Bank reconciliation statement

Bank AccountsA major reason that businesses use bank accounts is for internal control. Some of the control advantages of using bank accounts are as follows:Bank accounts reduce the amount of cash on hand.Bank accounts provide an independent recording of cash transactions.Use of bank accounts facilitates the transfer of funds using electronic funds transfer (EFT) systems.LO 4

Bank StatementA summary received from the bank (usually monthly) of all checking account transactions is called a bank statement. It shows the beginning balance, additions, deductions, and the ending balance.

LO 4

Bank ReconciliationA bank reconciliation is an analysis of the items and amounts that cause the cash balance reported in the bank statement to differ from the balance of the cash account in the ledger. Checks the completeness of the information in the cash book and bank statementUsed to determine the adjusted cash balance.LO 5

LO 5 ABC Bank ReconciliationBank statementCash bookCash balance$3,359.78ABC prepares to reconcile the monthly bank statement as of 31 Dec. The bank statement shows an ending cash balance of $3,359.78. Step 1

LO 5 ABC Bank ReconciliationBank statementCash bookCash balance$3,359.78A deposit on 31 Dec of $816.20 is not recorded on the bank statement.Step 2

LO 5 ABC Bank Reconciliation Add deposit not recorded by bank 816.20$4,175.98Bank statementCash bookCash balance$3,359.78Deduct outstanding cheques:No. 812$1,061.00No. 878435.39No. 883 48.60 1,544.99Step 33 cheques that were written during the month did not appear on the bank statement: No. 812, $1,061; No. 878, $435.39, No. 883, $48.60.

LO 5 ABC Bank Reconciliation Add deposit not recorded by bank 816.20$4,175.98Bank StatementCash BookCash balance$3,359.78Deduct outstanding cheques:No. 812$1,061.00No. 878435.39No. 883 48.60 1,544.99Step 4Determine the adjusted balance.

LO 5ABC Bank Reconciliation Add deposit not recorded by bank 816.20$4,175.98Bank StatementCash BookCash balance$3,359.78Deduct outstanding cheques:No. 812$1,061.00No. 878435.39No. 883 48.60 1,544.99 $2,630.99Adjusted balanceStep 5The cash balance in ABCs cash book on 31 Dec is $2,549.99.Cash balance$2,549.99

LO 5 ABC Bank Reconciliation Add deposit not recorded by bank 816.20$4,175.98Bank StatementCash bookCash balance$3,359.78Deduct outstanding cheques:No. 812$1,061.00No. 878435.39No. 883 48.60 1,544.99 $2,630.99Adjusted balanceStep 6Cash balance$2,549.99A credit memo on the bank statement indicates that the bank collected a note in the amount of $400 and the related interest of $8 for ABC.

LO 5A cheque from a customer (Thomas Ivey) for $300 was returned by the bank because of insufficient funds (NSF) as indicated by a debit memo. A bank service charge of $18 was also indicated by a debit memo.Step 7 ABC Bank Reconciliation

Add deposit not recorded by bank 816.20$4,175.98Bank StatementCash bookCash balance$3,359.78Cash balance$2,549.99Deduct outstanding cheques:No. 812$1,061.00No. 878435.39No. 883 48.60 1,544.99Add note and interest collected by bank 408.00$2,957.99LO 5 $2,630.99Adjusted balance ABC Bank ReconciliationA cheque from a customer for $300 was returned by the bank because of insufficient funds (NSF) as indicated by a debit memo. A bank service charge of $18 was also indicated by a debit memo.

LO 5Cheque No. 879 for $732.26 to Taylor Company on account was erroneously recorded in the journal as $723.26. When an error is made, 2 questions are asked: (1) Who made the error? (2) Does correcting the error cause the cash account to go up or down?ABC made the error, so the item is placed on the companys side of the reconciliation. By correcting the error, the cash account goes down. (Thus, it is a deduction on the reconciliation.)ErrorABC Bank Reconciliation

Add deposit not recorded by bank 816.20$4,175.98Bank StatementCash BookCash balance$3,359.78Cash balance$2,549.99Deduct outstanding cheques:No. 812$1,061.00No. 878435.39No. 883 48.60 1,544.99Add note and interest collected by bank 408.00$2,957.99Deduct cheque NSF$300.00Bank service charges18.00LO 5 $2,630.99Adjusted balance ABC Bank ReconciliationCheque No. 879 for $732.26 to Taylor Company on account was erroneously recorded in the journal as $723.26.

Add deposit not recorded by bank 816.20$4,175.98Bank StatementCash BookCash balance$3,359.78Cash balance$2,549.99Deduct outstanding cheques:No. 812$1,061.00No. 878435.39No. 883 48.60 1,544.99Add note and interest collected by bank 408.00$2,957.99Deduct cheque NSF$300.00Bank service charges18.00LO 5 $2,630.99Adjusted balanceError recording Chk. No. 879 9.00327.00 $2,630.99Adjusted balanceABC Bank Reconciliation

LO 5Bank StatementCash Book Add deposit not recorded by bank 816.20$4,175.98Cash balance$3,359.78Cash balance$2,549.99Deduct outstanding cheques:No. 812$1,061.00No. 878435.39No. 883 48.60 1,544.99Add note and interest collected by bank 408.00$2,957.99Deduct cheque NSF$300.00Bank service charges18.00 $2,630.99Adjusted balance $2,630.99Adjusted balanceStep 9 ABC Bank ReconciliationError recording Chk. No. 879 9.00327.00

The journal entries are as follows:LO 5 ABC Bank Reconciliation