All right. Let's talk about the steps of
bank recon. Okay.
This is one of those ones that can be
very daunting because there's a lot of
moving pieces that you need to keep up
with
so I'm going to try to make this as
simple as I can as we go through these
to kind of show you my way of doing it
and hopefully this will help you out as
you go through.
But when a problem asks you to do a bank
recon it's really important that you
understand there's two sides to a bank
reconciliation
you have what's called the bank side and
the book side. So let's start there,
okay, I want to ask you to do that we're
going to start with a bank side and a
book site so there's my bank
side there's my book site, okay, and each
of those has the same starting place
respectively
the bank side and the book side are
going to start with what we call the
unadjusted balances.
The unadjusted balances come from their
respective place so the unadjusted bank
balance comes from your bank statement.
Okay. So we're going to start there
unadjusted bank balance
whatever it may be and that comes from
your the balance on your bank statement.
The book side is going to do the same
thing except it's going to be the
unadjusted book balance
that's going to come from your books
it's going to be comes from your cash t
table now ideally you would want these
to be the same rarely are they ever be
the same because of what we just talked
about in the last video,
so now let's go through some of these
commonalities and kind of show you how
this bank reconciliation works
questions that you need to ask. So first
let's talk about deposits in transit
again deposits and trends are the ones
that we got a check
that we're going to deposit in the bank
so once we got it we went ahead and put
in our books it just hasn't
went through the bank it hadn't been
processed by the bank yet, so
we got to figure out where we're going
to put it so let's ask ourselves these
these
series of questions, I'm going to start
with the book side.
Has it affected my book balance yet? Yes
it has why do I know that is because
when I got the checks I put them in my
books I just had they haven't gone to
the bank yet okay
so yeah they've affected my bank balance
that means that unadjusted book balance
right there
is already been affected by this
deposit and transit I don't need to do
anything to the book side
okay that's question one. Let's go to the
next one,
has it affected my bank balance already
well? No because it hasn't gone through
the bank yet
there's my key right there so no it
hasn't.
All right. So the next question how did
it affect my book balance?
What did it do to my cash balance if it
affected my book balance which we
already said it did,
what did it do? Well when I put in my
books it made my cash go
up so it makes my balance go up? So what
do I need to do to the bank
side to match the book side I need to
add it to the bank side
and so therefore what I'm going to do is
I'm going to say add deposits in transit
of however much that money is how much
that amount was,
okay, that's deposit transit, now let's
look at the next one outstanding checks.
Same questions,
has it affected my book balance or you
have my book side?
Yes it has because the moment I got
those I wrote those checks I wrote in my
books.
Okay. Has it affected the bank yet? No
because they haven't got it yet
it hasn't gone through the bank yet. How
did it affect my book side?
Well it made my cash go down when I
recorded it in my books,
so what do I need to do to the bank side
in order to match the book side?
I also need to make it go down or
subtract out outstanding checks so I'll
say less outstanding checks for that
amount
that's how outstanding checks work all
right let's look at another one
like I said sometimes the banks collect
AR force they collect
accounts receivables instead of the
customer sending it directly to us and
then we taking it to the bank they just
send it directly to the bank
and when that happens I don't know
what's going to happen until after it's
too late
after it's after the I get my bank
statement okay I haven't put in my bank
yet,
so let's go through those questions. Has
it affected the book side?
No it hasn't because I didn't know
anything about it I couldn't put it in
my books until I got my bank statement.
Has it affected the bank balance? Yes
they got it they they have it.
How did it affect my bank side? Well when
they received it made my cash go up,
so what do I need to do to the book side
in order to
match it? Well I need to
make it go up so I'm going to add AR
collections
and there you go add AR collections,
deposit just for one second you don't
have to stop it just pause it.
Sometimes we earn interest in the bank
the bank our money's in the bank
so we're earning interest we don't know
we're going to get it until we get the
bank statement,
so let's go through those questions
again. Gas it affected our book yet? Well
no it hasn't because again we didn't
know it until we got the bank statement.
Has it affected the bank yet? Well yeah
they got it and they're not going to
send us a check and then we just turn
around and put it back in the bank
they're just going to go ahead and put
it on to our account so yes it's
affected our bank side.
How did it affect our bank side? Well it
made our balance go
up because it's the interest that we
earned. So what do I need to do to the
book side in order to match the bank
side?
I need to make it go up as well so I'm
going to say add interest earned
so that's what we're going to do add
interest earned for that amount,
all right. Another one bank service fees
again sometimes the bank charges us to
use their services
they're not going to send us a bill and
us turn around and send them a check
they're just going to take it directly
out of our bank but we don't know they
do that
until they send us the bank statement, so
let's go through those questions again
has it affected our book balance? Well no
because again we didn't know it we
hadn't written in the book yet until we
got the bank statement.
has it affected the bank? Yes they took
it directly out of our account.
How did it affect our bank side or bank
balance? Well it made it go down they
took it away.
So what do we need to do to the book
side in order to make it match the bank
side?
We need to also subtract it so we will
subtract or less
bank service fees for that amount.
Last common thing that we can see when
it comes to
bank reconciliations is everyone's
favorite non-sufficient funds
or a bounced check. Okay. Somebody gave
us a check that's not worth the paper
it's written on we assumed it was good
when we got it
and so when we got it we wrote it in the
books as our cash went up but when we
took it to the bank they said it bounced
like a basketball
and it's not worth anything so we need
to correct this,
okay. So let's look at the questions and
then be careful with these though okay
So has it affected our book balance
already?
Yes because when we got the check we
thought it was good
and we wrote it into our books as it
increased the cash
however did it correct did it affect it
correctly,
no because we said it added something
and it didn't,
so it wasn't in there correctly, all
right. Has it affected our bank balance
already?
Yes because it's worth nothing and it
did nothing to our bank balance
so it actually affected it correctly it
was worth zero and it affected our bank
side
zero. So really our focus now turns back
to the book side because we need to
correct the mistake on the book side,
so what do we need to do in order to
match the bank balance? Well
we added it to begin with on the book
side so
it's worth nothing on the bank so we
need to take it back out
so in order to do that we're going to
subtract the nsf checks we'll say less
nsf check
for that amount.
All right. So those are just again
commonalities there's many more that you
can have under there but these are the
common ones
once you're finished then you're going
to total these up and you're going to
find what's called the true cash balance,
and the true cash balance is going to be
the same for both
or at least you hope they're going to be
the same for both because
that's what ultimately you want, remember
we're bridging the gap between the two
so they must equal
the bank side and the book side
otherwise you've done this incorrectly,
that's step one of the bank
reconciliation the next step
is the last thing we have to do is the
adjusting side.
If an adjustment is made on the bank
balance so on the bank side
we do nothing once it's there it's there
so these two things that we added right
here on the bank side
once they're there they're there we
don't do anything we don't need to make
an adjustment entry or anything because
those are the things that's already on
our books but not on the bank. Okay.
Then we have the book side any if any
adjustments or if an adjustment is made
on the book balance
then an adjusting journal entry is
required so anything on the book
side those four things we had on the
book side, those all have to have
corresponding journal entries to correct
them because those are the things that
are not on the books yet
we need to put them on the books. So in
the next video I'm going to show you how
to do this from start to finish
bank reconciliation with the
adjusting entries hopefully that will
make a little bit more sense to you
once you get there, other than that you
have it going.