0:02 hello today we're working in
0:06 intermediate accounting chapter 7 on the
0:08 cash and receivables chapter and we're
0:10 going to work a couple of problems that
0:13 are bank reconciliations hello my name
0:15 is Jeff and I help you finally learn
0:18 financial literacy so chapter 7 talks
0:21 about cash and receivables so cash a
0:23 couple little terms real quickly you
0:26 could have restricted cash so it's
0:28 restricted for a special purpose and
0:30 you're kind of signaling to stockholders
0:32 or readers of your financial statements
0:35 hey this is for a particular purpose and
0:36 we're not going to use it to pay
0:39 dividends or whatever
0:41 there's also compensating balances
0:44 sometimes with a loan covenant we're
0:47 required to maintain maybe $100,000 of
0:49 cash to pay that off or to partially pay
0:52 that off so that would be a compensating
0:56 balance now the idea of cash and cash
0:59 equivalents cash equivalents are any
1:02 instrument that's 90 days or less that
1:04 is very very near cash so the best
1:07 examples are Treasury bills commercial
1:10 paper or money market funds those would
1:12 go collectively into the cash account so
1:15 the official name for cash is cash and
1:22 the bank reconciliation is what we have
1:23 to do with our bank account because we
1:26 write checks and there's a timing
1:27 difference between wind checks are
1:30 written and when it clears the bank also
1:34 other events like deposits or fees or
1:36 whatever so let's do a couple of little
1:43 the first example is let's say the trust
1:47 our company ends December 31st with a
1:50 book balance of cash totaling 95
1:51 thousand this is in our accounting
1:54 records this is our books the bank
1:56 statement as of December 31st shows a
1:59 balance of one hundred thousand three
2:01 hundred and forty dollars and there are
2:03 several reconciling items
2:06 there's deposits in transit deposits in
2:07 transit our deposits that we have made
2:10 that hasn't cleared the bank yet usually
2:11 that takes a day sometimes could take
2:15 several days so we make a deposit and
2:18 then it shows up in the bank sometime
2:23 later the NSF deposit is NSF check is
2:27 non-sufficient funds from J Smith and
2:29 this means the customer wrote a check
2:33 that did not clear that Bank and so
2:38 their $800 is not in our bank accounts
2:40 we need to take that out outstanding
2:42 checks checks we have written that have
2:43 not cleared the bank yet or outstanding
2:46 checks that's fifteen thousand the bank
2:49 fee is $40.00 and there's one error
2:52 we'll get to that in a minute there's a
2:54 transposition error the actual check was
2:58 written for 790 but we as the book
3:01 keepers recorded it as 970 so it's
3:04 transposed the 79 and the 97 so that's
3:08 the Tristar company's error so here's
3:10 what I would do I would just set up
3:14 now I've just pre-selected pre-formatted
3:18 the bank reconciliation so we have a
3:21 bank column and we have a books column
3:22 so here's what I want to do for the
3:23 bank's column I'm going to go ahead and
3:30 do a sum of all the numbers so it's
3:34 going to be easy to tell are we in
3:37 balance have we adjusted our cash balance
3:38 balance
3:41 so here's the the challenge the company
3:46 on their books the book balance is 95
3:49 thousand so how much do we have do we
3:52 have ninety five thousand we'll see the
3:55 bank says you have 100 thousand three
3:58 hundred forty dollar
4:00 so we have a difference of about five
4:05 thousand four thousand plus so let's put
4:07 in what we know deposits in transit are
4:09 nine thousand does that go on the bank
4:13 side or the book side who knows about it
4:14 and who doesn't
4:17 we as the company Tristar have written I
4:20 have made a deposit of nine thousand so
4:22 it's already included in our books it's
4:25 not on the bank statement so we're going
4:33 now the next one is a NSF check it
4:36 bounced $800 the bank is letting us know
4:39 that the check bounced we do not have
4:42 that $800 anymore so they took it out of
4:46 our bank account so the $800 comes out
4:50 of the book side outstanding checks or
4:53 checks that we have written and they
4:55 have not cleared the bank yet we've sent
4:57 the the checks to the people who are
4:59 paying and has not cleared the bank yet
5:01 so therefore outstanding checks the book
5:05 already is included in the outstanding
5:06 checks are included in the books and the
5:11 bank we need to adjust the bank column
5:16 so minus 15,000 is outstanding check the
5:19 bank fee the bank charges the fee so the
5:22 bank knows about it so subtract $40 from
5:25 the books and the error we need to
