Accounting for Cash: Reconciling the Bank Statement An important part of internal control Need for calculating a true cash balance Two “sections” to be.

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Accounting for Cash: Reconciling the Bank Statement An important part of internal control Need for calculating a true cash balance Two “sections” to be reconciled balance per bank balance per books If there are any mistakes or transactions that have not been recorded in the company’s books, “adjusting” journal entries will be needed.

Reconciling the Bank Statement The bank reconciliation reports on the differences between the balance on the bank statement and the balance in the general ledger cash account. The reconciliation results in the true cash balance that will appear on the balance sheet.

Reconciling the Bank Statement If an “error” is found on the bank statement, an adjustment for it is made to the unadjusted bank balance to determine the true cash balance. An “error” made on our books requires an adjusting journal entry to correct.

BANK RECONCILIATION Exercise 7-9A (page 338) Bank Balance Per Bank $17,250 Plus Deposit in Transit + 2,630 Less Outstanding Checks (3,428) True Cash Balance $16,452 Books Balance Per Books $16,450 Plus Interest Earned + 12 Less Bank Service Charge (10) True Cash Balance $16,452

BANK RECONCILIATION Exercise 7-9A (page 338) Does the completed bank reconciliation on the prior slide indicate any necessary journal entries? Debit Credit Adjustment #1 Cash 12. Interest Revenue 12. Adjustment #2 Bank Service Charge Exp. 10. Cash 10.

Chapter Seven Homework Homework Prob. 7-21A (pages 341 & 342): Let’s take a look and see how you are going to do the bank reconciliation—where you have to “find” the reconciling items! Homework ATC 7-8 (page 355): Requires INTERNET research Must hand in “print out” of Pep Boys Balance Sheet you found in their 10-K report—along with the answers to the five questions asked in the textbook.

Using Petty Cash Funds (We are NOT going to cover Petty Cash topic) A petty cash fund is used to make small expenditures that cannot wait for the formal check- writing process. The fund is operated on an imprest basis. This means that when the fund gets low on cash it is replenished. The petty cashier is always responsible for the cash in the fund. This is an excellent internal control.

Bank Reconciliation Another Example for you to do on your own Matrix, Inc. is preparing the bank reconciliation for the month of June. 1.The June 30 th balance on the bank statement is $4,892.56, and the Cash general ledger balance on this date is $4, There was a deposit in transit in the amount of $ The bank erroneously deducted a $200 check drawn on the books of Matters, Inc. from our account. 4.At June 30 th there were three checks outstanding. Check 1078 dated 6/28, for $372.33; Check 1080 dated 6/29, for $402.41; and Check 1081 dated 6/30, for $ More Information

Bank Reconciliation 5.During the month of June the bank collected an account receivable for us in the amount of $ A check actually written for $ for supplies was erroneously recorded in our records by the bookkeeper as $ Matrix earned interest of $9.25 on its checking account. 8.The bank assessed a service charge of $12.75 for June and we deposited a NSF check in the amount of $ Let’s prepare the bank reconciliation

Bank Reconciliation

Adjusting the Books Every reconciling item that appears on the unadjusted book balance section requires a journal entry to adjust the general ledger cash balance to the true cash balance.