Reconciling Items

Learning Outcomes

  • Identify common reconciling items

Let’s take a look at NeatNiks’s GL for the month of October:

Date Item Post. Ref. Debit Credit Balance
Debit Credit
20–
Oct 1 Balance a 0.00
Oct 1 GJ1 20,000.00 20,000.00
Oct 4 GJ1 12,000.00 8,000.00
Oct 15 GJ1 1,500.00 9,500.00
Oct 25 GJ1 2,600.00 6,900.00
Oct 26 GJ1 1,000.00 5,900.00
Oct 30 GJ2 1,600.00 7,500.00
Oct 31 GJ2 4,000.00 3,500.00

And now the bank statement:

First World Bank: NeatNiks
Statement 10/1/20XX – 10/31/20XX
Balance at 10/3/20XX $0.00
Deposits $21,500.00
Transfers in $0.00
Checks and debits ($15,600.00)
Balance at 10/31/20XX Single Line$5,900.00Double Line
Deposits and other Credits
10/1/20XX $20,000.00
10/15/20XX $1,500.00
Single Line$21,500Double Line
Checks and other debits
10/4/20XX Market Street Truck Rental #1000 $12,000.00
10/25/20XX Hugh’s Auto Insurance #1001 $1,500.00
10/25/20XX Carol Caine #1002 $1,100.00
10/26/20XX Cleaning Supplies, Inc. #1003 $1,000.00
Single Line$15,600Double Line

Theoretically, since they both show the same information, the bank statement and the GL should match, but notice that NeatNiks’s GL shows an ending balance of $3,500 but the bank shows $5,900.We need to reconcile the two. In accounting, we don’t think of reconciling as making the records agree. It’s more about explaining the differences. The process is fairly straightforward if we are systematic about it. First, cross off everything that agrees between the two. What’s left is the differences that need to be explained.

Date Item Post. Ref. Debit Credit Balance
Debit Credit
20–
Oct 1 Balance a 0.00
Oct 1 GJ1 20,000.00 20,000.00
Oct 4 GJ1 12,000.00 8,000.00
Oct 15 GJ1 1,500.00 9,500.00
Oct 25 GJ1 2,600.00 6,900.00
Oct 26 GJ1 1,000.00 5,900.00
Oct 30 GJ2 1,600.00 7,500.00
Oct 31 GJ2 4,000.00 3,500.00

Going through the same process on the bank statement shows that everything on the bank statement is in the general ledger:

First World Bank: NeatNiks
Statement 10/1/20XX – 10/31/20XX
Balance at 10/3/20XX $0.00
Deposits $21,500.00
Transfers in $0.00
Checks and debits $15,600.00
Balance at 10/31/20XX Single Line$5,900.00Double Line
Deposits and other Credits
10/1/20XX $20,000.00
10/15/20XX $1,500.00
Single Line$21,500Double Line
Checks and other debits
10/4/20XX Market Street Truck Rental #1000 $12,000.00
10/25/20XX Hugh’s Auto Insurance #1001 $1,500.00
10/25/20XX Carol Caine #1002 $1,100.00
10/26/20XX Cleaning Supplies, Inc. #1003 $1,000.00
Single Line$15,600Double Line

We have narrowed down the difference between the general ledger GL and the bank statement to two items:

  • A deposit Nick made at the end of October in the amount of $1,600 and recorded in the GL is not showing on the bank statement.
  • A withdrawal Nick made at the end of October and recorded in the GL is not showing on the bank statement.

The next thing the accountant would do is check the bank balance and transactions at the beginning of November:

First World Bank: NeatNiks
Statement 11/1/20XX-
Balance at 11/1/20XX $5,900.00
Deposits $4,100.00
Transfers in $0.00
Checks and debits ($6,000.00)
Balance at — Single Line$4,000.00Double Line
Deposits and other Credits
11/1/20XX $1,600.00
11/5/20XX $2,500.00
Single Line$4,100Double Line
Checks and other debits
11/1/20XX Nick Frank #1004 $4,000.00
11/4/20XX Deborah Hill #1005 $500.00
11/5/20XX Office Supplies, Inc. #1006 $1,500.00
Single Line$6,000Double Line

The bank statement reconciles to the GL. The difference can be explained by the timing of the deposit and the timing of the check, both recorded in October in NeatNiks’s GL, but not on the bank statement for a few days while they were being processed and approved. These two reconciling items are common. They are called deposits in transit and outstanding checks.

Practice Question