1st Bank Reconcilation

Chapter
Skyline College
9-1
Journal Flow Chart
Does the transaction involve cash?
YES NO
Was cash RECEIVED? Was inventory PURCHASED?
YES NO YES NO
Record the Record the Record the Was it a credit SALE?

transaction in transaction in purchase in
the CASH the CASH the
RECEIPTS DISBURSEMENTS PURCHASES
YES NO
(CRs) Journal (CDs) Journal Journal (PJ)
Use the CRs and CDs Journals to prepare

the monthly Bank Reconcilation Record the Record the
Transaction Transaction
in the In the
SALES GENERAL
Journal (SJ) Journal (GJ)
9-2
The Cash Receipts Journal
A cash receipts journal is a special

journal used to record and post
transactions involving the receipt of
cash.
9-3
Cash Sales and Sales Taxes
Consider the cash sales entries for

January 8 in the cash receipts journal for
The Style Shop.
9-4
CASH RECEIPTS JOURNAL PAGE 1
ACCOUNTS SALES TAX OTHER ACCOUNTS CREDIT
POST. SALES CASH
DATE DESCRIPTION RECEIVABLE PAYABLE ACCOUNT NAME POST. AMOUNT
REF. CREDIT DEBIT
CREDIT CREDIT REF.
20--
Jan. 7 Roy Anderson 432.00 432.0
8 Cash Sales 360.00 4,500.00 4,860.0
9-5
Cash Short Over
Occasionally errors occur when making change.
When errors happen, the cash in the cash register is

either more or less than the cash listed on the audit
tape.
 When cash in the register is more than the audit tape,

cash is over.
 When the cash in the register is less than the audit
tape, cash is short.
9-6
Cash sales with cash short.

POST. SALES CASH
ATE DESCRIPTION RECEIVABLE PAYABLE ACCOUNT NAME POST. AMOUNT
REF. CREDIT DEBIT
CREDIT CREDIT REF.
7 R. Anderson 432.00 432.00

8 Cash Sales 212.80 3,040.00 4,860.00
11 Vicki Bowman 270.00 270.00
12 Investment Amos, Capital 15,000.00 15,000.00
13 Barbara Coe 540.00 540.00
15 Cash Sales 384.00 4,800.00 Cash Short/Over 18.00 5,166.00
$384 + $4,800 = $5,184
Debits are not the normal balance of the

Other Accounts Credit column, so the
debit entry is circled.
9-7
Cash Discounts on Sales
 The Style Shop does not offer cash discounts.
 However, many wholesale businesses offer cash discounts to

customers who pay within a certain time period. These are sales
discounts.
 Businesses with many sales discounts add a Sales Discounts

Debit column to the cash receipts journal.
9-8
Additional Investment by the Owner
POST. SALES CASH
REF. CREDIT DEBIT
CREDIT CREDIT REF.
20--
Jan. 7 R. Anderson 432.00 432.00
8 Cash Sales 360.00 4,500.00 4,860.00
11 V. Bowman 270.00 270.00
12 Investment Amos, Capital 15,000.00 15,000.00
The account name and amount

are entered in the Other
Accounts Credit section and the
debit is entered in the Cash
Debit column.
9-9
Receipt of a Cash Refund
POST. SALES CASH
DESCRIPTION RECEIVABLE PAYABLE ACCOUNT NAME POST. AMOUNT
REF. CREDIT DEBIT
CREDIT CREDIT REF.
Roy Anderson 432.00 432.00

Cash Sales 360.00 4,500.00 4,860.00
Vicki Bowman 270.00 270.00
Investment Amos, Capital 15,000.00 15,000.00
Barbara Coe 540.00 540.00
Cash Sales 384.00 4,800.00 Cash Short/Over 18.00 5,166.00
Alma Sanchez 108.00 108.00
Cash Refund Supplies 75.00 75.00
The name and amount are entered in the

Other Accounts Credit section. The debit is
entered in the Cash Debit column.
9-10
Promissory Note
A promissory note is a written promise to

pay a specified amount of money on a
certain date.
Sometimes promissory notes are used to

replace an accounts receivable balance
when the account is overdue.
9-11
On July 31 The Style Shop accepted a six-month
promissory note from Stacee Fairley, who owed
$800 on account.
$800 July 31, 20--

