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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
K

CORPORATEACCOUNTING3rd Semester DBA

Aman Ullah Khan e-mail [email protected]

MBA-Finance CA-Foundation

Kardan Institute of Higher Education

slide3
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
slide5
Checks paid into bank but not collected and credited by the bank (Uncollected checks)

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

slide6
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.
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

slide12
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

slide13
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.

slide14
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

slide15
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. 878 435.39

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.

slide16
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. 878 435.39

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.

slide17
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. 878 435.39

No. 883 48.60 1,544.99

Deduct check return

because of insufficient

funds $300.00

Bank service

charges 18.00

The bank service charges totaled $18.00.

slide18
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. 878 435.39

No. 883 48.60 1,544.99

Deduct check return

because of insufficient

funds $300.00

Bank service

charges 18.00

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.

slide19
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. 878 435.39

No. 883 48.60 1,544.99

Deduct check return

because of insufficient

funds $300.00

Bank service

charges 18.00

Error recording

Check No. 879 9.00 327

Adjusted balance $2,630.99

Adjusted balance $2,630.99

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. 878 435.39

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.

slide23
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.
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.

slide27
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.

slide31
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.

slide35
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-1Prepare 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-2Prepare 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

slide40
Financial Assets

Cash

Receivables

Short-term Investments

slide41
Cash

Coins and paper money

Cash is Defined as any deposit banks will accept.

Checks

Bank credit card

Money orders

Travelers’ checks

slide42
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

slide45
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.
slide46
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 EquivalentsReporting 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.

slide49
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.
slide52
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.

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