Bank Reconciliation

Explains all differences between general ledger cash account and bank statement cash balance
Deposits in transit Outstanding checks Bank or book errors EFTs Service charges NSF checks

Copyright 2007 Prentice-Hall. All rights reserved

Bank Statement Add: Deduct:

Any increase (decrease) to cash that has been recorded by the bank, but has not been recorded in the books yet

Bank Reconciliation
Add:
Deduct:

Any increase (decrease) to cash that has been recorded in the books, but does not appear on the bank statement

Book Balance

Adjusted bank balance

Adjusted book balance

Copyright 2007 Prentice-Hall. All rights reserved

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

S8-6

Bank balance Add: Deposits in transit Deduct: Outstanding checks Reconciled bank balance

$3,800 200 $4,000 900 $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 statement, but the company has not yet recorded them

S8-6

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

S8-6
Ranger Security Systems Bank Reconciliation May 31, 2007 Bank balance $3,800 Book balance $2,480 Add: Deposits in transit 200 Add: Collection from customer 630 $4,000 Interest revenue 10 Deduct: Outstanding checks 900 Subtotal $3,120 Deduct: Service charge 20 Reconciled bank Reconciled book balance $3,100 balance $3,100

Copyright 2007 Prentice-Hall. All rights reserved

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

Adjusting the Books

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
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S8-7
GENERAL JOURNAL DATE DESCRIPTION REF DEBIT CREDIT

May 31 Cash Accounts ReceivableK. Brooks

Bank collection from customer

630 630

31 Cash Interest Revenue

Interest earned on bank balance
Copyright 2007 Prentice-Hall. All rights reserved

10

10

S8-7
GENERAL JOURNAL DATE DESCRIPTION REF DEBIT CREDIT

May 31 Miscellaneous Expense Cash

Bank service charge

20

20

Copyright 2007 Prentice-Hall. All rights reserved