Bank reconciliation v4

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Lesson 1 Introduction to bank reconciliation

Transcript of Bank reconciliation v4

Page 1: Bank reconciliation v4

Lesson 1

Introduction to bank reconciliation

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Spot the differences

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Bank Reconciliation

A bank reconciliation is the process of matching the balances in the business records to the bank records. The goal is to find the differences between the two (business records vs bank records) and making changes to the business records as appropriate.

Q: Why do business do bank reconciliation?

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Why do bank reconciliation?

• Identify any errors committed by the business or the bank (rare).

• Helps the business identify the actual amount of cash available to spend.

• Without bank reconciliation you expose your business to risk. Risk of people stealing from your account.

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Why do bank reconciliation?

• The bank reconciliation may also show any undue delay in the clearance of cheques.

• A balanced bank reconciliation provides confidence in the accuracy of the business records.

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Bank Records:Bank Statement

Business Records:• Cash receipts

journal• Cash payment

journal• Cash at bank

account

And circle the entries do not appear in both set of records

Entries found in the bank records but missing in the business records should be added to the business records

Prepare a cash balance summary

Prepare a bank reconciliation statement.

Compare

Tick each entry that appears in both sets of records

Find the differences

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What is a bank statement?

A bank statement is a document that is issued by a bank once a month to its customers.

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What information does the bank statement provide?

• The beginning cash balance in the account• + The deposited cheques and cash• - Cash withdrawn from the account• - Cheques paid out• + Interest earned on the account• - Bank charges against the account• = Ending cash balance in the account

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1) The business owner (Mr. A) makes a cash sale of $200 and deposit the cash into the bank (NAB). • What is the double entry for the business? • What is the double entry for the bank?

CLASS ACTIVITY

DR Cash $200, CR Sales $200

DR Cash $200, CR Bank statement (deposit) $200

The $200 the bank received is not from sales, but an obligation/liability to return the $200 to the business owner on demand.

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Bank Interest earned

Bank automatically add interest to the account.

When you open an account at a bank, the bank will pay you to keep your money at their bank.

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Bank charges

Bank automatically deducts charges from the account.Examples • Monthly bank service charge - cost of

maintaining an account. • Bank charges a fee when a cheque is returned

for insufficient funds. • Bank charges a fee on an overdraft account.

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2) Mr. A’s bank (NAB) deducts a bank charge of $6.

• What is the double entry for the business?

• What is the double entry for the bank?

CLASS ACTIVITY

DR Bank charges $6, CR Cash $6

DR Bank statement $6, CR Bank service charge revenue $6

When bank charges Mr. A $6, the bank earns $6.

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Date Particulars Rec no. Debtors Cash sales Sundries Bank

xxx Cash sales xx 200.00 200.00 200.00

Date Particulars Chq no. Creditors Cash Purchase Sundries Bankxxx Monthly bank service charge 5.00 5.00

5.00

Cash receipts journal (DR)

Cash payments journal (CR)

Date Description DR CR BalanceXXX Balance b/f 0XXX Cash Sales 200.00 200.00 CRXXX Bank interest earned 5.00 205.00 CRXXX Monthly bank service charge 6.00 199.00 CR

Bank Statement

√Missing in cash receipts journal

Mr. A made an error

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Lesson 2Bank reconciliation & Reconciling Items

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Reconciling Items

• Unrecorded deposits• Unpresented cheques• Business errors and Bank errors (rare)• Bank Transfer /EFT• Bank Interest earned• Bank charges

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Case StudyBella needs to buy a beautiful prom dress for the prom night. Mr John Brown is a fantastic tailor and he owns a neighbourhood dress shop. Bella decides to purchase a custom made dress which cost her $700.

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Unrecorded depositsBella gave John a cheque of $700. John entered this transaction into his cash receipts journal.

At the end of the day, he deposited the cheque into his bank account.

John’s bank did not have a chance to process the cheque; and the bank statement has already been prepared.

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Unrecorded deposits

Receipts that have been recorded in the cash receipts journal and taken to the bank at the end of the day; but at that time the bank statement has been prepared; and the bank have not processed those receipts.

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Unpresented chequesJohn ordered some silk cloth from Jay Enterprise to make Bella’s prom dress.

He wrote a cheque of $200 to Jay Enterprise and sent it by mail.

He entered this transaction into his cash payments journal.

