K

CORPORATE
ACCOUNTING
3rd Semester DBA

Aman Ullah Khan e-mail -mail4amankhan@gmail.com

MBA-Finance CA-Foundation
Kardan Institute of Higher Education
 Bank
Reconciliation
statement
 Definition
Bank reconciliation statement is a
statement which is prepared to
reconcile the balances of cash ledger
and bank statement.
 Following are the causes of difference
between our cash ledger balance and bank
statement balance
1. Checks paid into bank but not collected
and credited by the bank
2. (Uncollected checks)

Checks issued but not presented for

payment.
(Un presented checks)
3. Direct payment by the customers
4. Interest or dividend on investment
5. Bank charges (service charges)
6. Dishonor of a check (NSF)
7. Checks omitted to be paid into bank.
 Procedure For
Preparing a
Bank Reconciliation
Statement
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.
 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

Reconciling the Bank Statement
Balance per Bank Balance per Depositor

+ Deposits by Bank
+ Deposits in Transit
(credit memos)

- Service Charge
- Outstanding Checks
- NSF Checks

± Bank Errors ± Book Errors

= Adjusted Balance = Adjusted Balance

Reconciling the Bank Statement

All reconciling Balance per Depositor

items on the + Deposits by Bank

book side (credit memos)

require an - Service Charge

adjusting - NSF Checks

entry to the ± Book Errors

cash account.
= Adjusted Balance
 BANK

Bank’s Depositor’s
books records
Beginning balance $3,359.78 Beginning balance $2,549.99

Power
Power Network
Network prepares
prepares to
to reconcile
reconcile the
the
monthly
monthly bank
bank statement
statement as
as ofof July
July 31,
31, 2006
2006
 BANK

Bank’s Depositor’s
books records
Beginning balance $3,359.78 Beginning balance $2,549.99
Add deposit not
recorded by bank 816.20
$4,175.9
8

AA deposit
deposit of
of $816.20
$816.20 did
did not
not
appear
appear on
on the
the bank
bank statement.
statement.
 BANK

Bank’s Depositor’s
books records
Beginning balance $3,359.78 Beginning balance $2,549.99
Add deposit not Add note and interest
recorded by bank 816.20 collected by bank 408.00
$4,175.9 $2,957.9
8 9

The
The bank
bank collected
collected aa note
note in
in the
the
amount
amount ofof $400
$400 and
and the
the related
related
interest
interest of
of $8
$8 for
for Power
Power Networking
Networking
 BANK

Bank’s Depositor’s
books records
Beginning balance $3,359.78 Beginning balance $2,549.99
Add deposit not Add note and interest
recorded by bank 816.20 collected by bank 408.00
$4,175.9 $2,957.9
Deduct outstanding 8 9
checks:
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99

A
Three
Three deposit
deposit of
Achecks
checks that
of $637.02
that were did
did not
were written
$637.02 not appear
written during
during the
appear the
period did on
not the
appearbankonstatement.
the
on the bank
period did not appear on the bank
bank statement:
statement. statement:
#812,
#812, $1,061;
$1,061; #878,
#878, $435.39,
$435.39, #883,
#883, $48.60.
$48.60.
 BANK

Bank’s Depositor’s
books records
Beginning balance $3,359.78 Beginning balance $2,549.99
Add deposit not Add note and interest
recorded by bank 816.20 collected by bank 408.00
$4,175.9 $2,957.9
Deduct outstanding 8 9
Deduct check returned
checks: because of insufficient
No. 812 $1,061.00 funds $300.00
No. 878 435.39
No. 883 48.60 1,544.99

The
The bank
bank returned
returned an
an NSF
NSF check
check from
fromone one of
of the
the
firm’s
firm’s customers,
customers, Thomas
Thomas Ivey,
Ivey, in
in the
the amount
amount of of
$300.
$300. This
This was
was aa payment
payment onon account.
account.
 BANK

Bank’s Depositor’s
books records
Beginning balance $3,359.78 Beginning balance $2,549.99
Add deposit not Add note and interest
recorded by bank 816.20 collected by bank 408.00
$4,175.9 $2,957.9
Deduct outstanding 8 9
Deduct check return
checks: because of insufficient
No. 812 $1,061.00 funds $300.00
No. 878 435.39 Bank service
No. 883 48.60 1,544.99 charges 18.00

The
The bank
bank service
service charges
charges totaled
totaled $18.00.
$18.00.
 BANK

