Bank Reconciliation Process: Lecture Notes with Examples – Week 2, Week 2

Summary

Bank reconciliation is an accounting process that allows a company to compare the cash balance on its books with the bank statement. This document outlines the steps and examples for the bank reconciliation process.

Adjusting the Balance Per Bank

Deposits in transit are added to the bank statement balance. Outstanding checks are deducted. Bank errors need to be corrected on the bank statement. Adjust the balance to the true, corrected balance shown on the statement.

Adjusting the Balance Per Books

Bank service charges and NSF checks need to be deducted. Interest earned and notes receivable collected by the bank need to be added. Errors in the company's cash account need to be corrected.

Bank Errors

Errors made by the bank need to be corrected on the bank statement. Deposits in transit are not yet on the bank statement. Companies need to list them on the bank reconciliation as an increase to the balance per bank.

NSF Checks

NSF checks are returned by the bank. The amount of the check plus a bank fee are deducted from the company's account. NSF checks need to be adjusted on the company's books.

Key terms

Deposits in transit

Money already received by the company but not yet recorded by the bank.

Outstanding checks

Checks written and recorded by the company but not yet cleared by the bank.

Bank errors

Mistakes made by the bank on the company's bank statement.

NSF checks

Checks that the bank did not honour because of insufficient funds.

Bank reconciliation

The process of comparing the cash balance on the company's books with the bank statement.

Adjustments

Corrections made to the bank or company records to reflect the true cash balance.

Questions this document helps with

• What are the steps in a bank reconciliation?
• How are deposits in transit handled in a bank reconciliation?
• What should be done about bank errors during a bank reconciliation?

Summary written with AI from the document's text.