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CORPORATE ACCOUNTING 3 rd Semester DBA

K. CORPORATE ACCOUNTING 3 rd Semester DBA. Aman Ullah Khan e-mail -mail4amankhan@gmail.com MBA-Finance CA-Foundation Kardan Institute of Higher Education. Bank Reconciliation statement.

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CORPORATE ACCOUNTING 3 rd Semester DBA

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  1. K CORPORATEACCOUNTING3rd Semester DBA Aman Ullah Khan e-mail -mail4amankhan@gmail.com MBA-Finance CA-Foundation Kardan Institute of Higher Education

  2. BankReconciliation statement

  3. DefinitionBank reconciliation statement is a statement which is prepared to reconcile the balances of cash ledger and bank statement.

  4. Following are the causes of difference between our cash ledger balance and bank statement balance

  5. Checks paid into bank but not collected and credited by the bank (Uncollected checks) Checks issued but not presented for payment. (Un presented checks)

  6. 3. Direct payment by the customers4. Interest or dividend on investment5. Bank charges (service charges)6. Dishonor of a check (NSF)7. Checks omitted to be paid into bank.

  7. Procedure For Preparing a Bank Reconciliation Statement

  8. Bank Reconciliation Per Cash Books(Depositor Ledger) • Add increases in cash already recorded by bank but not in books. • Deduct decreases in cash already recorded by bank but not in books. • Add or deduct errors on books.

  9. Bank Reconciliation Per Bank Books(Bank Statement) • Deposits in transit Increases in cash recorded on cash book but not in bank book. • Checks outstanding Decreases in cash already recorded on cash books but not bank Book. • Add or deduct errors by bank

  10. Reconciling the Bank Statement Balance per Bank Balance per Depositor + Deposits by Bank (credit memos) + Deposits in Transit - Service Charge - NSF Checks - Outstanding Checks ± Bank Errors ± Book Errors = Adjusted Balance = Adjusted Balance

  11. Reconciling the Bank Statement All reconciling items on the book side requirean adjusting entry to the cash account. Balance per Depositor + Deposits by Bank (credit memos) - Service Charge - NSF Checks ± Book Errors = Adjusted Balance

  12. BANK Depositor’s records Bank’s books Beginning balance $2,549.99 Beginning balance $3,359.78 Power Network prepares to reconcile the monthly bank statement as of July 31, 2006

  13. BANK Depositor’s records Bank’s books Beginning balance $2,549.99 Beginning balance $3,359.78 Add deposit not recorded by bank 816.20 $4,175.98 A deposit of $816.20 did not appear on the bank statement.

  14. BANK Beginning balance $3,359.78 Add deposit not recorded by bank 816.20 $4,175.98 Depositor’s records Bank’s books Beginning balance $2,549.99 Add note and interest collected by bank 408.00 $2,957.99 The bank collected a note in the amount of $400 and the related interest of $8 for Power Networking

  15. BANK Depositor’s records Bank’s books Beginning balance $2,549.99 Beginning balance $3,359.78 Add deposit not recorded by bank 816.20 Add note and interest collected by bank 408.00 $4,175.98 $2,957.99 Deduct outstanding checks: No. 812 $1,061.00 No. 878 435.39 No. 883 48.60 1,544.99 Three checks that were written during the period did not appear on the bank statement: #812, $1,061; #878, $435.39, #883, $48.60. A deposit of $637.02 did not appear on the bank statement.

  16. BANK Beginning balance $2,549.99 Beginning balance $3,359.78 Add deposit not recorded by bank 816.20 Add note and interest collected by bank 408.00 $4,175.98 $2,957.99 Depositor’s records Bank’s books Deduct outstanding checks: No. 812 $1,061.00 No. 878 435.39 No. 883 48.60 1,544.99 Deduct check returned because of insufficient funds $300.00 The bank returned an NSF check from one of the firm’s customers, Thomas Ivey, in the amount of $300. This was a payment on account.

  17. BANK Depositor’s records Bank’s books Beginning balance $2,549.99 Beginning balance $3,359.78 Add deposit not recorded by bank 816.20 Add note and interest collected by bank 408.00 $4,175.98 $2,957.99 Deduct outstanding checks: No. 812 $1,061.00 No. 878 435.39 No. 883 48.60 1,544.99 Deduct check return because of insufficient funds $300.00 Bank service charges 18.00 The bank service charges totaled $18.00.

