Part II – Bank Reconciliation
Chapter 8
© 2009 The McGraw-Hill Companies, Inc.
Bank Procedures and Reconciliation
Banks help businesses control cash by
offering services that:
1.Safeguard Cash – The bank provides a secure
place to deposit cash.
2.Improved Efficiency and Effectiveness – The
bank strengthens the processing of cash.
3.Independent Verification – The bank statement is
used to help the company account for its cash
transactions.
McGraw-Hill/Irwin
Slide 2
Bank Procedures and Reconciliation
Cash receipts should
be recorded
immediately upon
receipt and deposited
intact daily.
Up to date
signature card
should be
maintained.
A monthly bank
reconciliation should
be prepared by an
independent party.
Controlling
Cash in the
Bank
A deposit ticket
should be used
for all deposits.
Cash disbursements
should be made by
prenumbered check.
McGraw-Hill/Irwin
Slide 3
The Bank Statement
The bank statement format varies from bank to bank, but
the statement usually contains these common elements:
1.an overall summary of the activity in the account,
2.a list of specific transactions posted to the account,
including checks cleared, deposits made, and other
transactions, and
3.a running balance in the account.
Because amounts that are removed from a bank
account reduce the bank’s liability, they are
reported as debits on the bank statement.
Debit Card
Slide 4
Need for Reconciliation
Your Bank May Not Know About
1.Errors made by the bank
2.Time lags
a. Deposits that you made
recently
b. Checks that you wrote
recently
You May Not Know About
1.Interest the bank has put into your
account
2.Electronic funds transfers
3.Service charges taken out of your
account
4.Customer checks you deposited
but that bounced (NSF checks)
5.Errors made by you
Slide 5
Bank Reconciliation
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 up-to-date ending cash
balance that will appear on the balance sheet.
Updates to Bank Statement
Ending cash balance per bank
+ Deposits in transit
Deduct - Outstanding checks
Equals = Up-to-date ending cash balance
Add
Updates to Company's Books
Ending cash balance per books
Add
Add
Deduct
Deduct
Equals
McGraw-Hill/Irwin
+
+
=
Interest earned
Electronic funds transfers
NSF checks
Bank service charges
Up-to-date ending cash balance
Slide 6
Bank Reconciliation
If an error is found on the bank statement, an
adjustment for it is made to the bank balance to
determine the up-to-date cash balance.
An error made on our books requires an
adjusting journal entry to correct.
McGraw-Hill/Irwin
Slide 7
Bank Reconciliation
Jerry Company 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 Mary, 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
McGraw-Hill/Irwin
Slide 8
Bank Reconciliation
5. During the month of June the bank collected an EFT
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. Jerry Company 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
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Bank Reconciliation
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Bank Reconciliation
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Bank Reconciliation
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Bank Reconciliation
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Bank Reconciliation
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Bank Reconciliation
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Slide 15
Bank Reconciliation
Every reconciling item that appears on the unadjusted book
balance section requires a journal entry to adjust the general
ledger cash balance to the up-to-date cash balance.
Cash (+A)
Accounts Receivable (-A)
Supplies Expense (-E, +OE)
Interest Revenue (+R, +OE)
Bank Service Charge Expense (+E, -OE)
Accounts Receivable (+A)
Cash (-A)
McGraw-Hill/Irwin
Debit
911.25
Credit
875.00
27.00
9.25
12.75
413.11
425.86
Slide 16