Accounting for Cash:
Reconciling the Bank Statement
An important part of internal control
Need for calculating a true cash balance
Two “sections” to be reconciled
 balance per bank
 balance per books
If there are any mistakes or
transactions that have not been
recorded in the company’s books,
“adjusting” journal entries will be
needed.
Reconciling the Bank Statement
The bank reconciliation reports on the differences
between the balance on the bank statement and the
balance in the general ledger cash account. The
reconciliation results in the true cash balance that
will appear on the balance sheet.
Adjustment to the Bank Balance
Unadjusted bank balance
+ Deposits in transit
Deduct - Outstanding checks
Equals = True cash balance
Add
Adjustments to the Book Balance
Unadjusted book balance
Add + Accounts receivable collections
+
Deduct Deduct Equals =
Add
Interest earned
Bank service charges
Non-sufficient funds (NSF) check
True cash balance
Reconciling the Bank Statement
If an “error” is found on the bank statement,
an adjustment for it is made to the unadjusted
bank balance to determine the true cash
balance.
An “error” made on our books requires an
adjusting journal entry to correct.
BANK RECONCILIATION
Exercise 7-9A (page 338)
Balance Per Bank
Plus Deposit in Transit
Less Outstanding Checks
True Cash Balance
Balance Per Books
Plus Interest Earned
Less Bank Service Charge
True Cash Balance
$17,250
+
2,630
(3,428)
$16,452
$16,450
+ 12
(10)
$16,452
BANK RECONCILIATION
Exercise 7-9A (page 338)
Does the completed bank reconciliation on the
prior slide indicate any necessary journal
entries?
Debit Credit
Adjustment #1
Cash
12.
Interest Revenue
12.
Adjustment #2
Bank Service Charge Exp.
10.
Cash
10.
Chapter Seven Homework
Homework Prob. 7-21A (pages 341 & 342):

Let’s take a look and see how you are going to do
the bank reconciliation—where you have to “find”
the reconciling items!
Homework ATC 7-8 (page 355):


Requires INTERNET research
Must hand in “print out” of Pep Boys Balance
Sheet you found in their 10-K report—along with
the answers to the five questions asked in the
textbook.
Using Petty Cash Funds (We are NOT
going to cover Petty Cash topic)
A petty cash fund is used to make small
expenditures that cannot wait for the formal checkwriting process. The fund is operated on an imprest
basis. This means that when the fund gets low on
cash it is replenished. The petty cashier is always
responsible for the cash in the fund. This is an
excellent internal control.
Bank Reconciliation
Another Example for you to do on
your own
Matrix, Inc. is preparing the bank reconciliation for the
month of June.
1. The June 30th balance on the bank statement is
$4,892.56, and the Cash general ledger balance on this
date is $4,240.54.
2. There was a deposit in transit in the amount of $475.
3. The bank erroneously deducted a $200 check drawn on
the books of Matters, Inc. from our account.
4. At June 30th there were three checks outstanding. Check
1078 dated 6/28, for $372.33; Check 1080 dated 6/29,
for $402.41; and Check 1081 dated 6/30, for $66.89.
More Information
Bank Reconciliation
5. During the month of June the bank collected an account
receivable for us in the amount of $875.
6. A check actually written for $146.88 for supplies was
erroneously recorded in our records by the bookkeeper
as $173.88.
7. Matrix earned interest of $9.25 on its checking account.
8. The bank assessed a service charge of $12.75 for June
and we deposited a NSF check in the amount of
$413.11.
Let’s prepare the bank reconciliation
Bank Reconciliation
Matrix, Inc.
Bank Reconciliation Statement
June 30, 2006
Unadjusted bank balance, June 30
Add: Deposits in transit
Bank error
Less: Outstanding checks
Check No. 1078 - June 28
372.33
Check No. 1080 - June 29
402.41
Check No. 1081 - June 30
66.89
True Cash balance, June 30
Unadjusted Book Balance, June 30
Add: Account collected by bank
Bookkeeping error
Interest earned on checking account
Less: Bank service charge
NSF Check
True Cash balance, June 30
$ 4,892.56
475.00
200.00
(841.63)
$ 4,725.93
$ 4,240.54
875.00
27.00
9.25
(12.75)
(413.11)
$ 4,725.93
Bank Reconciliation
Matrix, Inc.
