bank reconciliations are: prepared periodically to explain the difference between cash reported on...
TRANSCRIPT
Bank reconciliations are:• Prepared periodically to explain the
difference between cash reported on the bank statement and the cash balance on company’s books.
• An important element of internal control.
Bank ReconciliationsBank Reconciliations
1 © 2013 McGraw-Hill Ryerson Limited. LO 6
The bank statement provides information
about everything that has gone
through the bank account for a given
period of time.
CM – Credit MemoDM – Debit MemoEC – Error CorrectionIN – Interest EarnedNSF – Non-sufficient FundsOD – OverdraftSC – Service Charge
31-Oct-14494 504 2
Previous Balance
Current Balance
1,609.58 2,050.00
DateNumber Amount Amount
Oct 1 1,609.58
3 119 55.00 240.00 1,794.58 9 123 25.00 180.00 1,949.58
15 127 50.00 100.00 1,999.58 16 23.00 DM 150.00 2,126.58
17 122 70.00 485.00 2,541.58 18 120 200.00 2,341.58 19 125 15.00 2,326.58 20 20.00 NSF
10.00 DM 2,296.58
26 121 120.00 2,176.58
29 128 135.00 2,041.58
31 IN 8.42 2,050.00
National BankHamilton, ON L8P 2X5
Bank Statement
Statement Date901 Main Street
Daily Balance
Hamilton, ON L8P 2J8
VideoBuster Company
723.00 1,163.42
Deposits and Credits
Cheques and Debits
Account Number
Total Cheques and Debits
Total Deposits and Credits
2 © 2013 McGraw-Hill Ryerson Limited. LO 6
Cheque # Amount119 55.00$
120 200.00 121 120.00
122 70.00 123 25.00 124 150.00 125 15.00
126 200.00
127 50.00
128 135.00
1,020.00$
(101)
Cash Disbursements Journal
The general ledger, cash receipts, and
cash disbursements journals provide
information about everything that has gone through our
accounting records for a given period of
time.
3 © 2013 McGraw-Hill Ryerson Limited. LO 6
*
Bank Reconciliation - Example
4 © 2013 McGraw-Hill Ryerson Limited.
31-Oct-14494 504 2
Previous Balance
Current Balance
1,609.58 2,050.00
DateNumber Amount Amount
Oct 1 1,609.58
3 119 55.00 240.00 1,794.58 9 123 25.00 180.00 1,949.58
15 127 50.00 100.00 1,999.58
16 23.00 DM 150.00 2,126.58
17 122 70.00 485.00 2,541.58
18 120 200.00 2,341.58 19 125 15.00 2,326.58 20 20.00 NSF
10.00 DM 2,296.58
26 121 120.00 2,176.58 29 128 135.00 2,041.58
31 IN 8.42 2,050.00
Total Deposits and Credits
901 Main Street
National BankHamilton, ON L8P 2X5
Account Number
Total Cheques and Debits
Bank Statement
Statement Date
Daily Balance
Hamilton, ON L8P 2J8
VideoBuster Company
723.00 1,163.42
Deposits and Credits
Cheques and Debits
Date Explanation PR Debit Credit Balance30-Sep Balance 1,609.58 31-Oct CR6 815.00 2,424.58 31-Oct CD4 1,020.00 1,404.58
Cash Account # 101
General Ledger Cash Account
Why are the balances different?
Some items are reflected on the bank statement but not in the accounting records and vice versa.
LO 6
Reconciling ItemsReconciling Items
Bank Statement• Outstanding
cheques.• Deposits in transit.• Bank errors.
General Ledger• Non-sufficient funds
cheque (NSF).• Bank service charges.• Interest earned on
bank account.• Collections made by
the bank.• Book errors.
5 © 2013 McGraw-Hill Ryerson Limited. LO 6
Let’s prepare the bank reconciliation for VideoBuster Company at the end of October 31, 2014.
