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:
| 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 | ||||
| Oct | 4 | GJ1 | 8,000.00 | ||||
| Oct | 15 | GJ1 | 9,500.00 | ||||
| Oct | 25 | GJ1 | 6,900.00 | ||||
| Oct | 26 | GJ1 | 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:
| 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 | |||
| 10/15/20XX | |||
| Single Line$21,500Double Line | |||
| Checks and other debits | |||
| 10/4/20XX | Market Street Truck Rental | #1000 | |
| 10/25/20XX | Hugh’s Auto Insurance | #1001 | |
| 10/25/20XX | Carol Caine | #1002 | |
| 10/26/20XX | Cleaning Supplies, Inc. | #1003 | |
| 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:
| 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