5:27 figure out the error here
5:30 the check was written for 790 so we
5:33 should have taken out 790 from our bank
5:37 account we took out from our books aside
5:42 right so we we have taken out 970 so we
5:44 need to add back the difference so I'm
5:48 just going to do the math 970 - 790 and
5:51 we have a hundred and eighty now if
5:53 we've done this correctly we should have
5:56 it to balance the adjusted cash balance
5:59 is ninety four thousand three forty for
6:00 both the bank and the book so how much
6:03 do we have we really have ninety four
6:05 thousand three forty after everything
6:07 clears the bank and now we've updated
6:09 our books it's ninety four thousand
6:11 forty three forty is our adjusted cash
6:14 balance now we need to make a journal
6:16 entry we need to make a journal entry to
6:19 make this happen so we need to make an
6:22 entry that reduces our cash for these
6:25 items and it's six hundred and sixty
6:28 dollars so we're going to set up I'm
6:37 660 because cash goes down and what else
6:40 do we need we need a non-sufficient
6:46 funds check it was written by Jay Smith
6:48 so we're going to set up an accounts
6:52 receivable for Jay Smith in the amount
6:59 the $40 fee we'll call that a
7:04 miscellaneous expense so we paid out
7:06 eight hundred and $40 we've reduced our
7:08 balance by eight hundred forty dollars
7:11 we have one for one hundred and eighty
7:17 and it was a check written for 790
7:20 we don't know what this original check
7:23 was written for but we can assume maybe
7:27 it was for accounts payable and so we
7:32 need a credit so that's credit accounts
7:38 payable for the $180 we wrote
7:41 Senate 970 dollars to accounts payable
7:45 rather than 790 so we need to
7:49 increase that Accounts Payable again all
7:52 right the next problem example two very
7:54 similar problem just change some numbers
8:03 that we have 10 co has a cash balance at
8:06 the end of December 49,000 the bank
8:08 statement on December 31st shows a
8:12 balance of 58 735 we have deposits in
8:16 transit and NSF check outstanding checks
8:18 a bank fee and we have a different error
8:20 will come to that here in just a minute
8:23 what is our book balance our book
8:27 balance is 49 thousand now one thing we
8:29 want to do let's go ahead and do a sum
8:33 of this entire column so we can see how
8:47 our bank balance is 58 thousand 735 our
8:51 deposits in transit the we have made
8:53 deposits if they have not cleared the
8:55 bank in the amount of fourteen thousand
8:56 four hundred that will be a positive
9:00 increase in the bank balance
9:05 the NSF check we received a check from n
9:08 Jonas and we're going to subtract out 1,400
9:09 1,400
9:13 that check did not clear the outstanding
9:15 checks we have written they have not
9:18 cleared the bank it will be a negative a
9:20 decrease because we've written checks
9:24 that reduces our cash balance the bank
9:29 fee is $65 from subtract out 65 and the
9:33 error the check was written for 1250 but
9:36 cleared the bank at 2150 now you have to
9:38 ask the question who made the mistake
9:41 was it the bank or 10 Co the company on
9:44 their books what looks like the bank has
9:46 made a mistake it cleared the bank at
9:49 2150 in it only should have cleared the
9:52 bank at 1250 so we need to make an
9:54 adjustment in the bank you would call
9:56 the bank and say you need to add back
10:02 looks like $900 2150 minus 1250 they
10:05 need to add back $900 to make it correct
10:08 they took out $900 too much but with an
10:11 error and so therefore our adjusted cash
10:16 balance is 47,000 735 now let's make
10:19 adjusting entries here we need to make
10:22 just 2 entries for our adjusting entries
10:25 we need to make cash go down by 1465
10:31 looks like so we're going to credit cash
10:38 in the amount of 1465
10:41 now what are our two debits we have a
10:44 non-sufficient funds check so accounts
10:47 receivable for n Jonas
10:52 he owes us $1400 and we have a bank fee
10:54 where I call it miscellaneous expense
10:59 and that's for $65 all right so this is
11:00 how you get started with bank
11:03 reconciliation sometimes the format in
11:05 textbooks is a little different on the
11:08 bank reconciliation all you need it's an
11:09 internal document all you need is a
11:11 column for bank and books make it as
11:13 simple as possible you don't have to
11:15 come out with a statement that looks
11:18 like it's a formal little statement that
11:21 has a official title or anything like that
11:21 that
11:23 it just needs to be a bank
11:25 reconciliation to reconcile the bank and
11:27 the books
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