Six months AFTER DATE I PROMISE TO PAY
TO THE ORDER OF The Style Shop
Eight hundred and no/100 - - - - - - - - - - - - - - - - - - - - - - - - - - DOLLARS
-PAYABLE AT First Texas Bank
VALUE RECEIVED with interest at 9%
NO. 30 DUE January 31, 20-- Stacee Fairley
9-12
On July 31 The Style Shop recorded a general
journal entry to increase notes receivable and to
decrease accounts receivable for $800.
The asset account, Notes Receivable, was debited.
The Accounts Receivable account was credited.
GENERAL JOURNAL Page 16
DATE DESCRIPTION POST. DEBIT CREDIT

REF.
20--
July 31 Notes Receivable 800
Accounts Rec./Stacee Fairley 800
Received a 6-month, 9% note
from Stacee Fairley to replace
open account 9-13
Amount owed (principle) = $800
Interest rate = 9% per year
Time = six months
Interest amount $800 x 9% x 6/12 = $36

P x i x t
Total amount with interest = $836

($800 + $36)
9-14
Collection of a Promissory Note and Interest

POST. SALES CASH
REF. CREDIT DEBIT
20-- The note and the interest are

CREDIT CREDIT REF.
Jan. 7
8
Roy Anderson
Cash Sales
recorded432.00
in the Other Accounts
212.80 4,500.00
432.00
4,860.00
11
12
V. Bowman
Investment
Credit section.
270.00
M. Amos 15,000.00
270.00
15,000.00
13 Coe 535.00 540.00
16 A. Sanchez 108.00 108.00
17 Cash Refund Supplies 75.00 75.00
22 Fred Wu 400.00 400.00
22 Cash Sales 400.00 5,000.00 5,400.00
31 K. Ramirez 108.00 108.00
31 M. Davis 275.00 275.00
31 Cash Sales 440.00 5,500.00 5,940.00
31 Collection of Notes Receivable 800.00

note/S. Fairley Interest Income 36.00 836.00
9-15
Posting the Cash Receipts Journal
Posting the Column Totals
At the end of the month, the cash receipts journal is

totaled and the equality of debits and credits is
proved.
9-16
The column totals are posted to the general ledger.

POST. SALES CASH
REF. CREDIT DEBIT
CREDIT CREDIT REF.
20--
8 Cash Sales 212.80 4,500.00 4,860.00
11 V. Bowman 270.00 270.00
12 Investment M. Amos 15,000.00 15,000.00
13 Coe 535.00 540.00
16 A. Sanchez 108.00 108.00
22 Fred Wu 400.00 400.00
22 Cash Sales 400.00 5,000.00 5,400.00
31 K. Ramirez 108.00 108.00
31 M. Davis 275.00 275.00
31 Cash Sales 440.00 5,500.00 5,940.00
31 note/S. Fairley Notes Receivable 109 800.00
Interest Income 491 36.00 836.00
31 Totals 2,133.00 1,800.00 22,500.00 15,909.00 42,342.00
(111) (231) (401) (X) (101)
2,133 + 1,800 + 22,500+ 15,909 = 42,342

9-17
The amounts in the Other Accounts Credit section are posted.

POST. SALES CASH
REF. CREDIT DEBIT
CREDIT CREDIT REF.
20--
8 Cash Sales 212.80 4,500.00 4,860.00
11
12
V. Bowman
Investment The (X)
270.00
indicates that the individual 15,000.00
M. Amos
270.00
15,000.00
13
15
Coe
Cash Sales
amounts
535.00 are posted, and not the total.18.00
384.00 4,800.00 Cash Short/Over
540.00
5,166.00
16 A. Sanchez 108.00 108.00
22 Fred Wu 400.00 400.00
22 Cash Sales 400.00 5,000.00 5,400.00
31 K. Ramirez 108.00 108.00
31 M. Davis 275.00 275.00
31 Cash Sales 440.00 5,500.00 5,940.00
31 note/S. Fairley Notes Receivable 109 800.00
Interest Income 491 36.00 836.00
31 Totals 2,133.00 1,800.00 22,500.00 15,909.00 42,342.00
(111) (231) (401) (X) (101)
9-18
Posting to the Accounts
Receivable Ledger
Post entries from the Accounts Receivable Credit

column to the customers’ accounts in the accounts
receivable subsidiary ledger daily.
On January 7, $432 was posted to Roy

Anderson’s account in the accounts receivable
subsidiary ledger.
9-19
SALES
DATE DESCRIPTION POST. ACCOUNTS TAX SALES OTHER ACCOUNTS CREDIT CASH
REF. RECEIVABLE PAYABLE CREDIT ACCOUNT TITLE POST. AMT. DEBIT
CREDIT CREDIT REF.
20--
Jan. 7 R. Anderson  432 .00 432.00
The “CR1” indicates that the transaction appears

on page 1 of the cash receipts journal.
Name Roy Anderson Terms n/30

Address 8913 S. Hampton Rd, Dallas, Texas 75232-6002
DATE DESCRIPTION POST. DEBIT CREDIT BALANCE

