BANK RECONCILIATIONS

The Bank Reconciliation Process

2007-03-06

Bank Reconciliation Topic Slides

Bank Reconciliations
Bank Reconciliation Objectives:
Verify that the company and bank records are correct and in agreement. Determine the proper cash balance that should appear on the companys statement of financial position. Prepare correcting entries to update company records to reflect the proper cash balance.
2007-03-06 Bank Reconciliation Topic Slides 3

Bank Reconciliation Summary

Balance per Banks Records:
This section is only necessary to ensure that the adjusted balance "reconciles" with the bank statement.

2007-03-06

Bank Reconciliation Topic Slides

Bank Rec Summary (cont.)

Balance per Banks Records (cont.):
Opening balance taken from E/B on bank statement Adjust the bank's balance for any items the bank did not know about:
Add all outstanding deposits (deposits in transit at time of statement). Subtract all outstanding cheques (uncashed cheques). Check for bank errors (rare but possible!) and add/subtract accordingly.

New adjusted bank balance should reconcile with adjusted depositors balance.
2007-03-06 Bank Reconciliation Topic Slides 5

Bank Reconciliation Summary

Balance per Depositors Records
Opening balance (taken from last period's adjusted balance on bank reconciliation OR last period's statement of financial position) Add cash receipts less cash disbursements Adjust our balance for any items the bank added or subtracted which we did not know about:
Receivables/notes collected for company by bank Service charges and NSF cheques Automatic payments (loans, interest, payroll, etc.) Add or subtract from balance accordingly to get new adjusted balance Check for errors in recording transactions
2007-03-06 Bank Reconciliation Topic Slides 6

Bank Rec Summary (cont.)

Unless otherwise stated, assume discrepancies between the banks and the companys records was the companys error. Also, assume the company made the entry for the same value as listed on either receipts or disbursements.

2007-03-06

Bank Reconciliation Topic Slides

Bank Reconciliation Process

1. Go to last months bank reconciliation
Check to make sure that any late deposits or outstanding cheques are listed in this months bank statement. Circle those that are not. Check off these items on the bank statement.

2.

Go to the cash disbursements list (cheques register)

Check off each cheque as it appears in this months bank statement. Circle any errors that appear. Circle cheques that do not appear on the bank statement.

2007-03-06

Bank Reconciliation Topic Slides

Bank Reconciliation Process (cont.)

3. Go to the cash receipts list (bank deposits)
Check off each deposit as it appears in this months bank statement. Circle any errors that appear. Circle deposits that do not appear on the bank statement.

4. Go to the bank statement

Circle items that are not checked off.

2007-03-06

Bank Reconciliation Topic Slides

Bank Reconciliation Summary

If balances do not reconcile, look for:
Outstanding cheques from the previous period's bank reconciliation Addition errors in the disbursements or receipts lists Errors in copying numbers (e.g., $219 vs. $291) Cash on hand or a petty cash account

2007-03-06

Bank Reconciliation Topic Slides

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Bank Reconciliation Summary (cont.)

Once the two balances are reconciled, record any necessary correcting entries on the company's books (follow Balance Per Depositors Records portion of bank reconciliation). Please note that cheques become stale-dated after a six-month period. The preparation of monthly bank reconciliations will enable a company to identify such cheques and take appropriate action before a reversing entry would be required.
2007-03-06 Bank Reconciliation Topic Slides 11