1. Chapter 2
Bank Reconciliations
ALSARHANI YAHYA

2. 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

3. 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

4. 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

5. 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

6. 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

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

8. 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.

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

10. 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

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

12. 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.

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

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

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

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

17. Bank Reconciliation Adjusting Entries
Dr. Cr.
Accounts Receivable
Collection Fee Expense
Rent Expense - Lockbox
Cash
Notes Receivable
Interest revenue
Supplies
To record bank reconciliation adjustments.