Business Office 201
IASSBO Seminar November 7, 2013
BANK RECONCILIATION
1
WHY RECONCILE?
Planning and controlling of cash.
 Safeguard cash:

 Internal
audits should be in place
 Same person reconciling the accounts should not
be the same person who writes checks/makes
deposits
 Always have the supervisor of the person doing the
reconcilement review and sign it
 For
example, in a small unit this might be the
Superintendent
 In a larger unit, the CFO or Business Manager
2
INTERNAL CONTROLS

When internal jobs cannot be segregated:
 Have
internal controls set up to verify accuracy
of reconciliation.
 Board
Financials prepared by someone other than
the reconciler.
 Accountability to someone that reconciliation has
been completed.
3
RECONCILIATION DEFINED

A bank reconciliation is the process whereby
the balance in the bank’s records and the
balance in the depositor’s records are
brought into agreement.

You will compare your journal (ledger)
entries to the bank statement and reconcile
any discrepancies.
4
ITEMS TO GATHER
Bank Statement
 Canceled Checks (both check number and
amount)
 Deposit Slips
 Calculator & Pencil
 Many banks no longer provide canceled checks
or deposit slips, you will just use the bank
statement
 Software program

5
BEGINNING STEPS
Compare cleared checks (from bank side) with
outstanding checks appearing on last month’s
report and with newly recorded checks (from
book side).
 Clear all paid checks (on book side) for period
and verify total cleared matches with total
cleared from bank.
 Deduct checks outstanding that have not been
paid by the bank from the balance (from bank
side) according to the bank statement.

6
Balance According to Bank
Less: Outstanding Checks
Adjusted Bank Balance
$ 7,892,743.22
$ 2,653.19
$ 7,890,090.03
7
BEGINNING STEPS CONTINUED

Compare each deposit listed on the bank
statement (bank side) with unrecorded
deposits appearing on last month’s
reconciliation and with deposit receipts (book
side).

Add deposits not recorded by the bank
(deposits-in-transit) to the balance according
to the bank statement (bank side).
8
Balance According to Bank
Less: Outstanding Checks
$ 7,892,743.22
$ 2,653.19
Adjusted Bank Balance
Add: Outstanding Deposits
Adjusted Bank Balance
$ 7,890,090.03
$ 74,396.55
$ 7,964,486.58
9
BEGINNING STEPS CONTINUED

Compare bank debit memorandums (bank
side) to entries recording cash payments (book
side).


ACH-Automated Clearing House.
Deduct debit memorandums that have not
been recorded from the balance according to
the depositor’s records (book side).
This will be an adjusting entry in your journal.
 Make sure to reference what the debit
memorandum was for (i.e.-bank fees for the month
of April 2010).

10
Balance According to School Corporation
Less: Bank Debit Memorandums
Adjusted School Corporation Balance
$ 7,963,245.61
$
268.23
$ 7,962,977.38
11
BEGINNING STEPS CONTINUED

Compare bank credit memorandums (bank
side) to entries in the journal (book side).


EFT-Electronic Funds Transfer.
Add credit memorandums that have not been
recorded to the balance according to the
depositor’s records (book side).
This will be an adjusting entry in your journal.
 Make sure to reference what the memorandum was
for (i.e.-deposit #2354 in credit error of $63.25).

12
Balance According to School Corporation
Less: Bank Debit Memorandums
$ 7,963,245.61
$
268.23
Adjusted School Corporation Balance
Add: Bank Credit memorandums
Adjusted School Corporation Balance
$ 7,962,977.38
$ 1,509.20
$ 7,964,486.58
13
ADJUSTMENT HINTS:

If an item appears on the bank statement but
not on the School Corporation's books, the item
is probably going to be an adjustment to the
Cash Balance on the School Corporation's
books. A journal entry must be prepared (book
side).

