Bank Reconciliations

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
 FEDERAL RESERVE NOTE

THE
THEUNITED
UNITED STATES
STATES OF
OF AMERICA
AMERICA
THI S NOTE I S LEGAL TENDER

FOR ALL DEBTS, PUBLI C AND PRI VATE

L70744629F

12 WASHI NGTON, D. C. 12
A
H 293

L70744629F
12 12

Cash Equivalents
SERI ES
1985

ONE
ONE DOLLAR
DOLLAR

Readily
convertible to cash
1 2 3

4 5 6 7 8 9 10
1 2 3

11 12 13 14 15 16 17
4 5 6 7 8 9 10
1 2 3

Original maturity
18 19 20 2111 2212 23 13 2414 15 16 17
4 5 6 7 8 9 10

25 26 27 2818 2919 30 20 3121 22 23 24

11 12 13 14 15 16 17

25 26 27 28 29
18 30
19 31
20 21 22 23 24

25 26 27 28 29 30 31
to investor of 3
months or less
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 +
Deposits
Canceled
Customer notes checks
and interest
collected by
NSF checks
bank Service
charges
Interest earned

= Cash balance, end of period

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
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
 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
 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
 Bank Reconciliation - Step 4

List all other subtractions (debit memoranda)

shown on the bank statement. Subtract from
book balance.

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
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

: balances
Adjusted balance $$$ for book
and bank
Balance per books $$$ must
: agree
Adjusted balance $$$
Bank Reconciliation
Adjusting Entries

Bank Reconciliation

Balance per bank $$$

: Book
Adjusted balance $$$ adjustments
are the basis
Balance per books $$$ for
: adjusting
Adjusted balance $$$ 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.