Corporate accounting 3 rd semester dba
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K. CORPORATE ACCOUNTING 3 rd Semester DBA. Aman Ullah Khan e-mail [email protected] MBA-Finance CA-Foundation Kardan Institute of Higher Education. Bank Reconciliation statement.

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CORPORATE ACCOUNTING 3 rd Semester DBA

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Corporate accounting 3 rd semester dba

K

CORPORATEACCOUNTING3rd Semester DBA

Aman Ullah Khan e-mail [email protected]

MBA-Finance CA-Foundation

Kardan Institute of Higher Education


Bank reconciliation statement

BankReconciliation statement


Corporate accounting 3 rd semester dba

DefinitionBank reconciliation statement is a statement which is prepared to reconcile the balances of cash ledger and bank statement.


Following are the causes of difference between our cash ledger balance and bank statement balance

Following are the causes of difference between our cash ledger balance and bank statement balance


Corporate accounting 3 rd semester dba

Checks paid into bank but not collected and credited by the bank (Uncollected checks)

Checks issued but not presented for payment. (Un presented checks)


Corporate accounting 3 rd semester dba

3.Direct payment by the customers4.Interest or dividend on investment5.Bank charges (service charges)6.Dishonor of a check (NSF)7.Checks omitted to be paid into bank.


Procedure for preparing a bank reconciliation statement

Procedure For Preparing a Bank Reconciliation Statement


Bank reconciliation per cash books depositor ledger

Bank Reconciliation Per Cash Books(Depositor Ledger)

  • Add increases in cash already recorded by bank but not in books.

  • Deduct decreases in cash already recorded by bank but not in books.

  • Add or deduct errors on books.


Bank reconciliation per bank books bank statement

Bank Reconciliation Per Bank Books(Bank Statement)

  • Deposits in transit

    Increases in cash recorded on cash book but not in bank book.

  • Checks outstanding

    Decreases in cash already recorded on cash books but not bank Book.

  • Add or deduct errors by bank


  • Reconciling the bank statement

    Reconciling the Bank Statement

    Balance per Bank

    Balance per Depositor

    + Deposits by Bank

    (credit memos)

    + Deposits in Transit

    - Service Charge

    - NSF Checks

    - Outstanding Checks

    ± Bank Errors

    ± Book Errors

    = Adjusted Balance

    = Adjusted Balance


    Reconciling the bank statement1

    Reconciling the Bank Statement

    All reconciling items on the book side requirean adjusting entry to the cash account.

    Balance per Depositor

    + Deposits by Bank

    (credit memos)

    - Service Charge

    - NSF Checks

    ± Book Errors

    = Adjusted Balance


    Corporate accounting 3 rd semester dba

    BANK

    Depositor’s records

    Bank’s books

    Beginning balance$2,549.99

    Beginning balance$3,359.78

    Power Network prepares to reconcile the monthly bank statement as of July 31, 2006


    Corporate accounting 3 rd semester dba

    BANK

    Depositor’s records

    Bank’s books

    Beginning balance$2,549.99

    Beginning balance$3,359.78

    Add deposit not

    recorded by bank 816.20

    $4,175.98

    A deposit of $816.20 did not appear on the bank statement.


    Corporate accounting 3 rd semester dba

    BANK

    Beginning balance$3,359.78

    Add deposit not

    recorded by bank 816.20

    $4,175.98

    Depositor’s records

    Bank’s books

    Beginning balance$2,549.99

    Add note and interest

    collected by bank 408.00

    $2,957.99

    The bank collected a note in the amount of $400 and the related interest of $8 for Power Networking


    Corporate accounting 3 rd semester dba

    BANK

    Depositor’s records

    Bank’s books

    Beginning balance$2,549.99

    Beginning balance$3,359.78

    Add deposit not

    recorded by bank 816.20

    Add note and interest

    collected by bank 408.00

    $4,175.98

    $2,957.99

    Deduct outstanding

    checks:

    No. 812$1,061.00

    No. 878435.39

    No. 883 48.60 1,544.99

    Three checks that were written during the period did not appear on the bank statement: #812, $1,061; #878, $435.39, #883, $48.60.

    A deposit of $637.02 did not appear on the bank statement.