REF.
20--
Jan. 1 Balance  432.00
3 Sales Slip 1101 S1 432.00 864.00
7 CR1 432.00 432.00
31 Sales Slip 1110 S19-20 267.50 699.50
Advantages of the Cash Receipts Journal
The cash receipts journal:
 Saves time and effort when recording and posting

cash receipts
 Allows for the division of work among the

accounting staff
 Strengthens the audit trail by recording all cash

receipts transactions in one place
9-21
The Cash Payments Journal
A cash payments journal is a special

journal used to record transactions
involving the payment of cash.
9-22
Journal Flow Chart
Does the transaction involve cash?
YES NO
Was cash RECEIVED? Was inventory PURCHASED?
YES NO YES NO
Record the Record the Record the Was it a credit SALE?

transaction in transaction in purchase in
the CASH the CASH the
RECEIPTS DISBURSEMENTS PURCHASES
YES NO
(CRs) Journal (CDs) Journal Journal (PJ)
Use the CRs and CDs Journals to prepare

the monthly Bank Reconcilation Record the Record the
Transaction Transaction
in the In the
SALES GENERAL
Journal (SJ) Journal (GJ)
9-23
Payments for Expenses
Businesses write checks for a variety of expenses

each month.
In January The Style Shop issued checks for rent,
electricity, telephone service, advertising, and
salaries.
Consider the January 3 entry for rent expense.
9-24
CASH PAYMENTS JOURNAL PAGE 1
DATE CK. DESCRIPTION POST. ACCOUNTS OTHER ACCOUNTS DEBIT PURCHASES CASH
NO. REF. PAYABLE ACCOUNT NAME POST. AMOUNT DISCOUNT CREDIT
DEBIT REF. CREDIT
20--
Jan. 3 111 January rent Rent Expense 1500 1500
The account name and amount are

entered in the Other Accounts Debit
section.
The credit is entered in the

Cash Credit column.
9-25
Payments on Account
Merchandising businesses usually make

numerous payments on account for goods that
were purchased on credit.
Consider the January 27 entry for International
Apparel Mart.
9-26
DEBIT REF. CREDIT
20--
Jan. 3 111 January rent Rent Expense 634 1500.00 1500.00
10 112 Store fixtures Store Equip. 131 2400.00 2400.00
11 113 Tax remittance Sales Tax Pay. 231 756.00 756.00
11 114 World of Fashions P 3935.00 3856.30
13 115 Fashion Designs P 2865.00 57.30 2807.70
14 116 Store supplies Supplies 129 900.00 900.00
15 117 Withdrawal M. Amos, Drawing 302 3000.00 3000.00
17 118 Electric bill Utilities Exp. 643 318.00 318.00
17 119 The Trend Center P 4250.00 4250.00
21 120 Telephone bill Telephone Exp. 649 276.00 276.00
25 121 Newspaper ad Advertising Exp. 614 840.00 840.00
27 122 International Apparel Mart 2400.00 2400.00
If there is no cash discount, the entry in

the cash payments journal is a debit to
Accounts Payable and a credit to Cash.
9-27
Purchases Discounts
Purchases Discounts is a contra cost of

goods sold account.
For an example of a payment with a discount,
refer to the January 13 entry for Fashion
Designs.
9-28
DEBIT REF. CREDIT
20--
11 114 World of Fashions P 3935.00 78.7 3856.30
Debit Accounts
Payable for the
invoice amount,
Credit Purchases Discounts
$2865
for the amount of the
discount, $57.30.
Credit Cash for the amount

of cash paid, $2807.70.
9-29
Cash Purchases of Equipment
and Supplies
Businesses use cash to purchase equipment

and other assets.
On January 10 The Style Shop issued a check
for store fixtures.
9-30
DEBIT REF. CREDIT
20--
10 112 Store fixtures Store Equip. 2400.00 2400.00
The account name and amount appear

in the Other Accounts Debit section.
The credit is recorded in the

Cash Credit column.
9-31
Payment of Taxes
Retail businesses collect sales tax from their

customers. Periodically the sales tax is
remitted to the taxing authority.
Consider the entry on January 11.
9-32
The Style Shop issued a check for $749 to pay the December sales tax.
DEBIT REF. CREDIT
20--
11 113 Tax remittance Sales Tax Pay. 756.00 756.00
Notice that the account name and

