Premium 2011
The
BANKING
Module
Contents

Review of Bank Reconciliation Concepts







Account Reconciliation in Simply





Banking
3
Bank Statement
4
Banking Terminology
6
Bank Reconciliation
7
Manual Bank Reconciliation
8
Bank Reconciliation Blueprint 9
To Set Up the Account Reconciliation Journal
To Set up LINKED Accounts
14
To Identify Reconciling Items
16
The Account Reconciliation Journal
17
Steps to Complete an Account Reconciliation in Simply
1.
2.
3.
4.
5.

13
Identify cleared items
19
Reconcile Income
20
Reconcile Expenses
21
Reconcile unresolved items
22
Verify company records
24
Account Reconciliation Reports
25
Slideshow 12
Banking
Why do companies use a bank?
The reasons are:
• Banks provide an effective
means of internal control of cash
coming in and going out.
• Banks are used to clear
cheques received.
• Payments are easier using
cheques and electronic means.
Remember, the banking
transactions of the company
should be separate from the
owner(s)’s. (GAAP: Business Entity
Concept)
Periodically, you will receive a
summary of your banking
activities in the form of a bank
statement.
Click for more information on the
bank statement.
National Bank of Canada
900 McGill Road
Kamloops, B.C. V2C 5N3
Account No.
1000-6168
Period
May 1, 2014 to
May 31, 2014
Enclosures Pages
10
1
Bank Statement
The bank statement refers to a
particular period (see arrow).
Note the codes used. You would
usually find a list of codes at the
back of the statement.
Click.
It shows deposits made either
through the bank teller (DEP) or
through an ATM machine (PTB –
Personal Touch Banking).
Click.
It also shows payments cleared
either through cheques, through
the Internet (www Payment) or
automatic debit (Business PAD).
Click.
Study the bank charges. For this
company’s type of account, the
bank charges both for deposits
(Crs) and payments (Drs). Notice
that charges on electronic
transactions are lower than those
through the bank tellers.
Click to continue.
National Bank of Canada
900 McGill Road
Kamloops, B.C. V2C 5N3
Account No.
1000-6168
Period
May 1, 2014 to
May 31, 2014
Enclosures Pages
10
1
Bank Statement
(continued)
It is very important to note at this
point that the bank debits and
credits are opposite to the
company’s records.
For example, when you receive
payment from customers, you
would debit your company BANK
ACCOUNT (see bottom right).
National Bank of Canada
900 McGill Road
Kamloops, B.C. V2C 5N3
Account No.
1000-6168
Period
May 1, 2014 to
May 31, 2014
Enclosures Pages
10
1
Click.
Notice that when you deposit the
cheque from your customer, the
bank credits your account (see red
arrow on the bank statement).
Click.
Similarly, your company payment
to vendors cleared by the bank are
debited in the bank statement,
whereas you credit BANK
ACCOUNT in your company
records.
Click to continue.
Accounts Payable
69.82
Bank Account
9,878.12
Bank Account
69.82
Accounts Receivable
9,878.12
To record full payment Inv 9321, Brandt Office Supplies via Internet.
To record full payment received from Trek Company Inv. 3059.
Banking Terminology
Before starting work in this chapter,
you need to learn some of the
terminology related to banking.
Click.
Study very carefully the
terminology shown at the right.
Click to continue.
Deposit in transit
Deposit recorded in the company files that has not been cleared
by bank (not shown on the bank statement).
Outstanding cheques
Cheques written (issued) and recorded by the company that
have not been cleared by bank.
Adjusted cash balance
Reconciled cash balance by which bank and company BANK
ACCOUNT show equal balances.
NSF (Not Sufficient Funds) cheque
Cheque received and deposited by the company that is not
cleared by the bank due to insufficient funds in the issuer’s
bank account. This could also be a payment cheque or
automatic debit issued by the company that can not be cleared
because of insufficient funds in the company’s bank account.
Overdraft (OD)
Your bank account is on OVERDRAFT (OD) if it has a negative
balance. Depending on the bank and the type of arrangement
you make with them, they will allow you to have a negative
balance and will not return cheques due to insufficient funds
(NSF) up to a certain amount. This is referred to as OVERDRAFT
PROTECTION.
Cleared
A banking item (e.g., a cheque) is “cleared” when the company’s
bank has verified that there are funds that cover the item and
that the necessary entry is made on the company’s bank
statement.
Bank Reconciliation
Why do you need to do bank
reconciliation?
The bank sends a bank statement to
the company periodically. You should
be able to verify the balance on the
statement with the CASH IN BANK
account in your General Ledger.
However, the balance between the
company’s accounting records and
the cash balance on the bank
statement seldom match. For
example, there may be bank charges
unknown to the company, or the
company could have deposited an
NSF cheque from a customer.
