1. Chapter 8 Part II – Bank Reconciliation © 2009 The McGraw-Hill Companies, Inc.

2. McGraw-Hill/Irwin Slide 2 Bank Procedures and Reconciliation Banks help businesses control cash by offering services that: 1.Safeguard Cash – The bank provides a secure place to deposit cash. 2.Improved Efficiency and Effectiveness – The bank strengthens the processing of cash. 3.Independent Verification – The bank statement is used to help the company account for its cash transactions.

3. McGraw-Hill/Irwin Slide 3 Bank Procedures and Reconciliation Controlling Cash in the Bank Cash receipts should be recorded immediately upon receipt and deposited intact daily. Cash disbursements should be made by prenumbered check. Up to date signature card should be maintained. A deposit ticket should be used for all deposits. A monthly bank reconciliation should be prepared by an independent party.

4. The Bank Statement The bank statement format varies from bank to bank, but the statement usually contains these common elements: 1.an overall summary of the activity in the account, 2.a list of specific transactions posted to the account, including checks cleared, deposits made, and other transactions, and 3.a running balance in the account. Because amounts that are removed from a bank account reduce the bank’s liability, they are reported as debits on the bank statement. Debit Card Slide 4

5. Your Bank May Not Know About 1.Errors made by the bank 2.Time lags a.Deposits that you made recently b.Checks that you wrote recently Your Bank May Not Know About 1.Errors made by the bank 2.Time lags a.Deposits that you made recently b.Checks that you wrote recently You May Not Know About 1.Interest the bank has put into your account 2.Electronic funds transfers 3.Service charges taken out of your account 4.Customer checks you deposited but that bounced (NSF checks) 5.Errors made by you You May Not Know About 1.Interest the bank has put into your account 2.Electronic funds transfers 3.Service charges taken out of your account 4.Customer checks you deposited but that bounced (NSF checks) 5.Errors made by you Need for Reconciliation Slide 5

6. McGraw-Hill/Irwin Slide 6 Bank Reconciliation The bank reconciliation reports on the differences between the balance on the bank statement and the balance in the general ledger cash account. The reconciliation results in the up-to-date ending cash balance that will appear on the balance sheet.

7. McGraw-Hill/Irwin Slide 7 If an error is found on the bank statement, an adjustment for it is made to the bank balance to determine the up-to-date cash balance. An error made on our books requires an adjusting journal entry to correct. Bank Reconciliation

8. McGraw-Hill/Irwin Slide 8 Bank Reconciliation Jerry Company is preparing the bank reconciliation for the month of June. 1.The June 30 th balance on the bank statement is $4,892.56, and the Cash general ledger balance on this date is $4,240.54. 2.There was a deposit in transit in the amount of $475. 3.The bank erroneously deducted a $200 check drawn on the books of Mary, Inc. from our account. 4.At June 30 th there were three checks outstanding. Check 1078 dated 6/28, for $372.33; Check 1080 dated 6/29, for $402.41; and Check 1081 dated 6/30, for $66.89. More Information

9. McGraw-Hill/Irwin Slide 9 Bank Reconciliation 5.During the month of June the bank collected an EFT in the amount of $875. 6.A check actually written for $146.88 for supplies was erroneously recorded in our records by the bookkeeper as $173.88. 7.Jerry Company earned interest of $9.25 on its checking account. 8.The bank assessed a service charge of $12.75 for June and we deposited a NSF check in the amount of $413.11. Let’s prepare the bank reconciliation

10. McGraw-Hill/Irwin Slide 10 Bank Reconciliation

11. McGraw-Hill/Irwin Slide 11 Bank Reconciliation

12. McGraw-Hill/Irwin Slide 12 Bank Reconciliation

13. McGraw-Hill/Irwin Slide 13 Bank Reconciliation

14. McGraw-Hill/Irwin Slide 14 Bank Reconciliation

15. McGraw-Hill/Irwin Slide 15 Bank Reconciliation

16. McGraw-Hill/Irwin Slide 16 Every reconciling item that appears on the unadjusted book balance section requires a journal entry to adjust the general ledger cash balance to the up-to-date cash balance. Bank Reconciliation