amount appear in the Other Accounts
Debit section.
The credit is entered in

the Cash Credit column.
9-33
Cash Purchases of Merchandise
Although most merchandising businesses buy

their goods on credit, occasionally purchases
are made for cash.
Consider the January 31 entry for the purchase
of goods.
9-34
DEBIT REF. CREDIT
20--
27 122 International Apparel Mart P 2400.00 2400.00
30 123 Fashion Designs P 1135.00 1135.00
31 125 January payroll Salaries Exp. 637 4950.00 4950.00
31 126 Purchase of goods Purchases 3200.00 3200.00
Cash purchases are recorded

in the cash payments journal.
9-35
CK. POST. ACCOUNTS PURCHASES CASH
DATE NO. DESCRIPTION REF. PAYA BLE DEBIT OTHER ACCOUNTS DEBIT DISCOUNT CREDIT
ACCOUNT NAME POST. AMOUNT CREDIT
REF.
20--
27 122 International Apparel Mart 2400.00 2400.00
P
31 124 World of Fashions P 565.00 Freight In 175.00 565.00
175.00
Payment of “freight-in” and amount appear in

the Other Accounts Debit section.
The credit is in the Cash Credit column.
9-36
Cash Payments Journal
CK. OTHER ACCOUNTS DEBIT PURCHASES CASH
DATE NO. DESCRIPTION POST. REF. ACCOUNTS ACCOUNT NAME POST. AMOUNT DISCOUNT CREDIT
PAYA BLE DEBIT REF. CREDIT
20--
27The Style Shop issued a2400.00
122 check for $172.80 to a
International Apparel Mart 2400.00
customer
30 123 Fashion Designswho returned
P
P a defective item.
1135.00 1135.00
31 128 Cash refund Sales Ret. & Allow. 160.00

Sales Tax Payable 12.80 172.80
9-37
Payment of a Promissory
Note and Interest
A promissory note can be issued to settle

an overdue account or to obtain goods,
equipment, or other property.
9-38
On August 2, The Style Shop issued a six-month
promissory note for $6,000 to purchase store fixtures
from Metroplex Equipment Company.
The note had an interest rate of 10 percent.
GENERAL JOURNAL Page 16

REF.
20--
Aug. 2 Store Equipment 131 6,000
Notes Payable 201 6,000
Issued a 6-month, 10% note
to Metroplex Equipment Company
for purchase of new store fixtures
9-39
On January 31 The Style Shop issued a
check for $6,300 in payment of the note
($6,000) and the interest ($300).
P x i x t = interest
$6,000 x 10% x 6/12 = $300
9-40
Cash Payments Journal
OTHER A CCOUNTS DEBIT PURCHASES
DATE CK.NO. DESCRIPTION POST. ACCOUNTS ACCOUNT NAME POST. AMOUNT DISCOUNT CASH
REF. PAYA BLE DEBIT REF. CREDIT CREDIT
20--
11 114 World of Fashions  3935.00 78.7 3856.30
13 115 Fashion Designs  2865.00 57.30 2807.70
17 119 The Trend Center  4250.00 4250.00
25
27
121
122
Newspaper ad
Debit Notes
International Apparel Mart
Payable for $6,000
2400.00
Advertising Exp. 614 840.00 840.00
2400.00

30
31 Debit Interest
123 Fashion Designs
124 World of Fashions

 Expense
565.00 for $300
1135.00 1135.00
565.00
31 128 Cash refund Sales Ret. & Allow. 160.00
Sales Tax Payable 12.80 172.80
31 129 Note paid to Metroplex Notes Payable 6000.00
Equipment Company Interest Exp. 300.00 6300.00
Credit Cash for $6,300

9-41
Posting from the Cash Payments Journal
During the month, the amounts recorded in the

Accounts Payable Debit column are posted to
the individual accounts in the accounts
payable subsidiary ledger.
The amounts in the Other Accounts Debit

column are also posted individually to the
general ledger accounts during the month.
Consider the January 3 entry in the cash payments

journal that was posted to Rent Expense account.
9-42
ACCOUNTS PURCH.
DATE CK. EXPLANATION POST. PAYABLE OTHER ACCOUNTS DEBIT DISCOUNT CASH
NO. REF. DEBIT ACCOUNT TITLE POST. AMOUNT CREDIT CREDIT
REF.
20--
Jan. 3 111 January rent Rent Expense 634 1500 1500
ACCOUNT Rent Expense ACCOUNT NO. 634
DATE DESCRIPTION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT
20--
Jan. 3 CP1 1500 1500
The “CP1” indicates that the entry is recorded on page