There could also be some deposits by
the company that are not reflected on
the bank statement. In other words,
there could be a lot of bank-related
transactions that are not known by
either the bank or the company and
should therefore be reconciled in
order to come up with an adjusted
cash balance. Study the summary at
the right.
Click to continue.
Bank Statement vs.
Company may need to
make adjustments in
the company records
due to:
• Bank charges/interest
charges
• Interest earned
Company Records
Company may need to adjust
the calculation of the cash
balance on the bank
statement to account for:
• Outstanding cheques
• Deposits in transit
• Bank errors
• NSF cheques
• Company’s bookkeeping
errors
Company cash account = Adjusted bank balance
(Adjusted cash balance)
Bank Reconciliation:
Manual System
It is best to understand the basic
concepts of bank reconciliation before
completing it in Simply. First, print a
General Ledger Report (Select ALL) for
the bank account for the period.
National Bank of Canada
900 McGill Road
Kamloops, B.C. V2C 5N3
Account No.
1000-6168
Period
May 1, 2014 to
May 31, 2014
Enclosures Pages
10
1
Click.
Identify the items cleared by the bank
(blue lines across) as shown on the
bank statement and items that need to
be reconciled (Bank Charges and
Interest charges in this example).
The General Ledger Report will also
reveal if there are cheques that you
have issued but not yet cleared by the
bank (outstanding cheques) and
deposits that you have made that have
not been cleared (deposits in transit).
You may also find errors in
bookkeeping, such as wrong amounts
entered either by you or by the bank.
Using these notes, do a manual
reconciliation – a spreadsheet is best.
Click to continue.
Bank
charges
Interest
charges
Bank Reconciliation: Blueprint
Using the notes that you have made after comparing your G/L BANK account entries with your bank statement,
you are ready to do a manual bank reconciliation.
Click.
Study the blueprint of a bank reconciliation
Click to continue.
Bank Reconciliation
(continued)
First, enter the balance per the bank
statement and the balance in the
company G/L BANK account.
Click.
Following the blueprint, add or
subtract from the balances. For
example, outstanding cheques are
payments not yet cleared by the bank,
so they decrease the bank balance.
You would therefore subtract them
from the bank statement balance. You
would do the opposite with deposits
in transit because they increase the
bank statement balance.
Click.
You can then find the adjusted
balance for the bank statement and
your G/L BANK Account (adjusted
cash balance).
Click to continue.
Per Bank Statement
5,493.12
Less: Outstanding Cheques
(620.00)
Add: Deposits in Transit
3,230.00
ADJUSTED BALANCE
$8,103.12
Per G/L BANK ACCOUNT
8,122.74
Less: Bank Charges
(11.45)
Less: Bank interest
ADJUSTED BALANCE
(8.17)
$8,103.12
Adjusted Cash Balance = $8,103.12
Bank Reconciliation
(continued)
Remember, you need to balance your
G/L bank account with the reconciled
bank balance before you enter any
adjustment journal entries.
You may not journalize adjustments to
the bank records; you may adjust only
our company books. At the right are
the adjustments you need to make in
the company records as per the bank
reconciliation blueprint.
Click.
These are the journal entries you
need to make to adjust Bank Charges
and the Bank Interest Charge.
You credit CASH because both Bank
Charges and Interest Expense
decrease your cash in the bank.
Click to continue.
Per G/L BANK ACCOUNT
8,122.74
Less: Bank Charges
(11.45)
Less: Bank interest
ADJUSTED BALANCE
(8.17)
$8,103.12
Adjustment Journal Entry
Bank Charges
Interest Expense
Cash
11.45
8.17
9.62
Bank Reconciliation
(continued)
NSF Cheques
There may be times that the bank
would report an NSF customer
cheque in your bank statement. It
means that the customer’s cheque
that you deposited earlier did not clear
your customer’s bank due to lack of
funds.
Let us assume that the customer
originally paid $254.25.
Original Journal Entry
Cash in Bank
Fees Earned
254.25
254.25
To record fees collected Inv #2954 Chq #264.
Cash in Bank
Fees Earned
254.25
254.25
Click to see the original entry when
you received the payment.
When an NSF transaction occurs, the
amount becomes owing again by the
customer, as if it was not paid at all,
so you need to record the amount to
ACCOUNTS RECEIVABLE.
Click and study the appropriate NSF
entry.
Click and study the effects of the
General Journal entries to the balances
on the General Ledger.
Click to continue.
NSF Journal Entry
Accounts Receivable
Cash in Bank
254.25
254.25
To record NSF Chq #264 (Inv #2954).