If an item is already in the School Corporation's
Cash Account, but has not yet appeared on the
bank statement, the item is probably an
adjustment to the balance per the bank
statement (bank side).
14
WHERE TO ADJUST?
Add to BOOK
Balance
Deduct From
BOOK
Add to BANK
Balance
Balance
Deduct From BANK
Balance

Outstanding Checks

Bank Service Charge
Interest Credited to Bank Account
Interest Charged to Bank Account



Deposit in Transit
Fee charged by bank for returned check
(NSF)

15
JOURNAL ENTRIES?

Which of the following will require a journal
entry to the School Corporation’s books?
 Bank
Service Charge
 Deposits-in-Transit
 Bank Error
16
JOURNAL ENTRIES?

Which of the following will NOT require a journal
entry to the School Corporation’s books?
 Check
Printing Charge
 Outstanding Checks
 Fee for NSF Check
17
Balanced
Balance According
to Bank
Less:
Outstanding
Checks
Adjusted Bank
Balance
Add:
Outstanding
Deposits
Adjusted Bank
Balance
$ 7,892,743.22
Balance According to
School Corporation
Less: Bank Debit
Memorandums
$ 2,653.19
$ 7,890,090.03
$ 7,964,486.58
$
268.23
Adjusted School
Corporation Balance
Add: Bank Credit
memorandums
$ 74,396.55
$ 7,963,245.61
Adjusted School
Corporation Balance
$ 7,962,977.38
$ 1,509.20
18
$ 7,964,486.58
OUT OF BALANCE SOLUTIONS

What if your ending balances do not
match?
 Common
Mistakes:
 Beginning
Balance (bank/book) is Incorrect
 Outstanding Checks
 Deposits in Transit
 Deposit Total Incorrect
 Service Charges
 Non-Sufficient Funds Checks (NSF)
 Errors
19
OUT OF BALANCE SOLUTIONS

Figure the amount of the difference
(subtract Book balance from Bank
balance).
Adjusted Bank
Balance

Adjusted School
$ 7,964,486.58 Corporation Balance
$ 7,964,754.81
$7,964,486.58 - $7,964,754.81 =
$268.23
20
EXACT AMOUNT SOLUTION

Difference is exact amount of April’s bank fees.

Double check that entry was omitted or not put
onto a May date.

If truly omitted, record your journal entry as
shown earlier.
21
OUT OF BALANCE SOLUTIONS
Adjusted Bank
Balance

$ 7,964,486.58
Adjusted School
Corporation Balance
$ 7,964,468.58
7,964,486.58 - $7,964,468.58 = $18.00

$18 is not an exact amount for any
transaction.
22
THE “9” SOLUTION

Is the difference evenly divisible by 9?
 Transposition
problem.
of a number is most likely your
 Difference
= $18.00
 $18 divided by 9 = 2


Transposed $268.23 to $286.23
Short cut example:
 Off
by $567.00
 5+6+7=18
18 divided by 9 = 2
23
JOURNAL ENTRY

A correcting journal entry should always
be done-Do not just correct original error.
 Provides
audit trail of what happened.
 Never
know when you might need to provide
information months/years later.
 Protects
you from being accused of deleting
transactions/fraud.
 Remember
others might have print outs already in
hand with original error in place.
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JOURNAL ENTRY

A journal entry will need to be completed for a
credit of $18 or a debit of -$18.
To record a transposition of numbers for
bank fees ($268.23 vs. $286.23 recorded
earlier).
-$18.00
25
OUT OF BALANCE SOLUTIONS
Adjusted Bank
Balance

$ 7,964,486.58
Adjusted School
Corporation Balance
$ 7,964,186.58
$7,964,486.58 - $7964,186.58 =
$300.00
 $300
is not an exact amount of a transaction
 3+0+0 = 3 and is not divisible by 9
26
THE “3” SOLUTION

Is the difference $3, $30, $300, etc…?
 The
10 digit key error is most likely your problem.
27
“3” SOLUTION CONTINUED

Entered $568.23 instead of $268.23
(difference of $300)

Key above the 2 is a 5

Difference between each key above/below is 3
28
JOURNAL ENTRY

A journal entry will need to be completed for a
credit of $300 or a debit of -$300.
To record a ten-digit key error for bank fees
($268.23 vs. $568.23 recorded earlier).
-$300.00
29
OUT OF BALANCE SOLUTIONS
Adjusted Bank
Balance

