## Bank Reconciliation

### Learning Outcomes

• Prepare a bank reconciliation

Let’s examine a more complicated (and therefore more realistic) example of reconciling the GL to the bank.

This bank statement is an example of the transactions that occurred during the month of September for My Company:

Deposits and other Credits Total Deposits Checks and Other Debits Customer: My Company Statement Date September 30 111 College Way Virginia Beach, VA September 1 Beginning Balance $16,850 + Deposits and Other Credits$22,367 – Checks and other Debits ($11,822) September 30 Ending Balance$27,395 1-Sep $1,500 15-Sep$2,514 16-Sep $350 20-Sep$500 25-Sep $10,000 29-Sep$4,500 Interest $3 CM$3,000 $22,367 2001 1-Sep$750 2002 5-Sep $980 2002 5-Sep$275 2005 10-Sep $5,843 2006 15-Sep$333 2007 21-Sep $480 2010 28-Sep$2,571 2011 28-Sep $235 SC 30-Sep$5 NSF 18-Sep $350$11,822 Notes CM is for collection of a note. Note was for $3,500 but the bank charged a$500 collection fee. SC is for bank service charges. NSF is for customer payment that could not be funded due to Non Sufficient Funds

In the Deposit and Credits section, you see the deposits made into the account and a CM, which is a collection of a note (see note at bottom of statement) and interest the bank has paid to your account. In the Checks and Debits section, you see the individual checks that have been processed by the bank and you also see SC for a bank service charge on your account as well as a NSF (stands for Non-Sufficient Funds) and means we made a deposit from a customer but the customer did not have enough money to pay the check (bounced check).

Here is the company’s GL:

Date Item Post. Ref. Debit Credit Bal fwd 16,850.00 1 1,500.00 18,350.00 1 750.00 17,600.00 5 980.00 16,620.00 5 275.00 16,345.00 8 1,000.00 15,345.00 10 5,483.00 9,862.00 14 2,514.00 12,376.00 15 350.00 12,726.00 15 333.00 12,393.00 20 500.00 12,893.00 20 480.00 12,413.00 20 650.00 11,763.00 22 200.00 11,563.00 24 10,000.00 21,563.00 28 2,571.00 18,992.00 28 235.00 18,757.00 28 4,500.00 23,257.00 30 6,700.00 29,957.00 30 5,500.00 24,457.00

The bank balance on September 30 is $27,395, but according to My Company records, the ending cash balance is$24,457. We need to do a bank reconciliation (and some research) to explain the difference.

Stop here for a moment to cross off any items that appear on both the bank statement and the GL because they don’t have to be reconciled. Ignore any slight timing differences because, for instance, the check the company wrote on September 20 for $480 didn’t clear the bank until the next day, but that’s not a problem because it’s on the bank statement and in the GL. After comparing the bank statement and records of My Company, you should have identified the following reconciling items: 1. Deposit in transit dated 9/30 for$6,700.
2. Outstanding checks #2004, 2008, 2009, 2012.
3. Interest paid by the bank $3. 4. Note collected by bank$3500 less $500 fee. 5. Bank service charge$5.

## Preparing a Bank Reconciliation

The first step in preparing the bank reconciliation is to adjust the bank balance for any timing differences and/or the rare bank error. Add deposits in transit and subtract outstanding checks so the bank balance is adjusted to reflect transactions My Company made in September that the bank didn’t record until October because of lag time:

Description Amount Total
Ending Bank Balance $27,395.00 Add: 9/30 Deposit$6,700.00
Single Line $34,095.00 Subcategory, Subtract: O/S Ck #2004$1,000.00
# 2008 $650.00 # 2009$200.00
# 2012 $5,500.00 Single Line$7,350.00
Adjusted Bank Balance Single Line$26,745.00 Double Line If the bank records are accurate, this should be the GL balance. However, My Company missed recording a couple of items and made a mistake. If we take those errors into account, the GL would look like this: Description Amount Total Ending Book Balance$24,457.00
Add: Interest $3.00 Note Collected$3,000.00 $27,460.00 Subcategory, Subtract: Bank Fee$5.00
Customer NSF $350.00 CK 2005 Error$360.00
Single Line $715.00 Adjusted Book Balance Single Line$26,745.00Double Line

When the bank (top section of the reconciliation) and book (bottom section) are in agreement, you are almost finished. On the bank side of the reconciliation, you do not need to do anything else except contact the bank if you notice any bank errors. On the book side, you will need to record journal entries for each of the reconciling items, because those are transactions you forgot to record in September during your regular bookkeeping process.

(Note: Sometimes the adjusted bank balance is on the left side and the adjusted book balance is on the right side.)