Cash in Bank
254.25
254.25
Accounts Receivable
254.25
Account Reconciliation in Simply
To set up the Account
Reconciliation Journal
Bank reconciliation in Simply is done in
the Reconciliation & Deposits
Journal. Start by clicking the Chart of
Accounts icon the Home window.
Click the CHART OF ACCOUNTS icon.
You would select the bank account
(CASH IN BANK) to display the
General Ledger for the account.
Click CASH IN BANK.
On the Reconciliations & Deposits
page, ensure that the Save
Transactions for Account
Reconciliation box is checked.
When you click the Set Up button,
Click the Set Up button now.
…the Account Reconciliation Linked
Accounts window will appear with the
system defaults. You need to change
them accordingly.
Click to continue.
Adjustment
The Account Reconciliation Journal:
To Set Up Linked Accounts
Notice that there are various Income
and Expense name boxes, and one
Adjustment. You would enter the
appropriate names (or accept
defaults) and select appropriate
accounts in the Account boxes. By
doing this, you are virtually creating
an input window for each name.
Interest Income is the default for
Income 1 Name (you can change if
necessary).
Click.
When you click the drop-down arrow
for any of the Income Account boxes,
the Income accounts in the company’s
chart of accounts will display and you
can select the appropriate account.
You would select 4210 Interest
Income. This will allow you to
reconcile Interest Income
automatically by simply entering the
interest amount in the appropriate
input window.
Click to continue.
Adjustment
The Account Reconciliation Journal:
Linked Accounts
(continued)
Similarly, you can enter appropriate
names and select corresponding
accounts for expenses.
By entering Bank Charges and
selecting 5342 Bank Charges
Expense, you will be able to reconcile
bank charges automatically by simply
entering the amount(s) in the input
window.
Click.
Setting up the Interest Expense name
and selecting 5345 Bank Loan
Interest will allow you to reconcile
bank loan interest automatically.
Click.
The Adjustment account allows you to
select from any Revenue or Expense
account. Unresolved amounts will be
posted to this account, so they will be
easy to analyze for reconciliation.
The Reconciliation & Deposits Journal
will then be ready to use.
Click to continue.
Adjustment
Account Reconciliation in Simply:
Identify Reconciling Items
As in the manual bank reconciliation,
you would analyze the bank statement.
With the help of your General Ledger
report (you will see one later), identify
reconciling items that need to be
adjusted both in the bank balance and
in the company’s General Ledger.
Click.
Study the manual bank reconciliation
below.
Click to continue.
Account Reconciliation in Simply:
Account Reconciliation Journal
Display the Reconciliation & Deposits
journal, by clicking the RECONCILE
ACCOUNTS icon in the BANKING
Home page.
Select date
for end of
the month.
Apr. 30, 2014
Click the RECONCILE ACCOUNTS icon.
Then select the Cash in Bank account.
Click.
You would then fill in the top of the
window with the start and end dates of
the reconciliation, the Opening Balance
and the end balance of the latest bank
statement. You can also add an
appropriate comment.
Read the First Reconciliation notation
on the TRANSACTION page.
Click ADD PRIOR OUTSTANDING.
The Add Outstanding Transactions
window allows you to add in Resolved
and Outstanding transactions in the
previous period. If none, you can
advance the date in the field Show
Resolved Trans. On or After. In this
example, you would select the last date
of the previous month, April 30.
Click to continue.
Read
Account Reconciliation in Simply:
Account Reconciliation
Journal
The Reconciliation & Deposits
Journal appears showing the current
outstanding items. Notice the
Unresolved amount at the
Summary section at the bottom of
the window.
Click.
Also notice that the Status of the
cheques listed are all Outstanding,
which is not necessarily correct.
Click to continue.
Account Reconciliation in Simply:
Step 1: Identify Cleared
Items
Using the bank statement as your
guide, check off the items that the bank
had cleared (red lines across) by
clicking the item at the STATUS
column in the Reconciliation &
Deposits journal.
As you check off each item shown as
cleared on the bank statement, the
Status changes from Outstanding to
Cleared. Notice the Outstanding items.
Click.
The Summary section shows an
Outstanding item of –194.90 and an
Unresolved amount of –1,368.60.
Click.
Study the Reconciliation & Deposits
Journal Entry. The object of the
account reconciliation is to reduce the
Unresolved amount to zero and
update the CASH IN BANK account to
the adjusted bank balance of -407.50.
Click to continue.
Account Reconciliation in Simply:
Step 2: Reconcile Income
You would address the Deposit
Interest item on the bank statement on
the Income page (see below left).
Click.
Notice that the Interest Income name
is automatically filled in the
Reconciliation & Deposits journal. It is
because you have specified it when
you entered the Income Linked
Accounts earlier.
Click.