    Corporate accounting 3 rd semester dba

    BANK

    Beginning balance$2,549.99

    Beginning balance$3,359.78

    Add deposit not

    recorded by bank 816.20

    Add note and interest

    collected by bank 408.00

    $4,175.98

    $2,957.99

    Depositor’s records

    Bank’s books

    Deduct outstanding

    checks:

    No. 812$1,061.00

    No. 878435.39

    No. 883 48.60 1,544.99

    Deduct check returned

    because of insufficient

    funds$300.00

    The bank returned an NSF check from one of the firm’s customers, Thomas Ivey, in the amount of $300. This was a payment on account.


    Corporate accounting 3 rd semester dba

    BANK

    Depositor’s records

    Bank’s books

    Beginning balance$2,549.99

    Beginning balance$3,359.78

    Add deposit not

    recorded by bank 816.20

    Add note and interest

    collected by bank 408.00

    $4,175.98

    $2,957.99

    Deduct outstanding

    checks:

    No. 812$1,061.00

    No. 878435.39

    No. 883 48.60 1,544.99

    Deduct check return

    because of insufficient

    funds$300.00

    Bank service

    charges18.00

    The bank service charges totaled $18.00.


    Corporate accounting 3 rd semester dba

    BANK

    Beginning balance$2,549.99

    Beginning balance$3,359.78

    Add deposit not

    recorded by bank 816.20

    Add note and interest

    collected by bank 408.00

    $4,175.98

    $2,957.99

    Deduct outstanding

    checks:

    No. 812$1,061.00

    No. 878435.39

    No. 883 48.60 1,544.99

    Deduct check return

    because of insufficient

    funds$300.00

    Bank service

    charges18.00

    Depositor’s records

    Bank’s books

    Error recording

    Check No. 879 9.00

    327.00

    Check No. 879 for $732.26 to Taylor Co. on account, erroneously recorded in journal as $723.26.


    Corporate accounting 3 rd semester dba

    BANK

    Depositor’s records

    Bank’s books

    Beginning balance$2,549.99

    Beginning balance$3,359.78

    Add deposit not

    recorded by bank 816.20

    Add note and interest

    collected by bank 408.00

    $4,175.98

    $2,957.99

    Deduct outstanding

    checks:

    No. 812$1,061.00

    No. 878435.39

    No. 883 48.60 1,544.99

    Deduct check return

    because of insufficient

    funds$300.00

    Bank service

    charges18.00

    Error recording

    Check No. 879 9.00 327

    Adjusted balance$2,630.99

    Adjusted balance$2,630.99


    Corporate accounting 3 rd semester dba

    Now, if desired, we can prepare a formal statement for Power Networking.


    Power networking bank reconciliation july 31 2006

    Power NetworkingBank ReconciliationJuly 31, 2006

    Balance per bank statement$3,359.78

    Add: Deposit not recorded by bank 816.20$4,175.98

    Deduct: Outstanding checks

    No. 812$1,061.00

    No. 878435.39

    No. 883 48.60 1,544.99

    Adjusted balance$2,630.99

    Balance per depositor’s records$2,549.99

    Add: Note and interest collected by bank 408.00

    $2,957.99

    Deduct: NSF check (Thomas Ivey) returned$300.00

    Bank service charges 18.00

    Error in recording Check No. 879 9.00 327.00

    Adjusted balance$2,630.99


    Reconciling the bank statement example

    Reconciling the Bank Statement Example

    Question No 1

    Prepare a July 31 bank reconciliation statement and the resulting journal entries for the Simmons Company. The July 31 bank statement indicated a cash balance of $9,610, while the cash ledger account on that date shows a balance of $7,430.

    Additional information necessary for the reconciliation is shown on the next page.


    Corporate accounting 3 rd semester dba

    • Outstanding checks totaled $2,417.

    • A $500 check mailed to the bank for deposit had not reached the bank at the statement date.

    • The bank returned a customer’s NSF check for $225 received as payment of an account receivable.

    • The bank statement showed $30 interest earned on the bank balance for the month of July.

    • Check 781 for supplies cleared the bank for $268 but was erroneously recorded in our books as $240.

    • A $486 deposit by Acme Company was erroneously credited to our account by the bank.


