Bank Reconciliation

• Explains all differences between general

ledger cash account and bank statement
cash balance
– Deposits in transit
– Outstanding checks
– Bank or book errors
– EFT’s
– Service charges
– NSF checks

Copyright © 2007 Prentice-Hall. All rights reserved 1

 Any increase (decrease) to
Any increase (decrease) to
cash that has been recorded
Bank Reconciliation
cash that has been recorded
by the bank, but has not
in the books, but does not
appear on the bank
been recorded in the books
statement
yet
Bank Statement Book Balance
Add: Add:

Deduct: Deduct:

Adjusted bank balance Adjusted book balance

Copyright © 2007 Prentice-Hall. All rights reserved 2

 Reconciling Items
Bank Statement
Add: Deposits in transit.
Deduct: Outstanding checks
Add or Deduct: Bank errors
Book Balance
Add: Interest revenue
Add: Bank collections
Deduct: Nonsufficient funds check (NSF)
Deduct: Service charges
Add or Deduct: Book errors, EFT transfers

Copyright © 2007 Prentice-Hall. All rights reserved 3

The company has recorded the cash
S8-6
receipts, but the bank does not show
the deposit yet

Bank balance $3,800

Add: Deposits in transit 200
$4,000
Deduct: Outstanding checks 900
Reconciled bank balance $3,100

The company has recorded the cash

disbursements, but the checks have
not yet cleared the bank
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 These items appear on the bank
S8-6
statement, but the company has not
yet recorded them
Book balance $2,480
Add: Bank collection from customer 630
Interest revenue 10
Subtotal $3,120
Deduct: Bank service charge 20
Reconciled book balance $3,100

Copyright © 2007 Prentice-Hall. All rights reserved 5

 S8-6
Ranger Security Systems
Bank Reconciliation
May 31, 2007
Bank balance $3,800 Book balance
Add: Collection
$2,480

Add: Deposits in transit 200 from customer 630

Interest revenue 10
$4,000 Subtotal $3,120
Deduct: Service charge 20
Deduct: Outstanding Reconciled book balance $3,100
checks 900

Reconciled bank
balance $3,100

Copyright © 2007 Prentice-Hall. All rights reserved 6

Remember, you only need to prepare
Adjusting the Books
entries for any adjustment to the
Book Balance

Book balance $2,480

Add: Bank collection from customer 630
Interest revenue 10
Subtotal $3,120
Deduct: Bank service charge 20
Reconciled book balance $3,100

Any reconciling item under “Book Balance”

requires a journal entry to adjust the Cash account

Copyright © 2007 Prentice-Hall. All rights reserved 7

 S8-7
GENERAL JOURNAL

DATE DESCRIPTION REF DEBIT CREDIT

May 31 Cash 630

Accounts Receivable-
K. Brooks 630
Bank collection from customer

31 Cash 10
Interest Revenue 10
Interest earned on bank
balance

Copyright © 2007 Prentice-Hall. All rights reserved 8

 S8-7
GENERAL JOURNAL

DATE DESCRIPTION REF DEBIT CREDIT

May 31 Miscellaneous Expense 20

Cash 20
Bank service charge

Copyright © 2007 Prentice-Hall. All rights reserved 9