John’s bank statement has already been prepared, but the cheque has not been presented for payment at the bank.

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Unpresented cheques

Cheques that have been written, sent and recorded in the cash payments journal; but at that time the bank statement has been prepared; and the cheques have not been presented for payment at the bank.

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Date Rec no. Debtors Cash sales Sundries Bank3/04/2012 128 2,300.00 2,300.00 8/04/2012 CRR 500.00 500.00

17/04/2012 129 200.00 200.00 19/04/2012 130 2,400.00 2,400.00 22/04/2012 CRR 200.00 200.00 30/04/2012 131 700.00 700.00

- 5,600.00 500.00 200.00 6,300.00

CRR = Cash register roll - money received over the counter.

Bella

Cash receipts journal (DR)

ParticularsAngel Bridal ShopWendyNancyKelly FashionSewing equipment

Date Debits Credits01/04/2012 2,565.00 CR04/04/2012 2,300.00 4,865.00 CR05/04/2012 1,200.00 3,665.00 CR09/04/2012 500.00 4,165.00 CR11/04/2012 2,800.00 1,365.00 CR15/04/2012 10.00 1,355.00 CR16/04/2012 6.00 1,361.00 CR17/04/2012 1,500.00 139.00 DR17/04/2012 30.00 169.00 DR18/04/2012 200.00 31.00 CR20/04/2012 2,400.00 2,431.00 CR23/04/2012 200.00 2,631.00 CR26/04/2012 2,000.00 631.00 CR30/04/2012 200.00 431.00 CR30/04/2012 25.00 406.00 CR

Fee - overdrawn account

Bank StatementParticulars Balance

Balance brought forwardC/c

276C/c

277Monthly service chargeInterest278

C/cC/cC/c

279Returned Cheque - NancyFee - returned cheque

C/c = Cash and Cheques deposited

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Date Chq no. Creditors Cash Purchases Wages Rent Sundries Bank4/04/2012 276 1,200.00 1,200.00

10/04/2012 277 2,800.00 2,800.00 16/04/2012 278 1,500.00 1,500.00 25/04/2012 279 2,000.00 2,000.00 30/04/2012 280 200.00 200.00

- 2,200.00 2,800.00 1,500.00 1,200.00 - 7,700.00

Jay Enterprise

Cash payments journal (CR)

ParticularsRentSewing machineNatalie - employeeAB Fabric Pty Ltd

Date Debits Credits01/04/2012 2,565.00 CR04/04/2012 2,300.00 4,865.00 CR05/04/2012 1,200.00 3,665.00 CR09/04/2012 500.00 4,165.00 CR11/04/2012 2,800.00 1,365.00 CR15/04/2012 10.00 1,355.00 CR16/04/2012 6.00 1,361.00 CR17/04/2012 1,500.00 139.00 DR17/04/2012 30.00 169.00 DR18/04/2012 200.00 31.00 CR20/04/2012 2,400.00 2,431.00 CR23/04/2012 200.00 2,631.00 CR26/04/2012 2,000.00 631.00 CR30/04/2012 200.00 431.00 CR30/04/2012 25.00 406.00 CR

Fee - overdrawn account

Bank StatementParticulars Balance

Balance brought forwardC/c

276C/c

277Monthly service chargeInterest278

C/cC/cC/c

279Returned Cheque - NancyFee - returned cheque

C/c = Cash and Cheques deposited

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Date Rec no. Debtors Cash sales Sundries Bank3/04/2012 128 2,300.00 2,300.00 √8/04/2012 CRR 500.00 500.00 √

17/04/2012 129 200.00 200.00 √19/04/2012 130 2,400.00 2,400.00 √22/04/2012 CRR 200.00 200.00 √30/04/2012 131 700.00 700.00

5,600.00 500.00 200.00 6,300.00 CRR = Cash register roll - money received over the counter.

