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Bank Reconciliation
A bank reconciliation is the process of matching the balances in the business records to the bank records. The goal is to find the differences between the two (business records vs bank records) and making changes to the business records as appropriate.
Q: Why do business do bank reconciliation?
Bank Records:
Bank Statement Compare
Business Records:
Cash receipts journal Cash payment journal Cash at bank account
Tick each entry that appears in both sets of records And circle the entries do not appear in both set of records Entries found in the bank records but missing in the business records should be added to the business records Prepare a cash balance summary
1) The business owner (Mr. A) makes a cash sale of $200 and deposit the cash into the bank (NAB). What is the double entry for the business?
DR Cash $200, CR Sales $200
The $200 the bank received is not from sales, but an obligation/liability to return the $200 to the business owner on demand.
Bank charges
Bank automatically deducts charges from the account. Examples Monthly bank service charge - cost of maintaining an account. Bank charges a fee when a cheque is returned for insufficient funds. Bank charges a fee on an overdraft account.
Bank Statement
Date XXX XXX XXX XXX Description Balance b/f Cash Sales Bank interest earned Monthly bank service charge DR CR 200.00 5.00 6.00 Balance
Reconciling Items
Unrecorded deposits Unpresented cheques Business errors and Bank errors (rare) Bank Transfer /EFT Bank Interest earned Bank charges
Case Study
Bella needs to buy a beautiful prom dress for the prom night. Mr John Brown is a fantastic tailor and he owns a neighbourhood dress shop. Bella decides to purchase a custom made dress which cost her $700.
Unrecorded deposits
Bella gave John a cheque of $700. John entered this transaction into his cash receipts journal. At the end of the day, he deposited the cheque into his bank account.
Johns bank did not have a chance to process the cheque; and the bank statement has already been prepared.
Unrecorded deposits
Receipts that have been recorded in the cash receipts journal and taken to the bank at the end of the day; but at that time the bank statement has been prepared; and the bank have not processed those receipts.
Unpresented cheques
John ordered some silk cloth from Jay Enterprise to make Bellas prom dress.
Unpresented cheques
Cheques that have been written, sent and recorded in the cash payments journal; but at that time the bank statement has been prepared; and the cheques have not been presented for payment at the bank.
Bank Statement
Date 01/04/2012 04/04/2012 05/04/2012 09/04/2012 11/04/2012 15/04/2012 16/04/2012 17/04/2012 17/04/2012 18/04/2012 20/04/2012 23/04/2012 26/04/2012 30/04/2012 30/04/2012 Particulars Debits Credits Balance brought forward C/c 2,300.00 276 1,200.00 C/c 500.00 277 2,800.00 Monthly service charge 10.00 Interest 6.00 278 1,500.00 Fee - overdrawn account 30.00 C/c 200.00 C/c 2,400.00 C/c 200.00 279 2,000.00 Returned Cheque - Nancy 200.00 Fee - returned cheque 25.00
C/c = Cash and Cheques deposited
Balance 2,565.00 CR 4,865.00 CR 3,665.00 CR 4,165.00 CR 1,365.00 CR 1,355.00 CR 1,361.00 CR 139.00 DR 169.00 DR 31.00 CR 2,431.00 CR 2,631.00 CR 631.00 CR 431.00 CR 406.00 CR
Sundries
500.00
200.00
Bank Statement
Date 01/04/2012 04/04/2012 05/04/2012 09/04/2012 11/04/2012 15/04/2012 16/04/2012 17/04/2012 17/04/2012 18/04/2012 20/04/2012 23/04/2012 26/04/2012 30/04/2012 30/04/2012 Particulars Debits Credits Balance brought forward C/c 2,300.00 276 1,200.00 C/c 500.00 277 2,800.00 Monthly service charge 10.00 Interest 6.00 278 1,500.00 Fee - overdrawn account 30.00 C/c 200.00 C/c 2,400.00 C/c 200.00 279 2,000.00 Returned Cheque - Nancy 200.00 Fee - returned cheque 25.00
C/c = Cash and Cheques deposited
Balance 2,565.00 CR 4,865.00 CR 3,665.00 CR 4,165.00 CR 1,365.00 CR 1,355.00 CR 1,361.00 CR 139.00 DR 169.00 DR 31.00 CR 2,431.00 CR 2,631.00 CR 631.00 CR 431.00 CR 406.00 CR
Bank Statement
Date Particulars Debits 01/04/2012 Balance brought forward 04/04/2012 C/c 05/04/2012 276 1,200.00 09/04/2012 C/c 11/04/2012 277 2,800.00 15/04/2012 Monthly service charge 10.00 16/04/2012 Interest 17/04/2012 278 1,500.00 17/04/2012 Fee - overdrawn account 30.00 18/04/2012 C/c 20/04/2012 C/c 23/04/2012 C/c 26/04/2012 279 2,000.00 30/04/2012 Returned Cheque - Nancy 200.00 30/04/2012 Fee - returned cheque 25.00
C/c = Cash and Cheques deposited
6.00
Balance 2,565.00 CR 4,865.00 CR 3,665.00 CR 4,165.00 CR 1,365.00 CR 1,355.00 CR 1,361.00 CR 139.00 DR 169.00 DR 31.00 CR 2,431.00 CR 2,631.00 CR 631.00 CR 431.00 CR 406.00 CR
Debtors Cash sales Sundries 2,300.00 500.00 200.00 2,400.00 200.00 700.00 5,600.00 500.00 200.00
Bank Statement
Date 01/04/2012 04/04/2012 05/04/2012 09/04/2012 11/04/2012 15/04/2012 16/04/2012 17/04/2012 17/04/2012 18/04/2012 20/04/2012 23/04/2012 26/04/2012 30/04/2012 30/04/2012 Particulars Debits Balance brought forward C/c 276 1,200.00 C/c 277 2,800.00 Monthly service charge 10.00 Interest 278 1,500.00 Fee - overdrawn account 30.00 C/c C/c C/c 279 2,000.00 Returned Cheque - Nancy 200.00 Fee - returned cheque 25.00
C/c = Cash and Cheques deposited
Balance 2,565.00 CR 4,865.00 CR 3,665.00 CR 4,165.00 CR 1,365.00 CR 1,355.00 CR 1,361.00 CR 139.00 DR 169.00 DR 31.00 CR 2,431.00 CR 2,631.00 CR 631.00 CR 431.00 CR 406.00 CR
1,500.00
1,500.00
1,200.00
500.00
206.00
Opening balance Add cash receipts Less cash payments Closing balance
Opening balance from bank statement Total from cash receipts journal Total from cash payments journal
MATCH
Closing balance from bank CR statement Item circle/ highlight from cash receipts journal Item circle/ highlight from cash payments journal
Balance as per bank statement Add Unrecorded deposit Less Unpresented cheques Balance as per business cash records