Bank Reconciliation Statement
June 30, 2006
Unadjusted bank balance, June 30
Add: Deposits in transit
Bank error
Less: Outstanding checks
Check No. 1078 - June 28
372.33
Check No. 1080 - June 29
402.41
Check No. 1081 - June 30
66.89
True Cash balance, June 30
Unadjusted Book Balance, June 30
Add: Account collected by bank
Bookkeeping error
Interest earned on checking account
Less: Bank service charge
NSF Check
True Cash balance, June 30
$ 4,892.56
475.00
200.00
(841.63)
$ 4,725.93
$ 4,240.54
875.00
27.00
9.25
(12.75)
(413.11)
$ 4,725.93
Bank Reconciliation
Matrix, Inc.
Bank Reconciliation Statement
June 30, 2006
Unadjusted bank balance, June 30
Add: Deposits in transit
Bank error
Less: Outstanding checks
Check No. 1078 - June 28
372.33
Check No. 1080 - June 29
402.41
Check No. 1081 - June 30
66.89
True Cash balance, June 30
Unadjusted Book Balance, June 30
Add: Account collected by bank
Bookkeeping error
Interest earned on checking account
Less: Bank service charge
NSF Check
True Cash balance, June 30
$ 4,892.56
475.00
200.00
(841.63)
$ 4,725.93
$ 4,240.54
875.00
27.00
9.25
(12.75)
(413.11)
$ 4,725.93
Bank Reconciliation
Matrix, Inc.
Bank Reconciliation Statement
June 30, 2006
Unadjusted bank balance, June 30
Add: Deposits in transit
Bank error
Less: Outstanding checks
Check No. 1078 - June 28
372.33
Check No. 1080 - June 29
402.41
Check No. 1081 - June 30
66.89
True Cash balance, June 30
Unadjusted Book Balance, June 30
Add: Account collected by bank
Bookkeeping error
Interest earned on checking account
Less: Bank service charge
NSF Check
True Cash balance, June 30
$ 4,892.56
475.00
200.00
(841.63)
$ 4,725.93
$ 4,240.54
875.00
27.00
9.25
(12.75)
(413.11)
$ 4,725.93
Bank Reconciliation
Matrix, Inc.
Bank Reconciliation Statement
June 30, 2006
Unadjusted bank balance, June 30
Add: Deposits in transit
Bank error
Less: Outstanding checks
Check No. 1078 - June 28
372.33
Check No. 1080 - June 29
402.41
Check No. 1081 - June 30
66.89
True Cash balance, June 30
Unadjusted Book Balance, June 30
Add: Account collected by bank
Bookkeeping error
Interest earned on checking account
Less: Bank service charge
NSF Check
True Cash balance, June 30
$ 4,892.56
475.00
200.00
(841.63)
$ 4,725.93
$ 4,240.54
875.00
27.00
9.25
(12.75)
(413.11)
$ 4,725.93
Bank Reconciliation
Matrix, Inc.
Bank Reconciliation Statement
June 30, 2006
Unadjusted Bank Balance, June 30
Add: Deposits in transit
Bank error
Less: Outstanding checks
Check No. 1078 - June 28
372.33
Check No. 1080 - June 29
402.41
Check No. 1081 - June 30
66.89
True Cash balance, June 30
Unadjusted Book Balance, June 30
Add: Account collected by bank
Bookkeeping error
Interest earned on checking account
Less: Bank service charge
NSF Check
True Cash balance, June 30
$ 4,892.56
475.00
200.00
(841.63)
$ 4,725.93
$ 4,240.54
875.00
27.00
9.25
(12.75)
(413.11)
$ 4,725.93
Adjusting the Books
Every reconciling item that appears on the unadjusted
book balance section requires a journal entry to adjust
the general ledger cash balance to the true cash balance.
Account Title
Cash
Accounts receivable
Supplies expense
Interest revenue
Bank service charge expense
Accounts receivable
Cash
Debit
911.25
Credit
875.00
27.00
9.25
12.75
413.11
425.86