6 © 2013 McGraw-Hill Ryerson Limited. LO 6
31-Oct-14494 504 2
Previous Balance
Current Balance
1,609.58 2,050.00
DateNumber Amount Amount
Oct 1 1,609.58
3 119 55.00 240.00 1,794.58 9 123 25.00 180.00 1,949.58
15 127 50.00 100.00 1,999.58
16 23.00 DM 150.00 2,126.58
17 122 70.00 CM 485.00 2,541.58
18 120 200.00 2,341.58 19 125 15.00 2,326.58 20 20.00 NSF
10.00 DM 2,296.58
26 121 120.00 2,176.58 29 128 135.00 2,041.58
31 IN 8.42 2,050.00
Daily Balance
1,163.42
Total Deposits and Credits
901 Main Street
Deposits and Credits
Cheques and Debits
National BankHamilton, ON L8P 2X5
Account Number
Total Cheques and Debits
Bank Statement
Statement DateHamilton, ON L8P 2J8
VideoBuster Company
723.00
DateDeposit Amount
Oct 3 $ 240.00
9 180.00
15 100.00 16 150.00 31 145.00
$ 815.00
(101)
Cash Receipts Journal
Cheque # Amount119 55.00$ 120 200.00
121 120.00
122 70.00
123 25.00 124 150.00 125 15.00 126 200.00
127 50.00 128 135.00
1,020.00$
(101)
Cash Disbursements Journal
These items appear on both the
Cash Receipts Journal and the bank statement;
therefore, none of these items is a reconciling item.
7 © 2013 McGraw-Hill Ryerson Limited.
LO 6
31-Oct-14494 504 2
Previous Balance
Current Balance
1,609.58 2,050.00
DateNumber Amount Amount
Oct 1 1,609.58
3 119 55.00 240.00 1,794.58 9 123 25.00 180.00 1,949.58
15 127 50.00 100.00 1,999.58
16 23.00 DM 150.00 2,126.58
17 122 70.00 CM 485.00 2,541.58
18 120 200.00 2,341.58 19 125 15.00 2,326.58 20 20.00 NSF
10.00 DM 2,296.58
26 121 120.00 2,176.58 29 128 135.00 2,041.58
31 IN 8.42 2,050.00
Hamilton, ON L8P 2J8
VideoBuster Company
723.00
National BankHamilton, ON L8P 2X5
Account Number
Total Cheques and Debits
Bank Statement
Statement Date
Daily Balance
1,163.42
Total Deposits and Credits
901 Main Street
Deposits and Credits
Cheques and Debits
DateDeposit Amount
Oct 3 $ 240.00
9 180.00
15 100.00 16 150.00 31 145.00
$ 815.00
(101)
Cash Receipts Journal
Cheque # Amount119 55.00$ 120 200.00
121 120.00
122 70.00
123 25.00 124 150.00 125 15.00 126 200.00
127 50.00 128 135.00
1,020.00$
(101)
Cash Disbursements Journal
These items appear on both
the Cash Disbursements
Journal AND the bank statement;
therefore, none of these items is a reconciling item.
8 © 2013 McGraw-Hill Ryerson Limited.
LO 6
31-Oct-14494 504 2
Previous Balance
Current Balance
1,609.58 2,050.00
DateNumber Amount Amount
Oct 1 1,609.58
3 119 55.00 240.00 1,794.58 9 123 25.00 180.00 1,949.58
15 127 50.00 100.00 1,999.58
16 23.00 DM 150.00 2,126.58
17 122 70.00 CM 485.00 2,541.58
18 120 200.00 2,341.58 19 125 15.00 2,326.58 20 20.00 NSF
10.00 DM 2,296.58
26 121 120.00 2,176.58 29 128 135.00 2,041.58
31 IN 8.42 2,050.00
Daily Balance
1,163.42
Total Deposits and Credits
901 Main Street
Deposits and Credits
Cheques and Debits
National BankHamilton, ON L8P 2X5
Account Number
Total Cheques and Debits
Bank Statement
Statement DateHamilton, ON L8P 2J8
VideoBuster Company
723.00
DateDeposit Amount
Oct 3 $ 240.00
9 180.00
15 100.00 16 150.00 31 145.00
$ 815.00
(101)
Cash Receipts Journal
Cheque # Amount119 55.00$ 120 200.00
121 120.00
122 70.00
123 25.00 124 150.00 125 15.00 126 200.00
127 50.00 128 135.00
1,020.00$
(101)
Cash Disbursements Journal
These items appear only in the Cash
Receipts Journal OR the Cash
Disbursements Journal OR the bank
statement; therefore, each of these items is a reconciling item.