Bank’s Depositor’s
books records
Beginning balance $3,359.78 Beginning balance $2,549.99
Add deposit not Add note and interest
recorded by bank 816.20 collected by bank 408.00
$4,175.9 $2,957.9
Deduct outstanding 8 9
Deduct check return
checks: because of insufficient
No. 812 $1,061.00 funds $300.00
No. 878 435.39 Bank service
No. 883 48.60 1,544.99 charges 18.00
Error recording
Check No. 879 9.00
327.00
Check
Check No.
No. 879
879 for
for $732.26
$732.26 to
to Taylor
Taylor Co.
Co.on
on account,
account,
erroneously
erroneously recorded
recorded in
in journal
journal as
as $723.26.
$723.26.
 BANK

Bank’s Depositor’s
books records
Beginning balance $3,359.78 Beginning balance $2,549.99
Add deposit not Add note and interest
recorded by bank 816.20 collected by bank 408.00
$4,175.9 $2,957.9
Deduct outstanding 8 9
Deduct check return
checks: because of insufficient
No. 812 $1,061.00 funds $300.00
No. 878 435.39 Bank service
No. 883 48.60 1,544.99 charges 18.00
Error recording
Check No. 879 9.00 327
Adjusted balance $2,630.99 Adjusted balance $2,630.99
 Now,
Now, ifif desired,
desired, we
we can
can
prepare
prepare aa formal
formal statement
statement
for
for Power
Power Networking.
Networking.
 Power Networking
Bank Reconciliation
July 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
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.
 Outstanding
Outstanding checks
checks totaled
totaled $2,417.
$2,417.
 A $500 check mailed to the bank for deposit had
A $500 check mailed to the bank for deposit had
not
not reached
reached the
the bank
bank at at the
the statement
statement date.
date.
 The
The bank
bank returned
returned aa customer’s
customer’s NSF NSF check
check for
for
$225
$225 received
received as
as payment
payment of of an
an account
account
receivable.
receivable.
 The
The bank
bank statement
statement showed
showed $30 $30 interest
interest earned
earned
on
on the
the bank
bank balance
balance for
for the
the month
month of of July.
July.
 Check 781 for supplies cleared the bank for $268
Check 781 for supplies cleared the bank for $268
but
but was
was erroneously
erroneously recorded
recorded in in our
our books
books asas
$240.
$240.
 A $486 deposit by Acme Company was
A $486 deposit by Acme Company was
erroneously
erroneously credited
credited toto our
our account
account by by the
the bank.
bank.
 SIMON COMPANY
Bank Reconciliation July 31,2001
Balance per bank statement, July 31 $ 9,610
Additions:
Deposit in transit 500
Deductions:
Bank error $ 486
Outstanding checks 2,417 (2,903)
Adjusted cash balance $ 7,207

Balance per depositor's records, July 31 $ 7,430

Additions:
Interest 30
Deductions:
Recording error $ 28
NSF check 225 (253)
Adjusted cash balance $ 7,207
 Reconciling the Bank Statement Example

GENERAL JOURNAL
P
Date Account Titles and Explanation R Debit Credit
Jul 31 Cash 30
Interest Revenue 30

31 Supplies Inventory 28
Accounts Receivable 225
Cash 253
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.
 Outstanding
Outstanding checks
checks totaled
totaled $3513.
$3513.
 A
A $4353
$4353 check
check mailed
mailed to
to the
the bank
bank for
for deposit
deposit
had
had not
not reached
reached thethe bank
bank at
at the
the statement
statement
date.
date.
 The
The bank
bank returned
returned aa customer’s
customer’s NSF NSF check
check
for
for $600
$600 received
received asas payment
payment of of an
an account
account
receivable.
receivable.
 The
The bank
bank statement
statement showed
showed $24$24 Service
Service
Charges
Charges forfor the
the month
month of
of dec.
dec.
 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
 GENERAL JOURNAL

Date Account Titles and Explanation Debit Credit

$ $
2006 Dec Bank Service Charges 24
31 A/R 600
Cash 624
 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.
 Outstanding
Outstanding checks
checks totaled
totaled $1,802.97.
$1,802.97.
 A
A $4,017.15
$4,017.15 check
check mailed
mailed to
to the
the bank
bank for
for deposit
deposit
had
had not
not reached
reached thethe bank
bank at at the
thestatement
statement date.
date.
 The
The bank
bank returned
returned aa customer’s
customer’s NSF NSFcheck
check forfor
$180
$180 received
received asas payment
payment of of an
an account
account receivable.
receivable.
 The
The bank
bank statement
statement showed
showed $4,545
$4,545 Note
Note Receivable
Receivable
collected
collected byby the
the bank
bank for
for the
the business.
business.
 Check
Check 821
821 for
forOffice
OfficeEquipment
Equipment cleared
cleared the
the bank
bank
for
for $835.02
$835.02 but
but was
was erroneously
erroneously recorded
recorded in in our
our
books
books asas $853.02.
$853.02.
 The
The bank
bank statement
statement showed
showed $7.65
$7.65 Service
Service Charges
Charges
for
for the
the month
month of of July.
July.
 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
 GENERAL JOURNAL

