Remember bank reconciliation is a process to ... Collection of a note by the bank
(principal & interest) ... Bank reconciliation means that both balances are equal.
Bank Reconciliation
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• Remember bank reconciliation is a process to correct the cash balance that is to be recorded on the Balance Sheet. A difference in the cash in bank balance on the books could differ for the balance on the bank statement received from the bank because of the following:
• Timing differences – Outstanding checks – Deposits in transit
• Errors in the numbers – Checks processed incorrectly – Deposit amounts different
• Missing items – – – –
Bank service charge Collection of a note by the bank (principal & interest) Returned items Credits and/or Debits in the bank
• Remember: • Bank reconciliation means that both balances are equal when the reconciliation is complete. Don’t forget the double lines under the totals when they balance. •
Any differences must be adjusted to the bank statement balance or book bank balance to make the cash balance for the Balance Sheet correct.
• Adjusting entries to the company bank balance account needs to be made. • The bank needs to be informed of their errors so that they can be corrected.
The bank Statement for Urethane Company for June 30,2009 indicates a balance of $9,143.11. All cash receipts are deposited each evening in a night depository, after banking hours. The accounting records indicate the following summary data for cash receipts and payments for June: Cash Balance as of June 1 Total cash receipts for June Total amount of checks issued in June
$3,943.50 28,971.60 28,388.85
Comparing the bank statement and the accompanying canceled checks and memos with the records reveals the following reconciled items:
a. The bank had collected for Urethane Company $1,030 on a note left for collection. The face amount of the note was $1,000.
Note: This is a “missing item”. It is recorded at the bank but not on the company’s books. The company needs to adjust their records.
b. A deposit of $1,852.21, representing receipts of June 30, had been made too late to appear on the bank statement.
Note: This is a “timing difference”. The deposit is in transit.
c. Checks outstanding totaled $5,265.27.
Note: These are a “timing difference”. The checks are outstanding.
d. A check drawn for $139 had been incorrectly charged by the bank as $157.
Note: This is an “error in the numbers” by the bank. The bank needs to be informed.
e. A check for $30 returned with the statement had been recorded in the company’s records as $240. The check was for the payment of an obligation to Avery Equipment Company for the purchase of office supplies on account.
Note: This is an “error in the numbers” by the company. The company needs to adjust their records.
f. Bank service charges for June amounted to $18.20.
Note: This is a “missing item” recorded by the bank but not by the company. The company needs to adjust their records.
Journalize the entries that should be made by Urethane Company
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References • Warren, Reeve, & Duchac (2009). Accounting II: AC 116, Ohio: Cengage Learning • ISBN : 1-111-07278-7