9 © 2013 McGraw-Hill Ryerson Limited.
LO 6
31-Oct-14494 504 2
Previous Balance
Current Balance
1,609.58 2,050.00
DateNumber Amount Amount
Oct 1 1,609.58
3 119 55.00 240.00 1,794.58 9 123 25.00 180.00 1,949.58
15 127 50.00 100.00 1,999.58
16 23.00 DM 150.00 2,126.58
17 122 70.00 CM 485.00 2,541.58
18 120 200.00 2,341.58 19 125 15.00 2,326.58 20 20.00 NSF
10.00 DM 2,296.58
26 121 120.00 2,176.58 29 128 135.00 2,041.58
31 IN 8.42 2,050.00
Daily Balance
1,163.42
Total Deposits and Credits
901 Main Street
Deposits and Credits
Cheques and Debits
National BankHamilton, ON L8P 2X5
Account Number
Total Cheques and Debits
Bank Statement
Statement DateHamilton, ON L8P 2J8
VideoBuster Company
723.00
The items that show up only on the bank statement are reconciling items on the book side of the bank reconciliation.
10 © 2013 McGraw-Hill Ryerson Limited. LO 6
31-Oct-14494 504 2
Previous Balance
Current Balance
1,609.58 2,050.00
DateNumber Amount Amount
Oct 1 1,609.58
3 119 55.00 240.00 1,794.58 9 123 25.00 180.00 1,949.58
15 127 50.00 100.00 1,999.58
16 23.00 DM 150.00 2,126.58
17 122 70.00 CM 485.00 2,541.58
18 120 200.00 2,341.58 19 125 15.00 2,326.58 20 20.00 NSF
10.00 DM 2,296.58
26 121 120.00 2,176.58 29 128 135.00 2,041.58
31 IN 8.42 2,050.00
Daily Balance
1,163.42
Total Deposits and Credits
901 Main Street
Deposits and Credits
Cheques and Debits
National BankHamilton, ON L8P 2X5
Account Number
Total Cheques and Debits
Bank Statement
Statement DateHamilton, ON L8P 2J8
VideoBuster Company
723.00
Book Balance 1,404.58
Add:
Collection of $500 note less $15 collection fee 485.00 Interest earned 8.42 493.42
1,898.00 Less:
NSF cheque plus s/c 30.00 Cheque printing charge 23.00 53.00
1,845.00
Bank ReconciliationOctober 31, 2014
VIDEOBUSTER COMPANY
11 © 2013 McGraw-Hill Ryerson Limited. LO 6
31-Oct-14494 504 2
Previous Balance
Current Balance
1,609.58 2,050.00
DateNumber Amount Amount
Oct 1 1,609.58
3 119 55.00 240.00 1,794.58 9 123 25.00 180.00 1,949.58
15 127 50.00 100.00 1,999.58
16 23.00 DM 150.00 2,126.58
17 122 70.00 CM 485.00 2,541.58
18 120 200.00 2,341.58 19 125 15.00 2,326.58 20 20.00 NSF
10.00 DM 2,296.58
26 121 120.00 2,176.58 29 128 135.00 2,041.58
31 IN 8.42 2,050.00
Daily Balance
1,163.42
Total Deposits and Credits
901 Main Street
Deposits and Credits
Cheques and Debits
National BankHamilton, ON L8P 2X5
Account Number
Total Cheques and Debits
Bank Statement
Statement DateHamilton, ON L8P 2J8
VideoBuster Company
723.00
Book Balance 1,404.58
Add:
Collection of $500 note less $15 collection fee 485.00 Interest earned 8.42 493.42
1,898.00 Less:
NSF cheque plus s/c 30.00 Cheque printing charge 23.00 53.00
1,845.00
Bank ReconciliationOctober 31, 2014
VIDEOBUSTER COMPANY
12 © 2013 McGraw-Hill Ryerson Limited. LO 6
DateDeposit Amount
Oct 3 $ 240.00
9 180.00
15 100.00 16 150.00 31 145.00
$ 815.00
(101)
Cash Receipts Journal
Cheque # Amount119 55.00$ 120 200.00
121 120.00
122 70.00
123 25.00 124 150.00 125 15.00 126 200.00
127 50.00 128 135.00
1,020.00$
(101)
Cash Disbursements Journal
The items that show up only on the Cash Receipts or Cash Disbursements Journal are reconciling items on the bank side of the bank reconciliation.