  18. BANK Beginning balance $2,549.99 Beginning balance $3,359.78 Add deposit not recorded by bank 816.20 Add note and interest collected by bank 408.00 $4,175.98 $2,957.99 Deduct outstanding checks: No. 812 $1,061.00 No. 878 435.39 No. 883 48.60 1,544.99 Deduct check return because of insufficient funds $300.00 Bank service charges 18.00 Depositor’s records Bank’s books Error recording Check No. 879 9.00 327.00 Check No. 879 for $732.26 to Taylor Co. on account, erroneously recorded in journal as $723.26.

  19. BANK Depositor’s records Bank’s books Beginning balance $2,549.99 Beginning balance $3,359.78 Add deposit not recorded by bank 816.20 Add note and interest collected by bank 408.00 $4,175.98 $2,957.99 Deduct outstanding checks: No. 812 $1,061.00 No. 878 435.39 No. 883 48.60 1,544.99 Deduct check return because of insufficient funds $300.00 Bank service charges 18.00 Error recording Check No. 879 9.00 327 Adjusted balance $2,630.99 Adjusted balance $2,630.99

  20. Now, if desired, we can prepare a formal statement for Power Networking.

  21. Power NetworkingBank ReconciliationJuly 31, 2006 Balance per bank statement $3,359.78 Add: Deposit not recorded by bank 816.20 $4,175.98 Deduct: Outstanding checks No. 812 $1,061.00 No. 878 435.39 No. 883 48.60 1,544.99 Adjusted balance $2,630.99 Balance per depositor’s records $2,549.99 Add: Note and interest collected by bank 408.00 $2,957.99 Deduct: NSF check (Thomas Ivey) returned $300.00 Bank service charges 18.00 Error in recording Check No. 879 9.00 327.00 Adjusted balance $2,630.99

  22. Reconciling the Bank Statement Example Question No 1 Prepare a July 31 bank reconciliation statement and the resulting journal entries for the Simmons Company. The July 31 bank statement indicated a cash balance of $9,610, while the cash ledger account on that date shows a balance of $7,430. Additional information necessary for the reconciliation is shown on the next page.

  23. Outstanding checks totaled $2,417. • A $500 check mailed to the bank for deposit had not reached the bank at the statement date. • The bank returned a customer’s NSF check for $225 received as payment of an account receivable. • The bank statement showed $30 interest earned on the bank balance for the month of July. • Check 781 for supplies cleared the bank for $268 but was erroneously recorded in our books as $240. • A $486 deposit by Acme Company was erroneously credited to our account by the bank.

  24. SIMON COMPANY Bank Reconciliation July 31,2001

  25. Reconciling the Bank Statement Example

  26. Reconciling the Bank Statement Example Question No 2 Prepare a December 31 bank reconciliation statement and the resulting journal entries for the Data Flow Inc . The Dec 31 bank statement indicated a cash balance of $15,981, while the cash ledger account on that date shows a balance of $17,445. Additional information necessary for the reconciliation is shown on the next page.

  27. Outstanding checks totaled $3513. • A $4353 check mailed to the bank for deposit had not reached the bank at the statement date. • The bank returned a customer’s NSF check for $600 received as payment of an account receivable. • The bank statement showed $24 Service Charges for the month of dec.

  28. DATA FLOW INC Bank Reconciliation December 31,2006 Balance per Bank statement $15,981 Addition: Deposits in Transit 4,353 Deduction: Outstanding Checks (3,513) Adjusted Cash Balance $16,821 Balance per Depositor’s Record $17,445 Deductions: Service Charges $24 NSF Check $600 $(624) Adjusted Cash Balance $16,821

  29. Reconciling the Bank Statement Example Question No 3 Prepare a July 31 bank reconciliation statement and the resulting journal entries for the Norfleet Farm . The July bank statement indicated a cash balance of $18,928.12, while the cash ledger account on that date shows a balance of $16,766.95. Additional information necessary for the reconciliation is shown on the next page.

  30. Outstanding checks totaled $1,802.97. • A $4,017.15 check mailed to the bank for deposit had not reached the bank at the statement date. • The bank returned a customer’s NSF check for $180 received as payment of an account receivable. • The bank statement showed $4,545 Note Receivable collected by the bank for the business. • Check 821 for Office Equipment cleared the bank for $835.02 but was erroneously recorded in our books as $853.02. • The bank statement showed $7.65 Service Charges for the month of July.