You would enter Bank Statement as
Source No. and the Interest Income
amount as shown on the bank
statement.
Click.
Study the resulting journal entry.
Click to continue.
Account Reconciliation in Simply:
Step 3: Reconcile Expenses
Study the Bank Reconciliation. The
items crossed out in blue have been
reconciled. Service Charges and
Loan Interest are both still
unreconciled.
Click.
On the Expense tab, the linked
accounts Expense 1 (Bank
Charges) and Expense 3 (Interest
Expense) you specified earlier are
automatically filled in.
Click.
You would enter Bank Statement
as Source No., and enter the
corresponding amounts for BANK
CHARGES and INTEREST
EXPENSE.
Click.
Study the Account Reconciliation
Journal Entry after reconciling
expenses. Notice that the
Unresolved amount is equal to the
last unresolved item left (NSF
cheque).
Click to continue.
Account Reconciliation in Simply:
Step 4: Reconcile
Unresolved Items
You have learned how to reconcile
all the items on the bank
statement, except the NSF
cheque. To resolve the NSF
cheque, you need to enter a sales
invoice in the Sales Journal in the
RECEIVABLES module, but you
would do that later. First, you
would post the entries so in the
Reconciliation & Deposits Journal.
Click.
When you post the Reconciliation
and Deposit a warning window will
appear, which shows an amount
equal to the amount of the NSF
cheque.
Click.
The Select Adjustment Account
window will appear as you click
OK, showing the Bank Rec
Unresolved account as the
default.
Click OK to accept the default.
Sage Simply Accounting - Warning
Account Reconciliation in Simply:
Step 4: Reconcile
Unresolved Items
Use the original invoice no. adding NS (for NSF) and
the cheque no. for easy reference.
(continued)
To clear the Unresolved amount in the
company records, you need to record
the NSF cheque in a Sales Invoice
Journal crediting account 5380 BANK
REC UNRESOLVED (Unknown) and
not to 1060 CASH IN BANK as you
would normally do. This will put back
the amount now owing (again) to the
ACCOUNTS RECEIVABLE account
and to the customer’s subledger.
The bank may charge your company for
processing NSF cheques. Your
company in turn can also charge the
client whose cheque has been returned
NSF, sometimes with an additional
amount for handling.
In this example, you are charging the
client $45.00 over and above the NSF
cheque amount to cover the fee
charged by your bank plus a handling
fee.
Click.
Study the Sales Journal.
Click.
Study the Invoice Sales Journal Entry.
Click to continue.
HANDLING FEE is a Revenue-type
account
(see Chart
of Accounts
REVENUE
Section)
Step 5: Verify Company
Records
You have now completed your
(bank) account reconciliation. The
last thing you need to do is to verify
your company records.
The manual bank reconciliation
shows an outstanding cheque 627
of $500. Because the bank has not
cleared the cheque, you need to
ensure that it is carried forward to
the next month so it will be in the
next month’s account reconciliation
record.
Click.
To check your record, display the
Account Reconciliation Detail
Report. You will see the
outstanding cheque for $500.00.
Click to continue.
Account Reconciliation Reports:
General Ledger Report –
CASH IN BANK
The best way to verify the
company records is to print the
General Ledger report . It shows
all the entries that were
automatically generated by Simply
when you do the account
reconciliation using the
Reconciliation & Deposits journal.
Notice that in Step 1 in the
reconciliation process, the
cheques your company paid out
and were cleared by the bank are
automatically credited.
Click.
The cheques your company
received from customers, then
deposited and cleared by the bank
were debited.
Click to continue.
Step 1
Account Reconciliation Reports
General Ledger Report –
CASH IN BANK (continued)
The General Ledger report also
shows that when you reconciled
Income in Step 2, Simply
generated entry J10 and debited
INTEREST INCOME.
Click to continue.
Step 2
Account Reconciliation Reports:
General Ledger Report –
CASH IN BANK (continued)
When you reconciled Expenses
in Step 3, Simply generated
entries J11 and J12 and credited
SERVICE CHARGES and LOAN
INTEREST.
Click to continue.
Step 3
Account Reconciliation Reports
General Ledger Report –
CASH IN BANK (continued)
The General Ledger report shows
that when you completed the
account reconciliation, 1060
CASH IN BANK is equal to the
Adjusted Cash Balance in the
manual Bank Reconciliation. In
this case, the cash account is
overdrawn by $407.50
Click to continue.
Account Reconciliation Reports:
General Ledger Report –
BANK REC UNRESOLVED
The General Ledger report for
5380 BANK REC UNRESOLVED
will show a zero balance, since
you have reconciled everything in
your company records.
You therefore have accomplished
your objectives for the account
reconciliation.
Click to continue.
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left off.
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