13 © 2013 McGraw-Hill Ryerson Limited.
LO 6
DateDeposit Amount
Oct 3 $ 240.00
9 180.00
15 100.00 16 150.00 31 145.00
$ 815.00
(101)
Cash Receipts Journal
Cheque # Amount119 55.00$ 120 200.00
121 120.00
122 70.00
123 25.00 124 150.00 125 15.00 126 200.00
127 50.00 128 135.00
1,020.00$
(101)
Cash Disbursements Journal
Bank Balance 2,050.00$
Add:
Deposit in transit 145.00 2,195.00
Less: Outstanding cheques
No. 124 150.00$ No. 126 200.00 350.00
1,845.00$
VIDEOBUSTER COMPANY
Bank ReconciliationOctober 31, 2014
14 © 2013 McGraw-Hill Ryerson Limited.
LO 6
The Final Product
15 © 2013 McGraw-Hill Ryerson Limited.
Bank Balance 2,050.00$ Book Balance 1,404.58$
Add: Add: Collection of $500 note
Deposit in transit 145.00 less $15 collection fee $ 485.00 2,195.00 Interest earned 8.42 493.42
1,898.00 Less: Outstanding cheques Less:
No. 124 150.00$ Cheque printing charge 23.00 No. 126 200.00 350.00 NSF cheque plus fee 30.00 53.00
Adjusted bank balance 1,845.00$ Adjusted book balance 1,845.00$
VIDEOBUSTER COMPANY
Bank ReconciliationOctober 31, 2014
LO 6
Recording Adjusting Entries Recording Adjusting Entries from the Bank Reconciliationfrom the Bank Reconciliation
16 © 2013 McGraw-Hill Ryerson Limited.
GENERAL JOURNAL Page 8Description PR Debit Credit
Oct. 31 Cash 485.00 Collection expense 15.00
Notes Receivable 500.00
To record collection by bank
Oct. 31 Cash 8.42 Interest earned 8.42
To record collection by bank
Date2014
LO 6
GENERAL JOURNAL Page 8Description PR Debit Credit
Oct. 31 Accounts Receivable - Heflin 30.00
Cash 30.00
To record NSF cheque plus s/c
Oct. 31 Office supplies expense 23.00 Cash 23.00
To record cheque printing charge
2014
Date
Recording Adjusting Entries Recording Adjusting Entries from the Bank Reconciliationfrom the Bank Reconciliation
17 © 2013 McGraw-Hill Ryerson Limited. LO 6
Recording Adjusting Entries from Recording Adjusting Entries from Bank ReconciliationBank Reconciliation
After posting the reconciling entries the cash account looks like this . . .
18 © 2013 McGraw-Hill Ryerson Limited.
GENERAL LEDGER
Account: Cash Acct. No. 101 Balance
Date Item PR Debit Credit DR (CR)
2014
Oct. 31 Balance 1,404.58
31 Adjusting entry G8 485.00 1,889.58
31 Adjusting entry G8 8.42 1,898.00 31 Adjusting entry G8 30.00 1,868.00 31 Adjusting entry G8 23.00 1,845.00
Adjusted balance on October 31LO 6