Chapter 2 Bank Reconciliations ALSARHANI YAHYA.

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Presentation transcript:

Chapter 2 Bank Reconciliations ALSARHANI YAHYA

Cash Currency and coins on hand Checks and money orders from customers Deposits in checking and savings accounts Compensating balance – the minimum amount a bank requires the company keep in their bank account as part of a credit-grant arrangement

Cash Equivalents Readily convertible to cash Original maturity to investor of 3 months or less 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 28 29 30 31 27 Commercial paper U.S. Treasury bills Certain money market funds

Cash Management Necessary to ensure company has neither too little nor too much cash on hand Tools: Cash Flows Statement Bank Reconciliations Petty Cash Funds

Bank Statements Cash balance, beginning of period + = Cash balance, end of period Deposits Customer notes and interest collected by bank Interest earned Canceled checks NSF checks Service charges

Bank Reconciliation - Step 1 Trace deposits on bank statement to books. Identify deposits in transit. Add to bank balance. Deposits in Transit: Late period deposits not yet reflected on bank statement

Example of Reconciliation Bank Statement Adjustments: Deposits Balance per statement, June 30 $ 3,308.59 Add: Deposit in transit 642.30 7 1

Bank Reconciliation - Step 2 Trace checks cleared by bank to books. Identify outstanding checks. Subtract from bank balance. Outstanding checks: Checks written but not yet presented to bank ABC Co. Pay to the order of: XYZ Co.

Example of Reconciliation Bank Statement Adjustments: Checks Outstanding Balance per statement, June 30 $3,308.59 Add: Deposit in transit 642.30 Deduct: Outstanding checks: Check No. 496 $ 79.89 Check No. 501 213.20 Check No. 502 424.75 (717.84) Adjusted balance, June 30 $3,233.05 9 1

Bank Reconciliation - Step 3 List all other additions (credit memoranda) shown on the bank statement. Add to book balance. Credit memoranda: Interest earned, customer notes collected

Example of Reconciliation Cash Account Adjustments: Credit Memoranda Balance per books,June 30 $ 2,895.82 Add: Note collected $500.00 Interest on note 50.00 Interest earned 15.45 Recording error, #498 54.00 619.45 11 2

Bank Reconciliation - Step 4 List all other subtractions (debit memoranda) shown on the bank statement. Subtract from book balance. Date Non-Sufficient Funds Debit memoranda: NSF checks, service charges, etc.

Example of Reconciliation Cash Account Adjustments:Debit Memoranda Balance per books, June 30 $ 2,895.82 Add: Note collected $500.00 Interest on note 50.00 Interest earned 15.45 Recording error, #498 54.00 619.45 Deduct: NSF check $245.72 Collection fee – note 16.50 Service charge 20.00 (282.22) Adjusted balance, June 30 $ 3,233.05 13 2

Bank Reconciliation - Step 5 Identify errors made by the bank or the company in recording transactions during the period.

Bank Reconciliation - Step 6 Use the information collected in Steps 1 - 5 to prepare the bank reconciliation. Bank Reconciliation Balance per bank $$$ : Adjusted balance $$$ Balance per books $$$ Adjusted balances for book and bank must agree

Bank Reconciliation Adjusting Entries Balance per bank $$$ : Adjusted balance $$$ Balance per books $$$ Book adjustments are the basis for adjusting entries

Bank Reconciliation Adjusting Entries Dr. Cr. Accounts Receivable 245.72 Collection Fee Expense 16.50 Rent Expense - Lockbox 20.00 Cash 337.23 Notes Receivable 500.00 Interest revenue 65.45 Supplies 54.00 To record bank reconciliation adjustments.