of insufficient
funds
$300.00
Bank service
charges
18.00
Error recording
Check No. 879
9.00
327
Adjusted balance
$2,630.99
Now, if desired, we can
prepare a formal
statement for Power
Networking.
Power Networking
Bank Reconciliation
July 31, 2006
Balance per bank statement
Add: Deposit not recorded by bank
$3,359.78
816.20
$4,175.98
Deduct: Outstanding checks
No. 812
No. 878
No. 883
Adjusted balance
$1,061.00
435.39
48.60
Balance per depositor’s records
Add: Note and interest collected by bank
Deduct: NSF check (Thomas Ivey) returned
Bank service charges
Error in recording Check No. 879
Adjusted balance
1,544.99
$2,630.99
$2,549.99
408.00
$2,957.99
$300.00
18.00
9.00
327.00
$2,630.99
Reconciling the Bank Statement Example
Question No 1
Prepare a July 31 bank reconciliation statement
and the resulting journal entries for the
Simmons Company. The July 31 bank
statement indicated a cash balance of $9,610,
while the cash ledger account on that date
shows a balance of $7,430.
Additional information necessary for the
reconciliation is shown on the next page.






Outstanding checks totaled $2,417.
A $500 check mailed to the bank for deposit had
not reached the bank at the statement date.
The bank returned a customer’s NSF check for
$225 received as payment of an account
receivable.
The bank statement showed $30 interest earned
on the bank balance for the month of July.
Check 781 for supplies cleared the bank for $268
but was erroneously recorded in our books as
$240.
A $486 deposit by Acme Company was
erroneously credited to our account by the bank.
SIMON COMPANY
Bank Reconciliation July 31,2001
Balance per bank statement, July 31
Additions:
Deposit in transit
Deductions:
Bank error
$
Outstanding checks
Adjusted cash balance
$
9,610
500
486
2,417
Balance per depositor's records, July 31
Additions:
Interest
Deductions:
Recording error
$
28
NSF check
225
Adjusted cash balance
(2,903)
$ 7,207
$
7,430
30
$
(253)
7,207
Reconciling the Bank Statement Example
GENERAL JOURNAL
Date
Account Titles and Explanation
Jul 31 Cash
Debit
Credit
30
Interest Revenue
31 Supplies Inventory
Accounts Receivable
Cash
30
28
225
253
Reconciling the Bank Statement Example
Question No 2
Prepare a December 31 bank reconciliation
statement and the resulting journal entries for
the Data Flow Inc . The Dec 31 bank statement
indicated a cash balance of $15,981, while the
cash ledger account on that date shows a
balance of $17,445.
Additional information necessary for the
reconciliation is shown on the next page.




Outstanding checks totaled $3513.
A $4353 check mailed to the bank for deposit
had not reached the bank at the statement
date.
The bank returned a customer’s NSF check
for $600 received as payment of an account
receivable.
The bank statement showed $24 Service
Charges for the month of dec.
DATA FLOW INC
Bank Reconciliation December 31,2006
Balance per Bank statement
Addition:
Deposits in Transit
Deduction:
Outstanding Checks
Adjusted Cash Balance
Balance per Depositor’s Record
Deductions:
Service Charges
$24
NSF Check
$600
Adjusted Cash Balance
$15,981
4,353
(3,513)
$16,821
$17,445
$(624)
$16,821
GENERAL JOURNAL
Date
Account Titles and Explanation
Debit
$
2006 Dec
31
Bank Service Charges
A/R
Cash
24
600
Credit
$
624
Reconciling the Bank Statement Example
Question No 3
Prepare a July 31 bank reconciliation statement and the
resulting journal entries for the Norfleet Farm . The
July bank statement indicated a cash balance of
$18,928.12, while the cash ledger account on that date
shows a balance of $16,766.95.
Additional information necessary for the reconciliation
is shown on the next page.






Outstanding checks totaled $1,802.97.
A $4,017.15 check mailed to the bank for deposit
had not reached the bank at the statement date.
The bank returned a customer’s NSF check for
$180 received as payment of an account receivable.
The bank statement showed $4,545 Note Receivable
collected by the bank for the business.
Check 821 for Office Equipment cleared the bank
for $835.02 but was erroneously recorded in our
books as $853.02.
The bank statement showed $7.65 Service Charges
for the month of July.
NORFLEET FORM
Bank Reconciliation July 31,2001
Balance per Bank statement, July 31
$18,928.12
Addition:
Deposits in Transit
4017.15
Deduction:
Outstanding Checks
(1,802.97)
Adjusted Cash Balance
Balance per Depositor’s Record
$16,766.95
Additions:
Note Receivable by bank
$4,545.00
Book error
18.00
4563.00
Deductions:
Service Charges
$7.65
NSF Check
180.00
$(187.65)
Adjusted Cash Balance
$21,142.30
$21,142.30
GENERAL JOURNAL
Date
Account Titles and
Explanation
Debit
$
2001
July 31
Cash
N/R
Office Equipment
To record collection by bank of
N/R, and correct recorded cost
of office equipment
4563
July 31
Bank Service Charges
A/R
Cash
To adjust accounting record for
bank service charges and
customer check charge back
as NSF
7.65
180.00
Credit
$
4545
18
187.65
Reconciling the Bank Statement Example
Question No 4
Prepare an October 31, 2006 bank reconciliation
statement and the resulting journal entries for
the Parkview Company. The October bank
statement indicated a cash balance of
$5,000.17, while the cash ledger account on that
date shows a balance of $4,262.83.
Additional information necessary for the
reconciliation is shown on the next page.







