24 terms

The Bank Reconciliation

Mastering Correction of Accounting Errors Book 2, Sect. 2

Terms in this set (...)

Bank reconciliation
The process of bringing the bank and Cash accounts into balance
3 major purposes for bank reconciliation
1) to review information needed to bring company accounting records up to date at the end of the month or other period

2) to verify that the ledger Cash account balance at the end of the month or other period is accurate and to correct any errors

3) to verify that the checking account balance at the end of the month or other period is accurate and to alert the bank of any errors
Deposits in transit
Deposits made by mail or in a night deposit lock box NOT YET recorded on the bank statement used in the reconciliation
Undeposited cash
Many businesses record receipts daily but make deposits at the bank only once or twice a week
Outstanding checks
The company PAID bill, credited them to Cash and recorded the amount in the company checkbook, BUT the checks have NOT been paid by the bank, so they are not deducted on the current bank statement
Credit memoranda
Additions to the company bank balance such as Funds Wired directly into the company account, Notes Collected by the bank on the company's behalf, Interest Earned on the checking account average balance, and Cash Transferred into the company account when a credit line is activated
Debit memoranda
Deductions from the company bank account include: Bank service charges, NSF checks (Not Sufficient Funds), and Fees for items such as Certified Checks and Safe-Deposit boxes
How many parts are there in Bank Reconciliation?
It's a two-part process
Part 1 - Bank Reconciliation
Reconciling the End-of-Month Bank Balance
Part 2 - Bank Reconciliation
Reconciling the Cash Account
Step-by-Step...how many steps are there?
Step 1
If cancelled checks are returned by the bank, put them in numberical order
Step 2
Examine each canceled check!
See if it is drawn on the proper bank account, it's properly signed, and it is for the amount shown on the bank statement
Step 3
Verify that deposit amounts listed on the bank statement conform to the deposit amounts on the company deposit slips and in the company Cash account.
Double check on Deposits in transit from last month and make sure they are on the current statement
Step 4
Begin with the End-Of-Month bank balance
Step 5
+ Cash on hand
+ Deposits in transit
Step 6
- Cecks outstanding
Step 7
Add to or deduct from the bank statement balance the amount of any bank errors
Step 8
Begin with the End-Of-Month ledger Cash account balance
Step 9
ADD credit memoranda, such as:
+ amounts from funds wired directly in company account

+ received from the bank and not recorded by the company in the Cash account

+ Notes collected by the bank on the company's behalf

+interest earned on the average checking account balance

+ cash transferred into the company account if a credit line was activated
Step 10
DEDUCT debit memoranda for amounts not recorded by the company, such as:
- bank service charges

- NSF checks (nonsufficient funds or "bounced" checks)

- Certified checks

- Safe-deposit box fees

- other bank fees
Step 11
Add to or deduct from the Cash account balance the amount of any errors made by the company
Step 12
Record the journal entries for each adjustment to Cash and for any book errors
Step 13
Notify the bank of any bank errors