Date Account Titles and Debit Credit

Explanation $ $
2001 Cash 4563
July 31 N/R 4545
Office Equipment 18
To record collection by bank of
N/R, and correct recorded cost
of office equipment
July 31 Bank Service Charges 7.65
A/R 180.00
Cash 187.65
To adjust accounting record
for bank service charges and
customer check charge back
as NSF
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.
 Outstanding
Outstanding checks
checks totaled
totaled $717.75.
$717.75.
 AA $410.90
$410.90 check
check mailed
mailed toto the
the bank
bank for
for deposit
deposit
had
had not
not reached
reached thethe bank
bank at at the
the statement
statement date.
date.
 The bank returned a customer’s NSF check for
The bank returned a customer’s NSF check for
$50.25
$50.25 received
received as as payment
payment of of an
an account
account
receivable.
receivable.
 The bank statement showed $ 500.00 Note
The bank statement showed $ 500.00 Note
Receivable
Receivable collected
collected by by the
the bank
bank for
for the
the
business.
business.
 Check 875 for Telephone Expense cleared the
Check 875 for Telephone Expense cleared the
bank
bank for
for $85.00
$85.00 but
but was
was erroneously
erroneously recorded
recorded in
in
our
our books
books as as $58.00.
$58.00.
 The bank statement showed $17.00 Service
The bank statement showed $17.00 Service
Charges
Charges forfor the
the month
month of of July.
July.
 The bank statement showed $24.74 interest
The bank statement showed $24.74 interest
earned
earned onon the
the bank
bank balance
balance for for the
the month
month ofof
October.
October.
 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
 GENERAL JOURNAL
Date Account Titles and Explanation Debit Credit
$ $
2006 Cash 524.74
Oct 31 N/R 500.00
Interest Revenue 24.74
To record collections by bank of
N/R and Interest Revenue
Oct 31 Bank Service Charges 17.00
A/R 50.25
Telephone Expense 27.00
Cash 94.25
To adjust accounting record for
bank service charges, customer
check charge back as NSF and
understatement of cash payment
for telephone expense
 CLASS ACTIVITY-1

Prepare Bank Reconciliation Statement For

DUBAI ENTERPRISES

a) Balance per Depositor’s record $4239.35

b) Balance per Bank Statement $4581.50
c) Checks outstanding $694.10
d) Deposit in transit $362.80
e) A check for payment of $57 was recorded as $75 in
deposit ledger.
f) Bank debit memorandum for service charges $7.15.
 CLASS ACTIVITY-2
Prepare Bank Reconciliation Statement For
DUBAI ENTERPRISES
a) Balance per Depositor’s record $5780
b) Balance per Bank Statement $4675
c) Checks outstanding $ 1800
d) Deposit in transit $ 2000
e) Interest on investment collected by the bank $800
f) Bank service charges $30
g) Interest on Notes Payables $175
h) Checks issued and paid by bank omitted to be recorded
$ 1500
 Financial
Assets

Cash Receivables
Short-term
Investments
 Cash
Coins and
paper Cash is
money Checks
Defined as
any deposit
Bank credit banks will
card
accept. Money orders

Travelers’ checks
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.
 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
 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
1.3. Mature within 90 days of acquision .
Examples: Treasury bills, money-market funds,
commercial paper
 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.
 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.
Reporting Cash in the Balance Sheet
Combined with
cash on balance
sheet

Liquid short- Cash Matures within

term Equivalents 90 days of
investments acquisition

Stable market
values
 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.
• 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.
Reporting Cash in the Balance Sheet
Not available
for paying
current
liabilities

“Restricted”
Cash
Listed as an
Not a current investment
asset
 Line of Credit
• Many businesses arrange line of credit with
their bank. “A line of credit means that the
bank has agreed in advance to lend the
company any amount of money up to a
specified limit”.
• The company can borrow this money at any
time simply by drawing checks on a special
bank account.
 A liability to the bank arises as soon as money
is borrowed that is as soon as a portion of the
line of credit is used.
 The unused portion of the line credit is not an
asset nor a liability, it represents only the
ability to borrow money quickly and easily
and increases the company solvency.
Reporting Cash in the Balance Sheet
Bank agrees in
advance to lend
money.

Lines of
Credit

Liability is Unused line of

incurred when line credit is disclosed
of credit is used. in notes.