    Simon company bank reconciliation july 31 2001

    SIMON COMPANY Bank Reconciliation July 31,2001


    Reconciling the bank statement example1

    Reconciling the Bank Statement Example


    Reconciling the bank statement example2

    Reconciling the Bank Statement Example

    Question No 2

    Prepare a December 31 bank reconciliation statement and the resulting journal entries for the Data Flow Inc . The Dec 31 bank statement indicated a cash balance of $15,981, while the cash ledger account on that date shows a balance of $17,445.

    Additional information necessary for the reconciliation is shown on the next page.


    Corporate accounting 3 rd semester dba

    • Outstanding checks totaled $3513.

    • A $4353 check mailed to the bank for deposit had not reached the bank at the statement date.

    • The bank returned a customer’s NSF check for $600 received as payment of an account receivable.

    • The bank statement showed $24 Service Charges for the month of dec.


    Data flow inc bank reconciliation december 31 2006

    DATA FLOW INC Bank Reconciliation December 31,2006

    Balance per Bank statement $15,981

    Addition:

    Deposits in Transit 4,353

    Deduction:

    Outstanding Checks (3,513)

    Adjusted Cash Balance $16,821

    Balance per Depositor’s Record $17,445

    Deductions:

    Service Charges $24

    NSF Check $600 $(624)

    Adjusted Cash Balance $16,821


    Reconciling the bank statement example3

    Reconciling the Bank Statement Example

    Question No 3

    Prepare a July 31 bank reconciliation statement and the resulting journal entries for the Norfleet Farm . The July bank statement indicated a cash balance of $18,928.12, while the cash ledger account on that date shows a balance of $16,766.95.

    Additional information necessary for the reconciliation is shown on the next page.


    Corporate accounting 3 rd semester dba

    • Outstanding checks totaled $1,802.97.

    • A $4,017.15 check mailed to the bank for deposit had not reached the bank at the statement date.

    • The bank returned a customer’s NSF check for $180 received as payment of an account receivable.

    • The bank statement showed $4,545 Note Receivable collected by the bank for the business.

    • Check 821 for Office Equipment cleared the bank for $835.02 but was erroneously recorded in our books as $853.02.

    • The bank statement showed $7.65 Service Charges for the month of July.


    Norfleet form bank reconciliation july 31 2001

    NORFLEET FORM Bank Reconciliation July 31,2001

    Balance per Bank statement, July 31 $18,928.12

    Addition:

    Deposits in Transit 4017.15

    Deduction:

    Outstanding Checks (1,802.97)

    Adjusted Cash Balance $21,142.30

    Balance per Depositor’s Record $16,766.95

    Additions:

    Note Receivable by bank $4,545.00

    Book error 18.00 4563.00

    Deductions:

    Service Charges $7.65

    NSF Check 180.00 $(187.65)

    Adjusted Cash Balance $21,142.30


    Reconciling the bank statement example4

    Reconciling the Bank Statement Example

    Question No 4

    Prepare an October 31, 2006 bank reconciliation statement and the resulting journal entries for the Parkview Company. The October bank statement indicated a cash balance of $5,000.17, while the cash ledger account on that date shows a balance of $4,262.83.

    Additional information necessary for the reconciliation is shown on the next page.


    Corporate accounting 3 rd semester dba

    • Outstanding checks totaled $717.75.

    • A $410.90 check mailed to the bank for deposit had not reached the bank at the statement date.

    • The bank returned a customer’s NSF check for $50.25 received as payment of an account receivable.

    • The bank statement showed $ 500.00 Note Receivable collected by the bank for the business.

    • Check 875 for Telephone Expense cleared the bank for $85.00 but was erroneously recorded in our books as $58.00.

    • The bank statement showed $17.00 Service Charges for the month of July.

    • The bank statement showed $24.74 interest earned on the bank balance for the month of October.


    Parkview company bank reconciliation october 31 2006

    PARKVIEW COMPANY Bank Reconciliation October 31,2006

    Balance per Bank statement, July 31 $5,000.17

    Addition:

    Deposits in Transit 410.90

    Deduction:

    Outstanding Checks (717.75)

    Adjusted Cash Balance $4,693.32

    Balance per Depositor’s Record $4,262.83

    Additions:

    Note Receivable by bank $ 500.00

    Interest Revenue 24.74 524.74

    Deductions:

    Service Charges $17.00

    Book Error 27.00

    NSF Check 50.25 $(94.25)

    Adjusted Cash Balance $4,693.32


    Prepare bank reconciliation statement for dubai enterprises

    CLASS ACTIVITY-1

    Prepare Bank Reconciliation Statement For DUBAI ENTERPRISES

    • Balance per Depositor’s record $4239.35

    • Balance per Bank Statement $4581.50

    • Checks outstanding $694.10

    • Deposit in transit $362.80

    • A check for payment of $57 was recorded as $75 in

      deposit ledger.

      f) Bank debit memorandum for service charges $7.15.