Outstanding checks totaled $717.75.
A $410.90 check mailed to the bank for deposit
had not reached the bank at the statement date.
The bank returned a customer’s NSF check for
$50.25 received as payment of an account
receivable.
The bank statement showed $ 500.00 Note
Receivable collected by the bank for the
business.
Check 875 for Telephone Expense cleared the
bank for $85.00 but was erroneously recorded in
our books as $58.00.
The bank statement showed $17.00 Service
Charges for the month of July.
The bank statement showed $24.74 interest
earned on the bank balance for the month of
October.
PARKVIEW COMPANY
Bank Reconciliation October 31,2006
Balance per Bank statement, July 31
$5,000.17
Addition:
Deposits in Transit
410.90
Deduction:
Outstanding Checks
(717.75)
Adjusted Cash Balance
$4,693.32
Balance per Depositor’s Record
$4,262.83
Additions:
Note Receivable by bank
$ 500.00
Interest Revenue
24.74
524.74
Deductions:
Service Charges
$17.00
Book Error
27.00
NSF Check
50.25
$(94.25)
Adjusted Cash Balance
$4,693.32
GENERAL JOURNAL
Date
Account Titles and Explanation
Debit
$
2006
Oct 31
Cash
N/R
Interest Revenue
To record collections by bank of
N/R and Interest Revenue
524.74
Oct 31
Bank Service Charges
A/R
Telephone Expense
Cash
To adjust accounting record for
bank service charges, customer
check charge back as NSF and
understatement of cash payment
for telephone expense
17.00
50.25
27.00
Credit
$
500.00
24.74
94.25
CLASS ACTIVITY-1
Prepare Bank Reconciliation Statement For
DUBAI ENTERPRISES
Balance per Depositor’s record $4239.35
Balance per Bank Statement $4581.50
Checks outstanding $694.10
Deposit in transit $362.80
A check for payment of $57 was recorded as $75 in
deposit ledger.
f) Bank debit memorandum for service charges $7.15.
a)
b)
c)
d)
e)
CLASS ACTIVITY-2
Prepare Bank Reconciliation Statement For
DUBAI ENTERPRISES
a) Balance per Depositor’s record $5780
b) Balance per Bank Statement $4675
c) Checks outstanding $ 1800
d) Deposit in transit $ 2000
e) Interest on investment collected by the bank $800
f) Bank service charges $30
g) Interest on Notes Payables $175
h) Checks issued and paid by bank omitted to be recorded
$ 1500
Financial
Assets
Cash
Short-term
Investments
Receivables
Cash
Coins and
paper
money
Bank credit
card
Cash is
Defined as
any deposit
banks will
accept.
Travelers’ checks
Checks
Money orders
Accountant define cash as any item that banks
will accept for deposits.
These items include not only coins and paper
money, but also checks, money orders and
travelers checks.
Banks also accept drafts signed by customers
using bank credit cards.
Reporting of Cash
Cash is listed first in the balance sheet because
it is the most liquid of all current assets. For
the purpose of Balance Sheet presentation
Reporting cash needs special attention of the
following:
1.Cash equivalents
2. Restricted cash
3. Lines of credit
Cash Equivalents
Some short term investments are so liquid that
they are termed cash equivalents. To qualify as a
cash equivalent ,an investment must be
1. Very safe
2. Have a very stable value
1. 3. Mature within 90 days of acquision .
Examples: Treasury bills, money-market funds,
commercial paper
These assets are considered so similar to cash
that they are combined with the amount of
cash in Balance Sheet. Therefore the first asset
listed in balance sheet often is called Cash and
Cash Equivalents.
To qualify as a cash equivalent, an investment
must be very safe, have a very stable market
value and mature within 90 days of the date of
acquisition.
Short term investments that do not qualify as
cash equivalents are listed in the balance sheet
as marketable securities, which appear second
among the current assets.
Reporting Cash in the Balance Sheet
Combined with
cash on balance
sheet
Liquid shortterm
investments
Cash
Equivalents
Stable market
values
Matures within
90 days of
acquisition
Restricted Cash
Some banks accounts are restricted as to their
use, so they are not available to meet the normal
operating needs of the company.
For example, a bank account may contain cash
specifically kept for the acquisition of Fixed
assets.
Bank account in some foreign countries are
restricted by laws that prohibit transferring the
money another country.
• Cash that is not available for paying current
liabilities should not be viewed as a current
asset.
Therefore restricted cash should be listed just
below the current asset section of the balance
sheet in the section entitled “Investment and
Funds.
Reporting Cash in the Balance Sheet
Not available
for paying
current
liabilities
“Restricted”
Cash
Not a current
asset
Listed as an
investment
Line of Credit
• Many businesses arrange line of credit with
their bank. “A line of credit means that the
bank has agreed in advance to lend the
company any amount of money up to a
specified limit”.
• The company can borrow this money at any
time simply by drawing checks on a special
bank account.
A liability to the bank arises as soon as money
is borrowed that is as soon as a portion of the
line of credit is used.
The unused portion of the line credit is not an
asset nor a liability, it represents only the
ability to borrow money quickly and easily and
increases the company solvency.
Reporting Cash in the Balance Sheet
Bank agrees in
advance to lend
money.
Lines of
Credit
Liability is
incurred when line
of credit is used.
Unused line of
credit is disclosed
in notes.