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Lesson 1

Lesson 1. Introduction to bank reconciliation. Spot the d ifferences. Bank Reconciliation. A bank reconciliation is the process of matching the balances in the business records to the bank records. .

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Lesson 1

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  1. Lesson 1 Introduction to bank reconciliation

  2. Spot the differences

  3. Bank Reconciliation A bank reconciliation is the process of matching the balances in the business records to the bank records. The goal is to find the differences between the two (business records vs bank records) and making changes to the business records as appropriate. Q: Why do business do bank reconciliation?

  4. Why do bank reconciliation? • Identify any errors committed by the business or the bank (rare). • Helps the business identify the actual amount of cash available to spend. • Without bank reconciliation you expose your business to risk. Risk of people stealing from your account.

  5. Why do bank reconciliation? • The bank reconciliation may also show any undue delay in the clearance of cheques. • A balanced bank reconciliation provides confidence in the accuracy of the business records.

  6. Bank Records: Bank Statement • Business Records: • Cash receipts journal • Cash payment journal • Cash at bank account Compare Find the differences Tick each entry that appears in both sets of records And circle the entries do not appear in both set of records Entries found in the bank records but missing in the business records should be added to the business records Prepare a cash balance summary Prepare a bank reconciliation statement.

  7. What is a bank statement? What information does the bank statement provide? A bank statement is a document that is issued by a bank once a month to its customers. • The beginning cash balance in the account • + The deposited cheques and cash • - Cash withdrawn from the account • - Cheques paid out • + Interest earned on the account • - Bank charges against the account • = Ending cash balance in the account

  8. CLASS ACTIVITY 1) The business owner (Mr. A) makes a cash sale of $200 and deposit the cash into the bank (NAB). • What is the double entry for the business? • What is the double entry for the bank? DR Cash $200, CR Sales $200 DR Cash $200, CR Bank statement (deposit) $200 The $200 the bank received is not from sales, but an obligation/liabilityto return the $200 to the business owner on demand.

  9. Bank Interest earned Bank automatically add interest to the account. When you open an account at a bank, the bank will pay you to keep your money at their bank.

  10. Bank charges Bank automatically deducts charges from the account. Examples • Monthly bank service charge - cost of maintaining an account. • Bank charges a fee when a cheque is returned for insufficient funds. • Bank charges a fee on an overdraft account.

  11. CLASS ACTIVITY 2) Mr. A’s bank (NAB) deducts a bank charge of $6. • What is the double entry for the business? • What is the double entry for the bank? DR Bank charges $6, CR Cash $6 DR Bank statement $6, CR Bank service charge revenue $6 When bank charges Mr. A $6, the bank earns $6.

  12. √ √ Missing in cash receipts journal √ Mr. A made an error

  13. Lesson 2 Bank reconciliation & Reconciling Items

  14. Reconciling Items • Unrecorded deposits • Unpresented cheques • Business errors and Bank errors (rare) • Bank Transfer /EFT • Bank Interest earned • Bank charges

  15. Case Study Bella needs to buy a beautiful prom dress for the prom night. Mr John Brown is a fantastic tailor and he owns a neighbourhood dress shop. Bella decides to purchase a custom made dress which cost her $700.

  16. Unrecorded deposits Bella gave John a cheque of $700. John entered this transaction into his cash receipts journal. At the end of the day, he deposited the cheque into his bank account. John’s bank did not have a chance to process the cheque; and the bank statement has already been prepared.

  17. Unrecorded deposits Receipts that have been recorded in the cash receipts journal and taken to the bank at the end of the day; but at that time the bank statement has been prepared; and the bank have not processed those receipts.

  18. Unpresented cheques John ordered some silk cloth from Jay Enterprise to make Bella’s prom dress. He wrote a cheque of $200 to Jay Enterprise and sent it by mail. He entered this transaction into his cash payments journal. John’s bank statement has already been prepared, but the cheque has not been presented for payment at the bank.

  19. Unpresented cheques Cheques that have been written, sent and recorded in the cash payments journal; but at that time the bank statement has been prepared; and the cheques have not been presented for payment at the bank.

  20. As you add a transaction, put a tick beside it in the bank statement, cash receipts journal and cash payments journal. It indicates that the those missing entries have been recorded.

  21. Opening balance from bank statement Total from cash receipts journal Total from cash payments journal MATCH Closing balance from bank statement Item circle/ highlight from cash receipts journal Item circle/ highlight from cash payments journal

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