9.3 Accounting Controls for CashBank Reconciliation

Both the bank & the business keep a record of cash for the business but at the end of the month the balance at the bank don’t match the accounting records for a variety of reasons:

_____________________that have not been cashed ______________________________that have not be booked

in the accounting records yet but have been taken by the bank from your account.

_____________have not been recorded yet by the bank. An _________ is made by the bank or by the accountant.

Recall from yesterday the last Cash Control:

Reconcile bank accounts monthly – the bank records need to be compared to the accounting records and if they do not match a reconciliation needs to be performed

Cash Control - Bank Reconciliation A Bank Reconciliation is a _______________ that is

preformed at the end of each month. It is a routine process to determine why the balance

on the __________________ does not agree with the balance of cash shown by the _______________________.

A __________________________ – shows the causes for the difference between the bank balance as shown by the bank and the bank balance as shown in the general ledger.

How to Prepare a Bank ReconciliationStep 1 – Have the following records

available:The bank statement and related data

received from the bank.The bank reconciliation statement

for the previous month.A printout of the general ledger Bank

accountStep 2 - Write a proper heading, then

divide the page down the middle. Write the Bank’s Record on one side, “Company’s Record” on the other side.

How to prepare a Bank Reconciliation Step 3 – Enter the ending balance from the bank statement under Bank’s Record. Enter the ending balance from the general ledger Bank account under Company’s Record

Step 4 – Identify all of the discrepancy items which would cause the two balances to differ. This involves a line by line analysis of the bank statement and the bank ledger.

Step 5 – Record the discrepancies on the reconciliation statement until the two balances equal.

Identifying Discrepancy Items1. As you items on the bank statement to

the ledger tick them off that they agree. These items have “cleared”. When this is done the items with no marks will be the discrepancy items.

2. Review the discrepancy items from the previous bank rec and ensure that they have “cleared” the bank. Usually these clear in the next month.

3. Continue to do these steps until the balances reconcile.

Bank ReconciliationWrite the header: Who, What, When.

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Bank ReconciliationEnter the ending balance from the bank statement.

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Bank ReconciliationDetermine, record, and total the amount of the outstanding cheques.

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Bank ReconciliationWhen cashed, the outstanding cheques will lower the bank balance.

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Bank ReconciliationAdd any late deposits, if they exist.

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Bank ReconciliationCalculate the adjusted amount of the bank statement’s balance.

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Bank ReconciliationRecord the balance of cash from the company’s ledger account.

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Bank ReconciliationDeduct any Debit memos discovered on the bank statement.

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Bank ReconciliationCalculate the new cash balance.

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Bank ReconciliationOften, these two amounts will not match. If not, look for credit memos or errors.

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Bank ReconciliationIn this case, a journalizing error was discovered. It had the effect of increasing the ledger balance of cash.

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Bank ReconciliationCalculate the adjusted ledger account balance of cash.

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Bank ReconciliationThe two adjusted balances agree. Bank reconciliation is almost complete.

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Bank ReconciliationMaking changes on this statement will not effect the company’s ledger account balance of $1121.76 (incorrect due to the journalizing error).

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Bringing the Ledger up to dateIf there are any reconciling items on the Company’s Record side

of the reconciliation, these items need to be recorded in the books. Common entries would include recording the bank charges and interest for the month.