© The McGraw-Hill Companies, Inc., 2009 McGraw-Hill/Irwin Chapter 8 Cash and Internal Controls

© The McGraw-Hill Companies, Inc., 2009 McGraw-Hill/Irwin Reconciling Items Bank Statement Balance Add: Deposits in transit Deduct: Outstanding Checks Add or Deduct: Bank errors Bank Statement Balance Add: Deposits in transit Deduct: Outstanding Checks Add or Deduct: Bank errors Book Balance Add: Collections made by the bank Add: Interest earned on checking account Deduct: Nonsufficient funds check (NSF) Deduct: Bank service charge Add or Deduct: Book errors Book Balance Add: Collections made by the bank Add: Interest earned on checking account Deduct: Nonsufficient funds check (NSF) Deduct: Bank service charge Add or Deduct: Book errors

© The McGraw-Hill Companies, Inc., 2009 McGraw-Hill/Irwin Bank Reconciliation Example Let’s prepare a November 30 bank reconciliation statement for Jamboree Enterprises. The November 30 bank statement indicated a balance of $38,520. The cash general ledger account on that date shows a balance of $16,380. Additional information necessary for the reconciliation is shown on the next two screens. Let’s prepare a November 30 bank reconciliation statement for Jamboree Enterprises. The November 30 bank statement indicated a balance of $38,520. The cash general ledger account on that date shows a balance of $16,380. Additional information necessary for the reconciliation is shown on the next two screens.

© The McGraw-Hill Companies, Inc., 2009 McGraw-Hill/Irwin Bank Reconciliation Example a) Then book and bank balances were as detailed on the preceding slide. b) Checks No for $4,810 and no for $5,000 are outstanding. c) A $1,000 rent check was erroneously recorded in the records as $880. d) The Nov. 30 deposit of $17,150, which had been deposited the previous night did not appear on the bank statement. e) A check written by Jumbo enterprises in the amount of $160 was erroneously drawn against Jamborees acct.

© The McGraw-Hill Companies, Inc., 2009 McGraw-Hill/Irwin Bank Reconciliation Example f) A credit memo indicated a collection of $30,000 plus $900 interest was collected on Jamboree’s behalf, but hadn’t been recorded in the accounting records. g) A debit memo for $1,100 lists a $1,100 NSF check received from a customer, Marilyn Welch. Jamboree had not recorded the item. h) Bank service charges for November total $40. These charges have not been recorded by Jamboree.

a a b b c c d d e e f f g g h h

© The McGraw-Hill Companies, Inc., 2009 McGraw-Hill/Irwin Recording Adjusting Entries from a Bank Reconciliation Only amounts shown on the book portion of the reconciliation require an adjusting entry. Here is the entry to record the increase to cash.

© The McGraw-Hill Companies, Inc., 2009 McGraw-Hill/Irwin Recording Adjusting Entries from a Bank Reconciliation Only amounts shown on the book portion of the reconciliation require an adjusting entry. Here are the entries to record the decreases to cash.