Example Bank Reconciliation - YouTube

Hi, I wanted to give you an example of preparing a bank reconciliation.

Now this graphic is great because it shows exactly what we are doing

when we perform that bank reconciliation.

We're going to be comparing our bank statement to our books

and identifying the differences between the two to arrive at one correct balance.

Let's look at an example. On October 31, Webber company

had a cash balance per books of $7,281.50.

The bank statement from California Savings Bank on that date

showed a balance of $6,904.60.

So here we have immediately identified our starting point:

our cash balance in our books, or our accounting records, and our cash balance per the bank.

So when we go to prepare our bank reconciliation, we're going to prepare it as of the end of the month,

the end of October, because we're comparing all of the activities

that occurred in the books and all the activities that occurred in the bank during October.

And so our starting point is our cash balance per bank statement that was given to us

and our cash balance per books.

Now, as we go through the seven items that are listed in the problem,

we're going to adjust either our bank side or a book side

to arrive at an adjusted cash balance per bank and then adjusted cash balance per books.

And our goal is to have these two adjusted numbers be equal.

We will know that we're done and that we did it correctly when those two numbers come out the same.

Let's look at number one

The statement included a debit memo of $49 for the printing of additional company checks.

So what happened here, is Webber company ordered some checks

and the bank charged them a fee. And Webber company doesn't necessarily know

what that fee is until they see the debit memo in the statement.

So now what we need to do is decrease our books side for the amount of that fee.

So over on our bank reconciliation, we're going to decrease our cash balance per books

by the amount of that check printing charge.

Now let's look at number two.

Cash sales of $933 on October 19th were deposited in the bank.

The cash receipts journal entry and the deposit slip were incorrectly made for $983.

The bank credited Webber for the correct amount.

So what's happening here, is we made a mistake in our accounting.

We recorded it as nine hundred eighty three but really it was nine hundred thirty-three.

So because we recorded it for more than what it actually was, we need to decrease our books accordingly.

So we need to decrease our books by that fifty dollar difference.

So over on my bank reconciliation, I'm going to subtract out that $50 error in the deposit.

Now let's look at number three.

The first part of number three says:

Outstanding checks on October 31 total $1067.25.

Outstanding checks are checks that we have written to pay off bills

but they haven't yet cleared our bank.

So maybe we've written some checks to pay off our accounts payable,

we've mailed them out, but the other company hasn't processed them

and put them in their bank yet.

So our bank doesn't know about those checks until they reach the bank.

So we need to decrease the bank balance accordingly for those outstanding checks.

The second part of number three says: deposits in transit were $2.916.15.

So deposits in transit is a deposit that we've recorded in our books,

we've processed it and prepared it, but it has not been processed by the bank.

It hasn't made it all the way through the bank's processing yet.

So again we have it in our books, but the bank doesn't have it yet.

So in this case we need to increase the bank balance accordingly.

So over on our bank reconciliation, we're going to add in the deposit in transit

and subtract out the outstanding checks.

Number four:

On October 14, the company issued check number 214 for $664 to Sammy Davis on account.

The check, which cleared the bank in October was incorrectly journalized and posted

by Webber company for 646.

So we have made another mistake in our books.

The check was recorded incorrectly by us but it was processed correctly in the bank.

So we're going to need to decrease our books for this error

because we recorded 646 but the actual check we wrote,

the amount that came out of our bank account, was 664.

So we need to reduce our cash balance in our books by that additional $18.

So over on my bank reconciliation under my cash balance for books,

I'm also going to deduct out that $18 error for the check.

Next let's look at number five.

A $3500 note receivable was collected by the bank for Webber Company, plus $89 interest.

The bank charged a collection fee of $29.

So what's happened here is somebody owed us money and they paid it directly to the bank,

including interest, where the bank charged us a processing fee of $29.

So we have additional money that came in, and we didn't necessarily know the amount of it,

so we haven't recorded it yet.

So we're going to need to add that into our books.

And so the net amount that came in was the $3,500 of the principal on the note plus the interest minus the fee,

which comes out to $3,560.

So again this is already in the bank but it's not in our books.

So over on my bank reconciliation, because this is money that came into our bank,

we're going to add it to our balance per books.

Now let's look at number six.

Included with the cancelled checks was a check

issued by Blues Company to Sam Brown for $1,300

that was incorrectly charged to Webber Company by the bank.

So what happened here, is Blues Company, another company,

wrote a check and California Savings Bank accidentally took the money

out of our account instead of Blues Company's account.

So the bank made an error here and they took money out of our account when they shouldn't have.

So we're going to increase the bank side of our bank reconciliation.

So on the top part of my cash balance per bank statement,

I need to add it back in that bank error.

Because I'm going to call them and say , "Hey you took $1,300 out of my account

when you shouldn't have."

And once I go through the steps of proving that to them, they're gonna add back that money.

So I'm gonna add it in right now on my bank reconciliation.

Now let's look at the last one.

On October 31, the bank statement showed an NSF charge of $671 for a check issued by Amy Dragon.

So Amy, she paid us money.

She had owed us some money and she paid us a check, but then that check bounced.

An NSF check is when a customer writes to check to us,

but then they don't have enough money in their bank to cover that check.

So when we received the check from Amy we recorded it.

We we increased cash but, actually we didn't get that cash because she didn't have it.

So now I need to decrease our books accordingly.

So on our bank reconciliation, we need to decrease our cash for that NSF check.

Now of course, we're going to go back to Amy and say, "Hey you need to write us a new check!".

When that new check comes in we'll process it as a deposit and put it back into our account.

But right now we don't, really have that money so it needs to come back out

of my cash balance per books.

So now we've gone through all seven items listed on our problem here.

And we've addressed every single scenario within those seven items.

So when we look at our bank reconciliation, we can start with our cash balance per bank statement,

add in our deposit in transit, and our our bank error, subtract out our outstanding checks

and we get an adjusted cash balance per bank of $10,053.50.

Then, we can take our cash balance per books,

add in that note receivable, subtract out the errors, the NSF check

and the check printing charge, and we also end up

with an adjusted cash balance for books of $10,053.50.

So we know that we did our bank reconciliation correctly because the two items are equal.

Bank reconciliations are great because even in a company, when you're doing these

you know when you're done, because your two numbers are matching.

That's how you know that you've addressed

every difference between your book and your bank.

So again this is a really great chart of a bank reconciliation

because it shows you that on the bank side, we're always adding in deposits in transit,

and we are always subtracting out outstanding checks.

But a bank error, it might be added in, it might be subtracted out,

depending on what the error was.

On our book side, we always add in notes collected by the bank.

We always subtract out the NSF checks.

We always subtract out check printing, or service charge fees, or anything else

that the bank took out of our account.

And then we're going to have to add in or subtract any errors that the company made in recording items.

And you really have to read the scenario to see: Do you add in the money? Or do you take it back out?

And once you've addressed all those items, you should arrive at one correct balance

that matches on both sides.

Okay, so I hope this helped you to understand

how to prepare a great bank reconciliation!