How to Prepare a Bank Reconciliation
Honestly, Bank Reconciliations are pretty easy.� The bank statement states that there is a certain amount in the account.� The accounting records state a different amount.� The goal is to find the correct amount.
Let�s work the following problem:
The bank statement for Corley Co. indicates a balance of $9,000.00 on June 30.� After the journals for June had been posted, the cash account had a balance of $4,675.00.� Prepare a bank reconciliation on the basis of the following reconciling items:
[a]������� Cash sales of $342 had been erroneously recorded in the cash receipts journal as $324.����
[b]������� Deposits in transit not recorded by bank, $500.00.�����������
[c]������� Bank debit memorandum for service charges, $25.00.�����
[d]������� Bank credit memorandum for note collected by bank, $1,850, including $50 interest.���������
[e]������� Bank debit memorandum for $218.00 NSF [not sufficient funds] check from Alice Martin, a customer.�����
[f]������� Checks outstanding, $3,200.00.
First, determine the bank balance and the book balance.
See the solution so far
Item [a].� The company received $342 from cash sales.� They recorded that they received $324.� They made a mistake!� They actually have $18 more cash than they have recorded.� Therefore, the BOOKS side needs to be corrected.
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Item [b.]� Deposits in transit.� These are deposits that the company has made, but the bank has not yet recorded. �Therefore the BANK side needs to be corrected.
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Item [c.] Service charges.� The bank has already recorded the service charge.� The BOOKS side needs to be corrected.
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Item [d.] Note Collected by the bank.� The bank has collected some money [$1,850] for the company.� Correct the BOOKS.
See the solution so far
Item [e.] NSF Check.� Oh no!� A customer paid us with a check that was bad!� We thought that we had the cash, but we really don�t!� Correct the BOOKS.
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Item [f.] Checks Outstanding.� These are checks that have been written by the company.� The money has been spent, but the checks have not cleared the bank.� Correct the BANK side.
See the FINAL solution
After a bank reconciliation is prepared, the company has to make journal entries to record the items that affected the BOOKS side.� They have to record the corrections that they have found.� Do we make journal entries for the items on the BANK side??? NO � that is the bank�s concern!� From this bank reconciliation we would make 4 journal entries.
Journal entry to record Error in recording Cash Sales:
Cash has to be increased, and more sales have to be recorded.
Here is the entry:
CASH������������������������������������������������� 18.00
����������� SALES������������������������������������������������������������ 18.00
Journal entry to record The NOTE Collected by the bank�
Cash has to be increased.� We decrease the Notes Receivable by the face amount.� We record the interest that was earned.
Here is the entry:
CASH������������������������������������������������� 1,850.00
����������� NOTES RECEIVABLE����������������������������������� 1,800
����������� INTEREST REVENUE����������������������������������� ��� 50
�
Journal entry to record Service Charge.� This is an expense!� Cash has to be decreased.
Here is the entry:
MISC ADMINISTRATIVE EXPENSE������ 25.00
����������� CASH������������������������������������������������������������� 25.00
The last journal entry would be to record the NSF check.��� We thought that the customer had paid when actually they did not.� Therefore, we need to increase accounts receivable and decrease cash.
Here is the entry:
ACCOUNTS RECEIVABLE��������������������������� 218.00
����������� CASH������������������������������������������������������������� 218.00
Well, what do you think??� Why not take this practice quiz over bank reconciliations.�
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