Bank reconciliation

statement

LO 4

Bank Accounts
A 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 Statement
A 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 5

Bank Reconciliation
A 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 statement
Used to determine the adjusted cash
balance.

LO 5

ABC Bank Reconciliation

Bank statement
Cash balance

$3,359.78

Cash book

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

LO 5

ABC Bank Reconciliation

Bank statement
Cash balance
Add deposit not
recorded by bank

$3,359.78
816.20
$4,175.98

Cash book

Step 2
A deposit on 31
Dec of $816.20 is
not recorded on
the bank
statement.

LO 5

ABC Bank Reconciliation

Bank statement
Cash balance
Add deposit not
recorded by bank
Deduct outstanding
cheques:
No. 812
$1,061.00
No. 878
435.39
No. 883
48.60

Cash book

$3,359.78
816.20
$4,175.98

1,544.99

Step 3
3 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

Bank Statement
Cash balance
Add deposit not
recorded by bank
Deduct outstanding
cheques:
No. 812
$1,061.00
No. 878
435.39
No. 883
48.60
Adjusted balance

Cash Book

$3,359.78
816.20
$4,175.98

1,544.99
$2,630.99

Step 4
Determine the
adjusted balance.

LO 5

ABC Bank Reconciliation

Bank Statement
Cash balance
Add deposit not
recorded by bank
Deduct outstanding
cheques:
No. 812
$1,061.00
No. 878
435.39
No. 883
48.60
Adjusted balance

Cash Book

$3,359.78
816.20
$4,175.98

1,544.99
$2,630.99

Cash balance

$2,549.99

Step 5
The cash balance in
ABCs cash book on
31 Dec is $2,549.99.

LO 5

ABC Bank Reconciliation

Bank Statement
Cash balance
Add deposit not
recorded by bank
Deduct outstanding
cheques:
No. 812
$1,061.00
No. 878
435.39
No. 883
48.60
Adjusted balance

Cash book

$3,359.78
816.20
$4,175.98

Cash balance
Add note and interest
collected by bank

$2,549.99
408.00
$2,957.99

Step 6
1,544.99
$2,630.99

A 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 5

ABC Bank Reconciliation

Step 7

A 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.

LO 5

ABC Bank Reconciliation

Cash book

Bank Statement

$3,359.78 Cash balance

Add note and interest
collected by bank
816.20
$4,175.98
Deduct outstanding
Deduct NSF
cheques:
cheque
$300.00
No. 812
$1,061.00
Bank service
No. 878
435.39
charges
18.00
No. 883
48.60 1,544.99
Cash balance
Add deposit not
recorded by bank

Adjusted balance

$2,630.99

$2,549.99
408.00
$2,957.99

Step 7
A 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 5

ABC Bank Reconciliation

Error

Cheque 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

LO 5

ABC Bank Reconciliation

Cash Book

Bank Statement

$3,359.78 Cash balance

Add note and interest
collected by bank
816.20
$4,175.98
Deduct cheque
Deduct outstanding
NSF
$300.00
cheques:
No. 812
$1,061.00
Bank service
No. 878
435.39
charges
18.00
No. 883
48.60 1,544.99
Error recording
Chq. No. 879
9.00
Adjusted balance
$2,630.99
Cash balance
Add deposit not
recorded by bank

$2,549.99
408.00
$2,957.99

Error
Cheque No. 879 for $732.26 to Taylor
Company on account was erroneously
recorded in the journal as $723.26.

LO 5

ABC Bank Reconciliation

Cash Book

Bank Statement

$2,549.99
$3,359.78 Cash balance
Add note and interest
collected by bank
408.00
816.20
$2,957.99
$4,175.98
Deduct cheque
Deduct outstanding
NSF
$300.00
cheques:
No. 812
$1,061.00
Bank service
No. 878
435.39
charges
18.00
No. 883
48.60 1,544.99
Error recording
Chk. No. 879
9.00
327.00
Adjusted balance
$2,630.99
$2,630.99
Adjusted balance
Cash balance
Add deposit not
recorded by bank

Step 8

LO 5

ABC Bank Reconciliation

Bank Statement

Cash Book

$2,549.99
$3,359.78 Cash balance
Add note and interest
collected by bank
408.00
816.20
$2,957.99
$4,175.98
Deduct cheque
Deduct outstanding
NSF
$300.00
cheques:
No. 812
$1,061.00
Bank service
No. 878
435.39
charges
18.00
No. 883
48.60 1,544.99
Error recording
Chk. No. 879
9.00
327.00
Adjusted balance
$2,630.99
$2,630.99
Adjusted balance
Cash balance
Add deposit not
recorded by bank

Step 9

LO 5

ABC Bank Reconciliation

The journal entries are as follows: