All right. So here we are with chapter
five's
bank reconciliation example, so as you
can see the problem is to our left
we're dealing with hotel company here
and it gives us these things that they
would find
during their bank reconciliation whether
it be from their books or
from their bank statement and pretty
much what it's asking us to do is to
complete a bank reconciliation so we
know in order to do a bank
reconciliation it's going to take two
sides we need to put the bank side and
we need to put the book side that's our
starting point,
so there's our starting point. Now each
of those has the same starting
point under them relative to where they
come from so let's look at the first one
it says
the march 31st balance on the bank
statement is 6874.92,
now that's from the bank statement so
that would be called our unadjusted bank
balance so I'm going to put that on the
bank side so unadjusted bank balance
of 68 74 92 and then continuing on with
part one it says
and the cash balance on the general
ledger on that date is six thousand
twenty six dollars and one cent,
that is from our books so that would be
our unadjusted book balance I'm gonna
put that under the book side,
so it is important that's where we start
every time we do a bank reconciliation
we need to start with the unadjusted
balances for the appropriate side,
so we're done with one now let's go to
part two. It says as of march 31st
bank statement check numbers 16 5 1605
for 623.47 and
for 794.82
uh written in march, so written this
month and check number
1575 for 476.34
which was written in may so it was
written in last month were not listed
among the
marches cancelled checks. So
one thing here is you need to understand
canceled from a bank's perspective means
that they've gone through it's not like
where we cancel check and and
you know it's voided it's the banks
voiding
they've gone through the bank it's it's
a it's made it through the bank it's
affected our bank
statements affected our balances and
stuff like that but these are three
checks that have
not been affected in our our balances
they have not gone through so they're
not canceled yet, so that means that
we wrote them they're still outstanding
so this is just an example of
outstanding checks.
And typically when you do outstanding
checks you itemize these
because you want to keep up with a list
of what has cancelled what hasn't
canceled so that way you can look at it
month over month
so we know let's go through our steps so
let's take one step back real quick
what are outstanding checks, those are
the checks that we wrote send them off
to somebody but they haven't hit the
bank yet. Okay. So let's go through our
questions that we do all the time
has it hit our books yet yes it's hit
our books because
the moment we wrote those checks we
wrote it in our books as well,
has it affected the bank yet no because
they're still outstanding,
so how did it affect our book side when
we wrote them down well we made our cash
go down,
so how do we need to force it on the
bank side to make it match the book side
so we're going to make it go down as
well. So I'm going to say less
outstanding checks
and again I'm going to itemize these I'm
going to start with the first
you know the one chronologically I'm
gonna start with the first one so it's
going to be
uh check number 15
75 for 4 76 32.
The next one is going to be check number
1605 for 623.47
and finally check number 1658 for 794.82,
if I add those up that's going to give
me a total outstanding checks
for dollars and 1894.63 cent
that takes care of part two, now let's go
to part three.
Part three says while comparing canceled
checks with accounting records
it was determined that a check actually
written for two hundred and thirty seven
dollars
cent for supplies was erroneously
recorded in the records
for 273 and 3 cent
so what happened is we wrote a check for
some some supplies
and the check that we wrote was actually
correct we wrote it for 237.03
but when the bookkeeper uh wrote it in
our books
they just transposed two numbers they
made it uh
273.03, and so it's just just a
bookkeeping error
but with errors you have to especially
on the book side you have to be careful
you have to there's a little bit more to
it so I'm going to kind of take you
through the steps of this when you're
dealing with a bookkeeping error because
this is like I said a bookkeeping error.
There's two sides to a bookkeeping area
the first side is is this dealing with
cash that's supposed to be going out
or is this cash that's going in now each
of those has its own
areas because if it's dealing with cash
going out
then you're asking yourself the question
in the error
did I take too much out or did I not
take enough out
if I took too much out then the way to
correct it would be to add back the
difference
I took too much out so I'd add it back,
if I didn't take enough out then I would
uh continue to subtract the difference
make it make sure I I took enough out,
on the other side if you're dealing with
an error regarding cash coming in
then you have to ask yourself the
question did I put too much in
or did I not put enough in, if you put
too much in then you need to subtract
the difference up
if you didn't put enough in then you
need to add
the difference back, so in this situation
let's let's go through this we first
know that this is a bookkeeping error.
