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