    Prepare bank reconciliation statement for dubai enterprises1

    CLASS ACTIVITY-2

    Prepare Bank Reconciliation Statement For DUBAI ENTERPRISES

    • Balance per Depositor’s record $5780

    • Balance per Bank Statement $4675

    • Checks outstanding $ 1800

    • Deposit in transit $ 2000

    • Interest on investment collected by the bank $800

    • Bank service charges $30

    • Interest on Notes Payables $175

    • Checks issued and paid by bank omitted to be recorded

      $ 1500


    Corporate accounting 3 rd semester dba

    Financial Assets

    Cash

    Receivables

    Short-term Investments


    Corporate accounting 3 rd semester dba

    Cash

    Coins and paper money

    Cash is Defined as any deposit banks will accept.

    Checks

    Bank credit card

    Money orders

    Travelers’ checks


    Corporate accounting 3 rd semester dba

    Accountant define cash as any item that banks will accept for deposits.

    These items include not only coins and paper money, but also checks, money orders and travelers checks.

    Banks also accept drafts signed by customers using bank credit cards.


    Reporting of cash

    Reporting of Cash

    Cash is listed first in the balance sheet because it is the most liquid of all current assets. For the purpose of Balance Sheet presentation Reporting cash needs special attention of the following:

    1.Cash equivalents

    2. Restricted cash

    3. Lines of credit


    Cash equivalents

    Cash Equivalents

    Some short term investments are so liquid that they are termed cash equivalents. To qualify as a cash equivalent ,an investment must be

    1. Very safe

    2. Have a very stable value

    • 3. Mature within 90 days of acquision .

      Examples: Treasury bills, money-market funds, commercial paper


    Corporate accounting 3 rd semester dba

    • These assets are considered so similar to cash that they are combined with the amount of cash in Balance Sheet. Therefore the first asset listed in balance sheet often is called Cash and Cash Equivalents.

    • To qualify as a cash equivalent, an investment must be very safe, have a very stable market value and mature within 90 days of the date of acquisition.


    Corporate accounting 3 rd semester dba

    Short term investments that do not qualify as cash equivalents are listed in the balance sheet as marketable securities, which appear second among the current assets.


    Reporting cash in the balance sheet

    Cash Equivalents

    Reporting Cash in the Balance Sheet

    Combined with cash on balance sheet

    Matures within 90 days of acquisition

    Liquid short-term investments

    Stable market values


    Restricted cash

    Restricted Cash

    Some banks accounts are restricted as to their use, so they are not available to meet the normal operating needs of the company.

    For example, a bank account may contain cash specifically kept for the acquisition of Fixed assets.

    Bank account in some foreign countries are restricted by laws that prohibit transferring the money another country.


    Corporate accounting 3 rd semester dba

    • Cash that is not available for paying current liabilities should not be viewed as a current asset.

      Therefore restricted cash should be listed just below the current asset section of the balance sheet in the section entitled “Investment and Funds.


    Reporting cash in the balance sheet1

    Reporting Cash in the Balance Sheet

    Not available for paying current liabilities

    “Restricted” Cash

    Listed as an investment

    Not a current asset


    Line of credit

    Line of Credit

    • Many businesses arrange line of credit with their bank. “A line of credit means that the bank has agreed in advance to lend the company any amount of money up to a specified limit”.

    • The company can borrow this money at any time simply by drawing checks on a special bank account.


    Corporate accounting 3 rd semester dba

    • A liability to the bank arises as soon as money is borrowed that is as soon as a portion of the line of credit is used.

    • The unused portion of the line credit is not an asset nor a liability, it represents only the ability to borrow money quickly and easily and increases the company solvency.


    Reporting cash in the balance sheet2

    Reporting Cash in the Balance Sheet

    Bank agrees in advance to lend money.

    Lines of Credit

    Liability is incurred when line of credit is used.

    Unused line of credit is disclosed in notes.


    Corporate accounting 3 rd semester dba

    THE END


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