Bank reconciliations are: Prepared periodically to explain the difference between cash reported on the bank statement and the cash balance on company’s books. An important element of internal control. Bank Reconciliations 1 © 2013 McGraw-Hill Ryerson Limited. LO 6

The bank statement provides information about everything that has gone through the bank account for a given period of time. CM – Credit Memo DM – Debit Memo EC – Error Correction IN – Interest Earned NSF – Non-sufficient Funds OD – Overdraft SC – Service Charge 2 © 2013 McGraw-Hill Ryerson Limited. LO 6

The general ledger, cash receipts, and cash disbursements journals provide information about everything that has gone through our accounting records for a given period of time. 3 © 2013 McGraw-Hill Ryerson Limited. LO 6

* Bank Reconciliation - Example 4 © 2013 McGraw-Hill Ryerson Limited. Why are the balances different? Some items are reflected on the bank statement but not in the accounting records and vice versa. LO 6

Reconciling Items Bank Statement Outstanding cheques. Deposits in transit. Bank errors. General Ledger Non-sufficient funds cheque (NSF). Bank service charges. Interest earned on bank account. Collections made by the bank. Book errors. 5 © 2013 McGraw-Hill Ryerson Limited. LO 6

Let’s prepare the bank reconciliation for VideoBuster Company at the end of October 31, © 2013 McGraw-Hill Ryerson Limited. LO 6

These items appear on both the Cash Receipts Journal and the bank statement; therefore, none of these items is a reconciling item. 7 © 2013 McGraw-Hill Ryerson Limited. LO 6

These items appear on both the Cash Disbursements Journal AND the bank statement; therefore, none of these items is a reconciling item. 8 © 2013 McGraw-Hill Ryerson Limited. LO 6

These items appear only in the Cash Receipts Journal OR the Cash Disbursements Journal OR the bank statement; therefore, each of these items is a reconciling item. 9 © 2013 McGraw-Hill Ryerson Limited. LO 6

The items that show up only on the bank statement are reconciling items on the book side of the bank reconciliation. 10 © 2013 McGraw-Hill Ryerson Limited. LO 6

11 © 2013 McGraw-Hill Ryerson Limited. LO 6

12 © 2013 McGraw-Hill Ryerson Limited. LO 6

The items that show up only on the Cash Receipts or Cash Disbursements Journal are reconciling items on the bank side of the bank reconciliation. 13 © 2013 McGraw-Hill Ryerson Limited. LO 6

14 © 2013 McGraw-Hill Ryerson Limited. LO 6

The Final Product 15 © 2013 McGraw-Hill Ryerson Limited. LO 6

Recording Adjusting Entries from the Bank Reconciliation 16 © 2013 McGraw-Hill Ryerson Limited. LO 6

Recording Adjusting Entries from the Bank Reconciliation 17 © 2013 McGraw-Hill Ryerson Limited. LO 6

Recording Adjusting Entries from Bank Reconciliation After posting the reconciling entries the cash account looks like this © 2013 McGraw-Hill Ryerson Limited. Adjusted balance on October 31 LO 6