  31. NORFLEET FORM Bank Reconciliation July 31,2001 Balance per Bank statement, July 31 $18,928.12 Addition: Deposits in Transit 4017.15 Deduction: Outstanding Checks (1,802.97) Adjusted Cash Balance $21,142.30 Balance per Depositor’s Record $16,766.95 Additions: Note Receivable by bank $4,545.00 Book error 18.00 4563.00 Deductions: Service Charges $7.65 NSF Check 180.00 $(187.65) Adjusted Cash Balance $21,142.30

  32. Reconciling the Bank Statement Example Question No 4 Prepare an October 31, 2006 bank reconciliation statement and the resulting journal entries for the Parkview Company. The October bank statement indicated a cash balance of $5,000.17, while the cash ledger account on that date shows a balance of $4,262.83. Additional information necessary for the reconciliation is shown on the next page.

  33. Outstanding checks totaled $717.75. • A $410.90 check mailed to the bank for deposit had not reached the bank at the statement date. • The bank returned a customer’s NSF check for $50.25 received as payment of an account receivable. • The bank statement showed $ 500.00 Note Receivable collected by the bank for the business. • Check 875 for Telephone Expense cleared the bank for $85.00 but was erroneously recorded in our books as $58.00. • The bank statement showed $17.00 Service Charges for the month of July. • The bank statement showed $24.74 interest earned on the bank balance for the month of October.

  34. PARKVIEW COMPANY Bank Reconciliation October 31,2006 Balance per Bank statement, July 31 $5,000.17 Addition: Deposits in Transit 410.90 Deduction: Outstanding Checks (717.75) Adjusted Cash Balance $4,693.32 Balance per Depositor’s Record $4,262.83 Additions: Note Receivable by bank $ 500.00 Interest Revenue 24.74 524.74 Deductions: Service Charges $17.00 Book Error 27.00 NSF Check 50.25 $(94.25) Adjusted Cash Balance $4,693.32

  35. CLASS ACTIVITY-1 Prepare Bank Reconciliation Statement For DUBAI ENTERPRISES • Balance per Depositor’s record $4239.35 • Balance per Bank Statement $4581.50 • Checks outstanding $694.10 • Deposit in transit $362.80 • A check for payment of $57 was recorded as $75 in deposit ledger. f) Bank debit memorandum for service charges $7.15.

  36. CLASS ACTIVITY-2 Prepare Bank Reconciliation Statement For DUBAI ENTERPRISES • Balance per Depositor’s record $5780 • Balance per Bank Statement $4675 • Checks outstanding $ 1800 • Deposit in transit $ 2000 • Interest on investment collected by the bank $800 • Bank service charges $30 • Interest on Notes Payables $175 • Checks issued and paid by bank omitted to be recorded $ 1500

  37. Financial Assets Cash Receivables Short-term Investments

  38. Cash Coins and paper money Cash is Defined as any deposit banks will accept. Checks Bank credit card Money orders Travelers’ checks

  39. Accountant define cash as any item that banks will accept for deposits. These items include not only coins and paper money, but also checks, money orders and travelers checks. Banks also accept drafts signed by customers using bank credit cards.

  40. Reporting of Cash Cash is listed first in the balance sheet because it is the most liquid of all current assets. For the purpose of Balance Sheet presentation Reporting cash needs special attention of the following: 1.Cash equivalents 2. Restricted cash 3. Lines of credit

  41. Cash Equivalents Some short term investments are so liquid that they are termed cash equivalents. To qualify as a cash equivalent ,an investment must be 1. Very safe 2. Have a very stable value • 3. Mature within 90 days of acquision . Examples: Treasury bills, money-market funds, commercial paper

  42. These assets are considered so similar to cash that they are combined with the amount of cash in Balance Sheet. Therefore the first asset listed in balance sheet often is called Cash and Cash Equivalents. • To qualify as a cash equivalent, an investment must be very safe, have a very stable market value and mature within 90 days of the date of acquisition.

  43. Short term investments that do not qualify as cash equivalents are listed in the balance sheet as marketable securities, which appear second among the current assets.

  44. Cash Equivalents Reporting Cash in the Balance Sheet Combined with cash on balance sheet Matures within 90 days of acquisition Liquid short-term investments Stable market values

  45. Restricted Cash Some banks accounts are restricted as to their use, so they are not available to meet the normal operating needs of the company. For example, a bank account may contain cash specifically kept for the acquisition of Fixed assets. Bank account in some foreign countries are restricted by laws that prohibit transferring the money another country.

  46. Cash that is not available for paying current liabilities should not be viewed as a current asset. Therefore restricted cash should be listed just below the current asset section of the balance sheet in the section entitled “Investment and Funds.

  47. Reporting Cash in the Balance Sheet Not available for paying current liabilities “Restricted” Cash Listed as an investment Not a current asset

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