Okay. This is dealing with a check that
we wrote
uh which means that this is cash coming
out of our account, so now we're going to
the leg that says cash going out,
we wrote the check for 237 that is the
actual amount that was supposed to come
out of our bank
but we wrote it in our books our cash
balance we wrote it in our books
for 273, so we took too much out
so if we took too much out what do we
need to do we need to add back the
difference
and because the bank got it correct
because they got the right check we need
to do this to the book side,
so we will say add booking error and if
you subtract the two numbers
23703 minus 27303
you'll get 36 dollars and that's how you
do
a bookkeeping errors. All right. Let's
look at part four,
it says that a bank is the bank assessed
a service charge of 25
for the month of march. All right. That's
something that the bank does we don't
know about it until we get the bank
statement so has it affected our books
no has it affected our bank yes because
they just took it out of our account
how did it affect our bank bill it made
our cash go down
so what do we need to do to the book
side to make it match the bank side we
need to
also make our cash go down, so we will
say less
bank service charge of that 25.
All right. Bank statement shows the
nsf check
from someone let's make up a name but uh
was deposited in the amount of
763-26 so whoever this person is
they wrote us a check
and we when they gave us this check we
wrote it in our books as our cash went
up
and our revenues went up or you know
whatever it may be
because that's what we assumed it was we
thought the check was good but then when
we took the check to the bank they said
you know what that that check's not
worth the papers written on so
we need to correct it. So has it affected
our books
yeah correctly no. has it affected the
bank
yes correctly yes because it's worth
zero and it affected the bank
zero, so what do we need to do to our
books
to correct this mistake, so we originally
when we got the check
added it to our books so in order to
correct it we need to take it back out
so we'll say less nsf check or
non-sufficient funds
check of that amount 763-26.
All right. Part six during the month of
march the bank collected three thousand
dollars
cash on a non-interest bearing note from
again make up a name the bank imposed a
50
collection fee and credited the
remaining amount to our account,
so in this situation somebody owed us
some money we loaned out three thousand
dollars
they owed us that three thousand dollars
it had no interest so we didn't have to
worry about that
and now it was time to pay and rather
than them sending me a check for three
thousand dollars they just went ahead
and directly wired it to my bank
my bank received it for me, now I didn't
know that until I got my bank statement
and in order to do that the bank also
takes out 50
for their you know their work their hard
work in it,
so we need to figure this out so
there's two parts here. Okay.
Let's just focus in on the three
thousand dollar
uh notes receivable that they received,
okay, has it affected our books no
because again we didn't know about this
until we got the bank statement they
said hey we
received this from so and so that they
owed you so it hasn't affected our books
yet, has it affected our bank
yes because they received it how did it
affect our bank,
well it made our cash go up so what do
we need to do to the book to make it
match our bank we need to make our cash
go up for the notes receivables
collected so we're just looking at the
three thousand,
so I'm going to say add notes
receivables collected of 3 000.
Now let's look at the 50 collection fee,
has it affected our books
no because again we didn't know about it
until we got the bank statement has it
affected our bank
yes because they just went ahead and
took it out so what did it do to our
bank balance it made it go down so what
do we need to do to the bank
excuse me the book side in order to
correct it we also need to make it go
down,
so we will say less collection fee of
fifty 50.
Now is it possible for you to create a
single line item for this to just say
add in our collected of 29.50
you could absolutely and it's not going
to do anything it's
but I like to keep them itemized because
it lets me know hey I've got to do
a transaction or an adjusting entry for
each one of those not just
single one and so you'll see what I'm
talking about here in a minute.
All right. Let's look at part seven says
the bank erroneously deducted a 450
check written to motel company uh for
our from our account, so what's happening
here?
Well the bank took out 450
out of our account but the check was
written by motel company we're hotel
company
so it was just a simple bank mistake it
was a simple bank
uh error they took out money from the
wrong account they should have taken it
out of motel companies account but they
took it out of hotel companies account
and so it's just a banking error and we
would call and let them know hey you
made a mistake here you took it out of
ours and they would correct it
you know given their due diligence they
would correct it over time
but here we just need to make sure these
things are going to match so we need to
force the correction here
with the expectation it would be
corrected you know in the in the very
near future.
So this 450 dollars has it affected our
books
no, is it going to affect our books no
because this is not coming from our
books remember this is coming from motel,
has it affected our bank yes,
correctly no because they took it out of
the wrong account, so
what do we do what do we need to do in
order to correct this mistake,
well they took it out so for us to
correct it just for the purpose of
making sure our bank
reconciles is we need to add that amount
back,
so we would say add banking error of
450,
and again like I said we would call them
and let them know hey you made a mistake
and they would they would fix it but
remember we want our true cash balances
to match
here. And finally part 8, hotel company
hotel companies monthly cash receipts
show
a 2793.46 were deposited
but not appeared on the did not appear
on the march 31st
bank statement. So we had some checks
that we deposited we received we
deposited but they just haven't cleared
the bank yet,
so these are deposits in transit and so
when we get the checks from our
customers we put them in our books but
they just haven't gone through the bank
yet, so
have they affected our books yes, have
they affected our bank
no because they're still in transit, how
did it affect our books
it made our balance go up, so what do we
need to do to the bank side in order to
match that we need to make it go up as
well
so we would say add deposits in transit
of that amount
and there we go, so there we have
finished all nine
or excuse me all eight parts of the bank
reconciliation information.
The last thing we need to do for this is
to total them
total each side up and figure out our
true cash balance and pray that they
match up and so by doing this
you would have true cash balance of
eight thousand two twenty three seventy
five on the bank side and on the book
side you would have the true cash
balance of
yay the same thing eight thousand two
twenty three seventy five,
that is the first part of a bank
reconciliation but we also know that we
have another
part that we have to keep up with which
is the adjusting entries for the correct
side. Now the entries remember when we do
entries they only co
they only we're only doing this for one
side we don't care about the bank side
because the bank side what we put on the
bank side
is already in our books that's why we
put it in the bank side what we're
looking for is the thing that we put on
the book side
because of the things those that have
not been put in the books or we need to
correct on the books.
So really what I'm looking for are those
what six or five excuse me
five entries uh
we're going to have five journal entries
we had five line items five journal
issues that's why I like to keep up with
the nr collected and the collections
fees that's why I like to do them
separate because I know I've got five
and five
five line items five entries. So let's
just start at the top
the bookkeeping error, so again this
is the last date of the month so
331 it says add bookkeeping error.
So add lets you know right away that our
cash is going
up which means that we need to debit
cash for that amount so we'll say cash
36 dollars and then for the credit
remember this was if you go back to
uh part three it says that we wrote a
check for supplies
well when it was written in our account
we
originally when it was uh the error was
made
we said that not only did our cash go
down too much but our supplies went up
too much it we said it went uh up by 273
it really didn't it only should have
gone up by 237,
so not only are we increasing our cash
back because of the mistake but we need
to bring down
our supplies by that same amount so
we're going to credit our supplies
account by
36 dollars. All right. The next one which
is the bank service charge so again 331
uh it says less so that lets me know
that my cash is going down,
so first thing I'm going to do is I'm
going to credit cash because I know my
cash is going down it tells me exactly
where cash goes
if it says add it goes on the debit if
it says unless it goes in the credit and
every one of these will have cash
involved
because that's what we're dealing with.
Bank service charge
this is just what we have to pay in
order to use their their services
so we're going to expense it because
we've used them and so we're going to
debit
banking expense for that 25.
Next one the nsf check it says less,
so
again we're going to credit cash for
that amount 763
uh 26 and then what are we going to put
in the
debit, well when we put this in a debit
well
let's take a step back when we first got
it we said cash and service revenue
because we gave them the product or the
service whatever it may be
and we put it in as cash but it's not
worth cash so what's
now happening, well they still owe us we
they still have the product of their
service but we don't have any the cash
so they now owe us that cash so we're
expected to receive that cash
so because of that we're going to put it
into our receivables account or accounts
receivable,
so when you're dealing with nsf checks
your debit is going to be
accounts receivables because they still
owe you. All right. The next one is the nr
collected
that says add next to it so we know our
cash is going to be
debited so we're going to say cash of
that amount 3 000
and then the credit is going to be
in our because our notes receivables
because we're getting rid of somebody's
balance that they owe us
so 3 000 and then finally the
collections fee
so 331 it says less so cash goes down
so again we're going to put on the
credit side of 50
and that is going to be another expense
because this is what we have to pay in
order to use the banking services
so we're going to put that in again as
banking expense that's just another
banking expense.
Could you lump the two banking expenses
together you could absolutely,
could you also lump the notes
receivables and the banking expense into
one journal entry to where
it looks like this where you would have
331
cash of the net amount which is 29.50
banking expense of 50, and then you have
the final nr
of uh 3000 you can do that as well,
uh either one of those would work it's
not changing anything it's just as long
as your t tables are lining up
it works perfect it's just a matter of
to what degree do you want to be
detailed in so. But that's how you do a
bank reconciliation problem from start
to finish hopefully that made
a lot of sense to you tends to see, I
tend to see a lot of students
either love this or they hate this
because they get it right away or it
takes some time,
so hopefully this made it a little bit
easier for you to get so but other than
that you'll have a great one.