Cash receipts journal (DR)

ParticularsAngel Bridal ShopWendyNancyKelly FashionSewing equipmentBella

Date Debits Credits01/04/2012 2,565.00 CR04/04/2012 2,300.00 √ 4,865.00 CR05/04/2012 1,200.00 3,665.00 CR09/04/2012 500.00 √ 4,165.00 CR11/04/2012 2,800.00 1,365.00 CR15/04/2012 10.00 1,355.00 CR16/04/2012 6.00 1,361.00 CR17/04/2012 1,500.00 139.00 DR17/04/2012 30.00 169.00 DR18/04/2012 200.00 √ 31.00 CR20/04/2012 2,400.00 √ 2,431.00 CR23/04/2012 200.00 √ 2,631.00 CR26/04/2012 2,000.00 631.00 CR30/04/2012 200.00 431.00 CR30/04/2012 25.00 406.00 CR

Returned Cheque - NancyFee - returned cheque

C/c = Cash and Cheques deposited

Fee - overdrawn accountC/cC/cC/c

279

C/c277Monthly service chargeInterest278

Particulars BalanceBalance brought forwardC/c

276

Bank Statement

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Date Debits Credits01/04/2012 2,565.00 CR04/04/2012 2,300.00 √ 4,865.00 CR05/04/2012 1,200.00 √ 3,665.00 CR09/04/2012 500.00 √ 4,165.00 CR11/04/2012 2,800.00 √ 1,365.00 CR15/04/2012 10.00 1,355.00 CR16/04/2012 6.00 1,361.00 CR17/04/2012 1,500.00 √ 139.00 DR17/04/2012 30.00 169.00 DR18/04/2012 200.00 √ 31.00 CR20/04/2012 2,400.00 √ 2,431.00 CR23/04/2012 200.00 √ 2,631.00 CR26/04/2012 2,000.00 √ 631.00 CR30/04/2012 200.00 431.00 CR30/04/2012 25.00 406.00 CR

C/c = Cash and Cheques deposited

Bank Statement

Returned Cheque - NancyFee - returned cheque

Fee - overdrawn accountC/cC/cC/c

279

C/c277Monthly service chargeInterest278

Particulars BalanceBalance brought forwardC/c

276

Date Chq no. Creditors Cash Purchase Wages Rent Sundries Bank4/04/2012 276 1,200.00 1,200.00 √

10/04/2012 277 2,800.00 2,800.00 √16/04/2012 278 1,500.00 1,500.00 √25/04/2012 279 2,000.00 2,000.00 √30/04/2012 280 200.00 200.00

2,200.00 2,800.00 1,500.00 1,200.00 - 7,700.00

Cash payments journal (CR)

ParticularsRentSewing machineNatalie - employeeAB Fabric Pty LtdJay Enterprise

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Date Rec no. Debtors Cash sales Sundries Bank3/04/2012 128 2,300.00 2,300.00 √8/04/2012 CRR 500.00 500.00 √

16/04/2012 6.00 6.00 √17/04/2012 129 200.00 200.00 √19/04/2012 130 2,400.00 2,400.00 √22/04/2012 CRR 200.00 200.00 √30/04/2012 131 700.00 700.00 30/04/2012 (200.00) (200.00) √

5,400.00 500.00 206.00 6,106.00

NancyKelly FashionSewing equipmentBellaReturned Cheque - Nancy

Cash receipts journal (DR)

Wendy

ParticularsAngel Bridal Shop

Interest

Date Chq no. Creditors Cash Purchases Wages Rent Sundries Bank4/04/2012 276 1,200.00 1,200.00 √

10/04/2012 277 2,800.00 2,800.00 √15/04/2012 10.00 10.00 √16/04/2012 278 1,500.00 1,500.00 √17/04/2012 30.00 30.00 √25/04/2012 279 2,000.00 2,000.00 √30/04/2012 280 200.00 200.00 30/04/2012 25.00 25.00 √

2,200.00 2,800.00 1,500.00 1,200.00 65.00 7,765.00

Fee - overdrawn accountAB Fabric Pty LtdJay EnterpriseFee - returned cheque

ParticularsRentSewing machineMonthly Service chargeNatalie - employee

Cash payments journal (CR)

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Cash balance summary as at 30 April 2012

$Opening balance 2,565.00

Add cash receipts 6,106.00

Less cash payments 7,765.00

Closing balance 906.00

Bank reconciliation statement as at 30 April 2012

$Balance as per bank statement 406.00 CR

Add Unrecorded deposit 700.00

Less Unpresented cheques 200.00

Balance as per business cash records 906.00 CR

MATCH

Opening balance from bank statement

Total from cash receipts journalTotal from cash payments journal

Closing balance from bank statement

Item circle/ highlight from cash receipts journal

Item circle/ highlight from cash payments journal