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Bank Reconciliation Statement

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  • Dexter Company's bank reconciliation shows an adjusted cash balance of $4,920.28. The following items also appear on the reconciliation: NSF check $ 192.31 Deposit in transit 301.83 Interest earned 141.64 Outstanding checks 547.43 Bank service charges 45.00 Required: 1. Determine the balance on the bank statement prior to adjustment. Round your answer to the nearest cent. $ 2. Determine the balance on the books prior to adjustment. Round your answer to the nearest cent. $
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Bank Reconciliation Statement

  1. 1. Contents Reporting cash in the balance sheet Definition of BRS The purpose of the BRS Nature of the cash book and the bank statement Reasons for difference between the CB and the BS Rules of debit and credit in BRS Steps in preparing BRS Illustration
  2. 2. Reporting cash in the balance sheet • Cash is listed first in balance sheet • The term Liquid Assets. • Current asset section of balance sheet. •Purpose of balance sheet.
  3. 3. CASH EQUIVALENTS • Short term investments. • Similar items in the balance sheet. • First asset shown in balance sheet.
  4. 4. Non considered Cash Equivalents Cash equivalent investment in stocks, bonds. Marketable Securities.
  5. 5. Evaluating Solvency Study of Balance Sheet. Users of a company financial statement. Creditors need to know the amount of liquid resources.
  6. 6. Line of Credit Arrangements of the Line of Credit. The meanings of Line of Credit. Borrow Money. Liability to the Bank.
  7. 7. 11..TTHHEE DDEEFFIINNIITTIIOONN OOFF TTHHEE BBAANNKK RREECCOONNCCIILLIIAATTIIOONN SSTTAATTEEMMEENNTT A bank reconciliation is a schedule explaining any differences between the balance shown in bank statement and the balance shown in Cash book.
  8. 8. 22..TTHHEE PPUURRPPOOSSEE OOFF TTHHEE BBAANNKK RREECCOONNCCIILLIIAATTIIOONN SSTTAATTEEMMEENNTT It reflects actual bank balance position Detect mistake in cash book or Pass book Prevent frauds in recording banking transactions Explain any delay collection of checks It identifies valid transaction recorded by one party but not by other
  9. 9. WWhhaatt iiss CCaasshh bbooookk aanndd bbaannkk ssttaatteemmeenntt
  10. 10. CCaasshh bbooookk A book in which record all the transaction relating to cash receipt and payments in detail is called cash book Prepared or maintain by company Kinds: 1. Simple : maintained by small enterprise 2. Cash book with discount 3. Cash book with discount and cash column 4. Petty cash book
  11. 11. BBaannkk ssttaatteemmeenntt Report released (on a fixed date every month) by banks that lists deposits, withdrawals, checks paid, interest earned, and service charges or penalties incurred on an account. It shows the cumulative effect of these transactions the account's balance, up to the date the report was prepared
  12. 12. 44.. NNAATTUURREE OOFF TTHHEE CCAASSHH BBOOOOKK AANNDD TTHHEE BBAANNKK SSTTAATTEEMMEENNTT.. The balance in the cash book is an asset to the company, therefore: Cash book (A credit represents a decrease) (A debit represents an increase)
  13. 13. The balance as per the bank statement is a liability to the bank, therefore: (represents the amount owed to the clients) Bank statement Cr. (represents increases) Dr. (represents decreases) Balance
  14. 14. 33.. RREEAASSOONNSS FFOORR DDIIFFFFEERREENNCCEESS BBEETTWWEEEENN TTHHEE CCAASSHH BBOOOOKK AANNDD TTHHEE BBAANNKK SSTTAATTEEMMEENNTT.. The bank balances as shown in the cash book and the bank statement seldom agree. There are various reasons for this. A statement is used to reconcile the two balances. There are some transactions recorded by the depositor but missed by the bank. Similarly, there are transactions appearing on the bank statement and not recorded by the company.
  15. 15. o Unpresented cheques • They are cheques issued by the firm that have not yet been presented to its bank for payment. o Deposit transit/uncredited cheques • Cash receipts recorded by the depositor but not included in bank statement.
  16. 16. o Service charges They are charges made by the bank to the company for banking services used. o Dishonored cheques/NSF cheques They are cheques deposited but subsequently returned by the bank due to the failure of the drawer to pay.
  17. 17. o Interest allowed by the bank They are interest received for deposits or fixed deposits. o Miscellaneous bank charges and credits  banks charge for services – such as printing cheques, handling collection of notes receivable and processing NSF cheques.
  18. 18. Rules Some important rules for debit and credit in bank reconciliation statement
  19. 19. 1. Unpresented cheques •Cheques issued but not yet presented •Cheques drawn but not enchased •Cheques paid for payment but not cleared •Cheques issued returned by bank on technical grounds DR/Cr D C 2. Uncredited cheques • Cheques deposit but not credited by the bank • Cheques paid into the bank but not cleared by bank • Cheques sent to bank but not collected by bank Dr + - Cr - + 3. All types of income/credit memo/memorandum • Income given by bank • Income collected by bank Dr + _
  20. 20. 4. Dishonored cheques • Cheques received and deposited but dishonor • Cheque issued but dishonor 5. If anything C. in the bank statement only 6. If anything Dr. in the bank statement only CR (-) (+) DR (+) (-) Dr Cr (+) (-) (-) (+) 7. Overstated/overcast • Payment side of cashbook overstated • Receipts side of cashbook overstated 8. Expenses paid by bank Cr. (-) (+) 9. expenses charged by bank • Bills directly paid bank charges • Insurance premium service charges • Interest charged by bank interest on overdraft Dr Cr Cr. (+) (-) (-) (-) (+) (+)
  21. 21. In BANK STAEMENT. ADD:- •Deposit in Transit. •Bank errors. •Wrongly recorded cheques. LESS:- • Outstanding cheques • Unpresented cheques • Unpaid cheques. etc.
  22. 22. IN CASH BOOK :- ADD :- • Interest Earned • Interest Received • Notes Receivable • Recording Error LESS:- • NSF cheques •Service Charges • Interest Allowed.
  23. 23. Steps 1. Check the bank statement and the cash book to see the items which have been omitted. 2. Arrange the paid cheques in sequence by serial number and compare each cheque with the corresponding entry in the cheque register. 3. Add balance to the depositor’s accounting record(credit memorannda) issued by the bank. 4. Deduct from the balance per the depositor record which have not been recorded by the depositor. 5. Make appropriate additions or deductions to correct errors.
  24. 24. Continued ... 6. Balance of B.S = Balance of cashbook 7. Prepare journal entries as adjustments
  25. 25. Balance as per Company’s statement…………………………………………………………. $ 26,686.95 Add: Interest earned……………………………………………….............. 80 Notes receivable ………………………………………………………….. 3663 Recording error ……………………………………………………………. 900 Subtotal …………………………………………………………………………4643 Less: NFS checks ………………………………………………………………. 168.20 Service charges ………………………………………………………….. 19.45 Subtotal ……………………………………………………………………………………………………. 187.65 Adjusted cash balance (as above) ……………………………. $31142.3
  26. 26. Particulars L/F Debit Credit Cash 4643 Interest earned 19.45 Notes receivable 168.20 Recording error (To record interest earned, N/R and Recording error) Service charges Edward Jones (NSF) Cash (to record service charges by the Bank and NSF check by Edward Jones) 80 3663 900 187.65 7B-3-B Prepare journal entries to adjust the accounts of July 7B-3-C What balance should be included in the balance sheet? Bank Balance = 31142.3

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