AC 210 Lecture Notes - Lecture 31: Safe Deposit Box, Hosta, Bank Reconciliation
5 Jun 2018
School
Department
Course
Professor
Bank Reconciliation
Banks usually send customers a monthly statement that shows the account's beginning
balance (the previous statement's ending balance), all transactions that affect the
account's balance during the month, and the account's ending balance.
The ending balance on a bank statement almost never agrees with the balance in a
company's corresponding general ledger account. After receiving the bank statement,
therefore, the company prepares a bank reconciliation, which identifies each
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difference between the company's records and the bank's records. The normal
differences identified in a bank reconciliation will be discussed separately. These
differences are referred to as reconciling items. A bank reconciliation begins by showing
the bank statement's ending balance and the company's balance (book balance) in the
cash account on the same date.
Vector Management Group Bank Reconciliation April 30, 20X8
Bank statement
balance
$
8,202
Book
balance
$
6,370
Deposits in transit. Most companies make frequent cash deposits. Therefore,
company records may show one or more deposits, usually made on the last day
included on the bank statement, that do not appear on the bank statement. These
deposits are called deposits in transit and cause the bank statement balance to
understate the company's actual cash balance. Since deposits in transit have already
been recorded in the company's books as cash receipts, they must be added to the
bank statement balance. The Vector Management Group made a $3,000 deposit on the
afternoon of April 30 that does not appear on the statement, so this deposit in transit is
added to the bank statement balance.
Vector Management Group Bank Reconciliation April 30, 20X8
Bank
statement
balance
$8,202
Book
balance
$6,370
Add: Deposits
in transit
Outstanding checks. A check that a company mails to a creditor may take several
days to pass through the mail, be processed and deposited by the creditor, and then
clear the banking system. Therefore, company records may include a number of checks
that do not appear on the bank statement. These checks are called outstanding checks
and cause the bank statement balance to overstate the company's actual cash balance.
Since outstanding checks have already been recorded in the company's books as cash
disbursements, they must be subtracted from the bank statement balance.
Vector Management Group Bank Reconciliation April 30, 20X8
Bank
statement
balance
$8,202
Book
balance
$6,370
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Add: Deposits
in transit
Less: Outstanding checks
1552
$1,057
1564
245
1565
108
1570
359
1571
802
Adjusted bank balance
Automatic withdrawals and deposits. Companies may authorize a bank to
automatically transfer funds into or out of their account. Automatic withdrawals from the
account are used to pay for loans (notes or mortgages payable), monthly utility bills, or
other liabilities. Automatic deposits occur when the company's checking account
receives automatic fund transfers from customers or other sources or when the bank
collects notes receivable payments on behalf of the company.
Banks use debit memoranda to notify companies about automatic withdrawals, and
they use credit memoranda to notify companies about automatic deposits. The names
applied to these memoranda may seem confusing at first glance because the company
credits (decreases) its cash account upon receiving debit memoranda from the bank,
and the company debits (increases) its cash account upon receiving credit memoranda
from the bank. To the bank, however, a company's checking account balance is a
liability rather than an asset. Therefore, from the bank's perspective, the
terms debit and credit are correctly applied to the memoranda. If this still seems
confusing, you may want to review the chart on page 19 and think about how the
company classifies their account as an asset while the bank classifies the company's
account as a liability.
A credit memorandum attached to the Vector Management Group's bank statement
describes the bank's collection of a $1,500 note receivable along with $90 in interest.
The bank deducted $25 for this service, so the automatic deposit was for $1,565. The
bank statement also includes a debit memorandum describing a $253 automatic
withdrawal for a utility payment. Unlike deposits in transit or outstanding checks, which
are already recorded in the company's books, automatic withdrawals and deposits are
often brought to the company's attention for the first time when the bank statement is
received. On the bank reconciliation, add unrecorded automatic deposits to the
company's book balance, and subtract unrecorded automatic withdrawals.
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find more resources at oneclass.com
Document Summary
Banks usually send customers a monthly statement that shows the account"s beginning balance (the previous statement"s ending balance), all transactions that affect the account"s balance during the month, and the account"s ending balance. The ending balance on a bank statement almost never agrees with the balance in a company"s corresponding general ledger account. After receiving the bank statement, therefore, the company prepares a bank reconciliation, which identifies each difference between the company"s records and the bank"s records. The normal differences identified in a bank reconciliation will be discussed separately. These differences are referred to as reconciling items. A bank reconciliation begins by showing the bank statement"s ending balance and the company"s balance (book balance) in the cash account on the same date. Therefore, company records may show one or more deposits, usually made on the last day included on the bank statement, that do not appear on the bank statement.
