The bank is a very important partner to all businesses. Not only does the bank provide basic checking services, but they process credit card transactions, keep cash safe, and may finance loans when needed. Bank accounts for businesses can involve thousands of transactions per month. Due to the number of ongoing transactions, an organization’s book balance for its checking account rarely is the same as the balance that the bank records reflect for the entity at any
given point. These timing differences are typically caused by the fact that there will be some transactions that the organization is aware of before the bank, or transactions the bank is aware of before the company. For example, if a company writes a check that has not cleared yet, the company would be aware of the transaction before the bank is. Similarly, the bank might have received funds on the company’s behalf and recorded them in the bank’s records for the company before the
organization is aware of the deposit. With the large volume of transactions that impact a bank account, it becomes necessary to have an internal control system in place to assure that all cash transactions are properly recorded within the bank account, as well as on the ledger of the business. The bank reconciliation is the internal financial report that explains and documents any differences that may exist between the balance of a checking account as reflected by the
bank’s records (bank balance) for a company and the company’s accounting records (company balance). The bank reconciliation is an internal document prepared by the company that owns the checking account. The transactions with timing differences are used to adjust and reconcile both the bank and company balances; after the bank reconciliation is prepared accurately, both the bank balance and the company balance will be the same amount. Note that the transactions the company is aware of have already been recorded (journalized) in its records. However, the transactions that the bank is aware of but the company is not must be journalized in the entity’s records. Fundamentals of the Bank Reconciliation ProcedureThe balance on a bank statement can differ from company’s financial records due to one or more of the following circumstances:
Demonstration of a Bank ReconciliationA bank reconciliation is structured to include the information shown in Figure 8.6. Figure 8.6 Bank Reconciliation. A bank reconciliation includes categories for adjustments to both the bank balance and the book balance. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)Assume the following circumstances for Feeter Plumbing Company, a small business located in Northern Ohio.
Each item would be recorded on the bank reconciliation as follows: One important trait of the bank reconciliation is that it identifies transactions that have not been recorded by the company that are supposed to be recorded. Journal entries are required to adjust the book balance to the correct balance. In the case of Feeter, the first entry will record the collection of the note, as well as the interest collected. The second entry required is to adjust the books for the check that was returned from Berson. The third entry is to adjust the recording error for check 5386. The final entry is to record the bank service charges that are deducted by the bank but have not been recorded on the records. The previous entries are standard to ensure that the bank records are matching to the financial records. These entries are necessary to update Feeter‛s general ledger cash account to reflect the adjustments made by the bank. Which entries are not recorded in bank reconciliation statement?The following items tend to remain unrecorded when a bank statement is received: Interest on deposits credited by the bank but not recorded in the cash book. Interest on investments collected by the bank but not recorded in the cash book. Dividends collected by the bank but not recorded in the cash book.
Which of the following will require a journal entry in a bank reconciliation?Examples of items requiring a journal entry as the result of the bank reconciliation include:. Bank service charges which are often shown on the last day of the bank statement. ... . Check printing charges.. Customer checks that were deposited but are now returned as NSF (not sufficient funds). Bank fees for returned checks.. What is not included in bank reconciliation?All the payments made by the customers or vendors in cash form will not be included in bank reconciliation statement.
Which transactions are not recorded in journal entry?It is also called the book of original entry. When a cashbook is maintained, transactions of cash are not recorded in the journal, and no separate account for cash or bank is required in the ledger.
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