9.3 Accounting Controls for Cash Bank Reconciliation Both the bank & the business keep a record of cash for the business but at the end of the month the balance at the bank don’t match the accounting records for a variety of reasons:  _____________________that have not been cashed  ______________________________that have not be booked in the accounting records yet but have been taken by the bank from your account.  _____________have not been recorded yet by the bank.  An _________ is made by the bank or by the accountant. Recall from yesterday the last Cash Control: Reconcile bank accounts monthly – the bank records need to be compared to the accounting records and if they do not match a reconciliation needs to be performed

Cash Control - Bank Reconciliation  A Bank Reconciliation is a _______________ that is preformed at the end of each month.  It is a routine process to determine why the balance on the __________________ does not agree with the balance of cash shown by the _______________________.  A __________________________ – shows the causes for the difference between the bank balance as shown by the bank and the bank balance as shown in the general ledger.

How to Prepare a Bank Reconciliation Step 1 – Have the following records available:  The bank statement and related data received from the bank.  The bank reconciliation statement for the previous month.  A printout of the general ledger Bank account Step 2 - Write a proper heading, then divide the page down the middle. Write the Bank’s Record on one side, “Company’s Record” on the other side.

How to prepare a Bank Reconciliation Step 3 – Enter the ending balance from the bank statement under Bank’s Record. Enter the ending balance from the general ledger Bank account under Company’s Record Step 4 – Identify all of the discrepancy items which would cause the two balances to differ. This involves a line by line analysis of the bank statement and the bank ledger. Step 5 – Record the discrepancies on the reconciliation statement until the two balances equal.

Identifying Discrepancy Items 1. As you items on the bank statement to the ledger tick them off that they agree. These items have “cleared”. When this is done the items with no marks will be the discrepancy items. 2. Review the discrepancy items from the previous bank rec and ensure that they have “cleared” the bank. Usually these clear in the next month. 3. Continue to do these steps until the balances reconcile.

Bank Reconciliation Write the header: Who, What, When. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition6

Bank Reconciliation Enter the ending balance from the bank statement. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition7

Bank Reconciliation Determine, record, and total the amount of the outstanding cheques. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition8

Bank Reconciliation When cashed, the outstanding cheques will lower the bank balance. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition9

Bank Reconciliation Add any late deposits, if they exist. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition10

Bank Reconciliation Calculate the adjusted amount of the bank statement’s balance. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition11

Bank Reconciliation Record the balance of cash from the company’s ledger account. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition12

Bank Reconciliation Deduct any Debit memos discovered on the bank statement. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition13

Bank Reconciliation Calculate the new cash balance. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition14

Bank Reconciliation Often, these two amounts will not match. If not, look for credit memos or errors. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition15

Bank Reconciliation In this case, a journalizing error was discovered. It had the effect of increasing the ledger balance of cash. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition16

Bank Reconciliation Calculate the adjusted ledger account balance of cash. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition17

Bank Reconciliation The two adjusted balances agree. Bank reconciliation is almost complete. Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition18

Bank Reconciliation Making changes on this statement will not effect the company’s ledger account balance of $ (incorrect due to the journalizing error). Chapter 9 – Accounting for Cash | Accounting 1, 7 th Edition19

Bringing the Ledger up to date If there are any reconciling items on the Company’s Record side of the reconciliation, these items need to be recorded in the books. Common entries would include recording the bank charges and interest for the month.