How to Prepare a Bank Reconciliation
Honestly, Bank Reconciliations are pretty easy. The bank statement states that there is a certain amount in the account. The accounting records state a different amount. The goal is to find the correct amount.
Let’s work the following problem:
The bank statement for Corley Co.
indicates a balance of $9,000.00 on June 30. After the journals for June had been posted,
the cash account had a balance of $4,675.00.
Prepare a bank reconciliation on the basis of the following reconciling
items:
(a) Cash
sales of $342 had been erroneously recorded in the cash receipts journal as
$324.
(b) Deposits
in transit not recorded by bank, $500.00.
(c) Bank
debit memorandum for service charges, $25.00.
(d) Bank
credit memorandum for note collected by bank, $1,850, including $50 interest.
(e) Bank
debit memorandum for $218.00 NSF (not sufficient funds) check from Alice
Martin, a customer.
(f) Checks
outstanding, $3,200.00.
First, determine the bank balance and the
book balance.
Item (a). The company received $342 from cash sales. They recorded that they received $324. They made a mistake! They actually have $18 more cash than they have recorded. Therefore, the BOOKS side needs to be corrected.
Item (b.)
Deposits in transit. These are
deposits that the company has made, but the bank has not yet recorded. Therefore the BANK side needs to be corrected.
Item (c.) Service charges. The bank has already recorded the service
charge. The BOOKS side needs to be
corrected.
Item (d.) Note Collected by the bank. The bank has collected some money ($1,850)
for the company. Correct the BOOKS.
Item (e.) NSF Check. Oh no!
A customer paid us with a check that was bad! We thought that we had the cash, but we
really don’t! Correct the BOOKS.
Item (f.) Checks Outstanding. These are checks that have been written by the
company. The money has been spent, but
the checks have not cleared the bank.
Correct the BANK side.
After a bank reconciliation is prepared,
the company has to make journal entries to record the items that affected the
BOOKS side. They have to record the
corrections that they have found. Do we
make journal entries for the items on the BANK side??? NO – that is the bank’s
concern! From this bank reconciliation
we would make 4 journal entries.
Journal entry to record Error in recording
Cash Sales:
Cash has to be increased, and more sales
have to be recorded.
Here is the entry:
CASH 18.00
SALES 18.00
Journal entry to record The NOTE Collected
by the bank”
Cash has to be increased. We decrease the Notes Receivable by the face
amount. We record the interest that was
earned.
Here is the entry:
CASH 1,850.00
NOTES RECEIVABLE 1,800
INTEREST REVENUE 50
Journal entry to record Service
Charge. This is an expense! Cash has to be decreased.
Here is the entry:
MISC
ADMINISTRATIVE EXPENSE 25.00
CASH 25.00
The last journal entry would be to record
the NSF check. We thought that the
customer had paid when actually they did not.
Therefore, we need to increase accounts receivable and decrease cash.
Here is the entry:
ACCOUNTS
RECEIVABLE 218.00
CASH 218.00
Well, what do you think?? Why not take this practice quiz over bank
reconciliations.