1. Bank Reconciliation and Internal Control Week 2 Seminar Presentation1

2. What’s bank statement? Beginning balance All deposits All checks
Credit Memos
Debit Memos
Ending Balance
All transactions! 2

3. What’s bank reconciliation?
Book Balances
Bank Balance 3

4. Differences between bank statement balance and book balance?
1. Deposit in Transit (You know, bank does not)
2. Outstanding Checks (You know, bank does not)
3. Debit Memo (Bank charges, NSF–bank knows, you do not)
4. Credit Memo (Interest income – bank knows, you do not)
5. Error of either side (Nobody knows…) 4

5. Steps of preparing bank reconciliation
Bank section – begins with bank statement balance and ends with adjusted balance.
Company section – begins with book balance and ends with the adjusted balance.
The two amount designated as adjusted balance must be equal. 5

6. Steps of preparing bank reconciliation
Compare deposit and find out deposit in transit.
Compare checks paid and find out outstanding checks.
Locate debit memo and credit memo
Look for errors of both sides
Record reconciling items in the book, such as unrecorded bank debit memo. 6

7. Example Exercise – Adjusting Balance
The following data were gathered to use in reconciling the bank account of Photo Op.
Balance per bank $14,500
Balance per company records 13,875
Bank service charges 75
Deposit in transit 3,750
NSF check 800
Outstanding checks 5,250 7

8. Find out items that you know but the bank does not.
Step I – Bank Section
Find out items that you know but the bank does not.
Bank Statement Ending Balance $14,500
+ Deposit in transit (DIT) $ 3,750
Outstanding checks $ 5,250
Adjusted cash balance $13,000 8

9. Find out items that bank knows but you do not.
Step II – Book Section
Find out items that bank knows but you do not.
Book Ending Balance $13,875
Bank service charges
NSF check
Adjusted cash balance $13,000 9

10. Example Exercise – Adjusting Balance
What is the adjusted balance on the bank reconciliation?
Journalize any necessary entries for Photo OP based upon the bank reconciliation. 10

11. Follow My Example – Adjusting Balance
What is the adjusted balance on the bank reconciliation?
Follow My Example – Adjusting Balance 11

12. Follow My Example – Adjusting Balance
What is the adjusted balance on the bank reconciliation?
Follow My Example – Adjusting Balance
$13,000, as shown below. 12

13. Follow My Example – Adjusting Balance
What is the adjusted balance on the bank reconciliation?
Follow My Example – Adjusting Balance
$13,000, as shown below.
Bank section of reconciliation: $14,500 – $5,250 + $3,750 = $13,000 13

14. Follow My Example – Adjusting Balance
What is the adjusted balance on the bank reconciliation?
Follow My Example – Adjusting Balance
$13,000, as shown below.
Bank section of reconciliation: $14,500 – $5,250 + $3,750 = $13,000
Company section of reconciliation: $13,875 – $75 – $800 = $13,000 14

15. Follow My Example – Adjusting Balance
Journalize any necessary entries for Photo OP based upon the bank reconciliation.
Follow My Example – Adjusting Balance
b. Accounts Receivable $800
Miscellaneous Expense 75
Cash $875 15

16. Adelphia Communications
Sarbanes-Oxley Act of 2002
Enron
WorldCom
Adelphia Communications
Trust and Confidence ?
(Continued) 16

17. Sarbanes-Oxley Act of 2002 requires public companies to:
1) Maintain strong and effective internal controls
2) Companies and their independent accountants to report on the effectiveness of internal controls.
3) These reports will be required to be filed company’s annual 10-K report with Securities and Exchange Commission. (SEC). 17

18. Internal Control: Procedures and processes used by a company to:
Safeguard its assets
Process information accurately
Ensure compliance with laws and regulations. 18

19. 19 Control Environment Risk Assessment Internal Control
Info&Communication
Control procedures
Monitoring 19

20. Control Procedures Responsibilities Operations, custody of assets
Proofs
Related Operations
Accounting
Security Measures 20

21. Controls over Cash:
Customers purchasing products or services (McDonald’s, Wendy’s and Burger King) – Sales register
2. Customers making payments on account (Mail-order and Internet retailers such as Lands’ End and Amazon) - Electronic funds transfers (EFT)
3. Voucher system (procedures for authorizing and recording liabilities and cash payments)
4. Using Bank Accounts 21

22. Using bank account as a control
Reduce the mount of cash on hand.
2. Independent recording of cash transactions through bank statements.
3. Facilitates the transfer of funds. 22