$ 7,964,486.58
Adjusted School
Corporation Balance
$ 7,965,023.04
$7,964,486.58 - $7965,023.04 =
$536.46
 Our
Exact, 9 & 3 Solutions do not work
30
OUT OF BALANCE SOLUTIONS

Reversal of Journal Entry
 Divide
difference by 2
 $536.46 divided by 2 = $268.23
 Our bank debit memorandum was entered as a
credit
31
JOURNAL ENTRY

A double journal entry will need to be
completed for a credit of -$268.23 and a debit
of $268.23.
To record & correct a reversed journal entry
for bank fees ($268.23 recorded as credit
instead of debit).
-$268.23
To record April’s Bank Fees
$268.23
32
OUT OF BALANCE SOLUTIONS

Summary of Debits & Credits or Proof of Cash
 Run
a report (book side) for total debits & credits
for the month.
 Compare to the total debits & credits on the bank
statement.
 This will help decipher which side the error is on.
33
SUMMARY SOLUTION

Begin with bank summary credit amount:
Subtract deposits-in-transit from previous month
 Add deposits-in-transit from this month
 Subtract deposit adjustments not included on book
side

If total = 0, issue is on debit side.
 If total = amount you are off, total issue is on
credit side.
 If total = any amount different, then your issue
could be on both sides.

34
SUMMARY SOLUTION

Move to bank debit summary
Add all book decreases (checks, bank charges, etc…)
 Subtract last months outstanding checks
 Add this months outstanding checks
 Add/Subtract bank deductions not included on book
side debits
 If total = 0, issue is on credit side
 If total = amount you are off, total issue is on debit side
 If total = any amount different, add this total with credit
amount that is off

35
OUT OF BALANCE HINTS

Double check that your beginning balance = last
month’s ending balance (both bank and book
sides).

Verify outstanding checks have all been cleared.

Stop, put it away, come back to it tomorrow! Many
times your error will be found quickly when you
take the time to rest.
36
QUESTIONS?
37
CASH MANAGEMENT AND ISSUES
Keep enough cash on hand to pay all of the
bills
 But note that a Deposit Fee is charged by
banks for an FDIC fee. So the more cash you
keep on hand, the more in bank fees you will
pay.
 Goal is to balance enough cash for cash flow
with the least amount on hand to minimize fees

38
HOW TO MINIMIZE BANK FEES

Take excess cash in the bank and put into a
CD. Use a tiered structure for cash flow
 Vary
maturity dates from 1 month to 1 year
Do a Bank RFP to get market competition to
see if bank fees can be lowered
 Talk to others and see what kind of fees other
districts are paying so you can tell if your fees
are high are low in comparison

39
MINIMIZING FEES
Manage cash flow
 Look at fee statements for NOC charges. These
are charges due to a coding error on payroll
direct deposit. Some banks charge these, but
don’t always tell you about it– it just shows up
on the statement and you just need to get the
correct routing or account number to fix
 Open up a Hoosierfund.com account for cash
flow and transfer between this fund and your
bank account.

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REFERENCES





References
Cuzzetto, C. (1993). Internal auditing for school districts. Reston,
Virginia: Association Of School Business Officials.
Day, J. W. (2008). Theme: detecting accounting errors.
Retrieved April 6, 2010, from
http://www.reallifeaccounting.com/‌pubs/‌Article_Theme_Detecti
ng_Accounting_Errors.pdf
Drills for the topic bank reconciliation. (n.d.).
AccountingCoach.com. Retrieved April 6, 2010, from
http://www.accountingcoach.com/‌online-accountingcourse/‌13Dpg01.html
Eisen, P. J. (1994). Accounting a streamlined course for students
& business people (3rd ed.). New York, New York: Barron’s
Educational Series, Inc. (Original work published 1985)
Help with accounting: finding errors. (n.d.). Retrieved April 6,
2010, from eSSORTMENT website:
http://www.essortment.com/‌all/‌accountingtechn_rtgh.htm
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