1 of the cash payments journal.
9-43
Posting to the Accounts
Payable Ledger
Post entries from the Accounts Payable Debit

column of the cash payments journal to the
vendor accounts in the accounts payable
subsidiary ledger daily.
On January 13, $2,865 was posted to Fashion

Designs account in the subsidiary ledger.
9-44
20--
The amount of $2,865 was posted to Fashion
DEBIT REF. CREDIT
Jan. 3 111 JanuaryDesigns

rent account in the
Rent subsidiary
Expense 634ledger.
1500.00 1500.00
27 122 Intl. Apparel Mart P 2400.00 2400.00
Name Fashion Designs
31 125 January payroll Salaries Exp. Terms4950.00
637 2/10, n/30 4950.00
Address 2313 Belt Lane, Dallas, Texas, Purchases

31
31
126
127
Purchase of goods
Freight charge
75267-6205
Freight In
501
502
3200.00
175.00
3200.00
175.00
31 128 Cash refund Sales Ret. & Allow. 451 160.00
DATE DESCRIPTION POST. DEBIT

Sales Tax Payable CREDIT
231 12.80 BALANCE
172.80
31 129 Note paid to Metroplex REF. Notes Payable 201 6000.00
Equipment Company Interest Exp. 691 300.00 6300.00
20--
31 130 Establish petty cash fund Petty Cash Fund 105 175.00 175.00
Jan.
31 1 Balance
Totals 15,150.00
(205)
24,962.80
(X)
2,200
136.00 #######
(504) (101)
3 Invoice 5819,12/29/-- P1 2865 5,065
13 CP1 2,865 Page
2,200
303
30 CP1 9-45 1,135 1,065
Advantages of the Cash
Payments Journal
The cash payments journal:
 Saves time and effort when recording and posting cash

payments
 Allows for a division of labor among the accounting staff
 Improves the audit trail because all cash payments are
recorded in one place and listed by check number
9-46
The Petty Cash Fund
Most businesses use a petty cash fund to

pay for small expenditures
The amount of the petty cash fund depends
on the needs of the business.
Usually the office manager, cashier, or
assistant is in charge of the petty cash fund.
9-47
Establishing the Fund
The Style Shop’s cashier is responsible for

petty cash. The Style Shop wrote a $175
check to the cashier, who cashed the check
and put the currency in a locked cash box.
9-48
DEBIT REF. CREDIT
20--
25 121 Debit Petty Cash FundAdvertising
Newspaper ad in the Exp. other
614Accounts
840.00 840.00
27 122 Intl. Apparel Mart
Debit section and2400.00
enter the credit in the Cash 2400.00
P
31
31
124
125
Credit column.
World of Fashions
January payroll
P 565.00
Salaries Exp. 637 4950.00
51.20 565.00
4950.00
31 126 Purchase of goods Purchases 501 3200.00 3200.00
31 127 Freight charge Freight In 502 175.00 175.00
31 128 Cash refund Sales Ret. & Allow. 451 160.00
Sales Tax Payable 231 12.80 172.80

31 129 Note paid to Metroplex Notes Payable 201 6000.00
Equipment Company Interest Exp. 691 300.00 6300.00
31 130 Establish petty cash fund Petty Cash Fund 105 175.00 175.00
31 Totals 15,150.00 24,962.80 136.00 39,976.80
(205) (X) (504) (101)
9-49
Petty Cash Voucher
A petty cash voucher is a form used to

record the payments made from a petty
cash fund.
The person receiving the funds signs the

voucher.
The person who controls the petty cash

fund initials the voucher.
9-50
A petty cash voucher shows:
PETTY CASH VOUCHER 1
NOTE: This form must be computer processed or filled out in black ink.
DESCRIPTION OF EXPENDITURE ACCOUNT TO BE CHARGED AMOUNT

Office Supplies Supplies 129 16 25
Total 16 25
RECEIVED
THE SUM OF Sixteen DOLLARS AND 25/100 CENTS
SIGNED L.T. Green DATE 2/3/-- APPROVED BY M.A. DATE 2/3/--

Metroplex Office Supply Co.
9-51
Replenishing the Fund
The total vouchers plus the cash on hand

should always equal the amount of the fund–
$175 for The Style Shop.
Replenish the petty cash fund at the end of

each month or sooner if the fund is low.
The fund MUST be replenished at the end of

the period.
9-52
The following internal control
procedures apply to petty cash:
1. Use the petty cash fund only for small payments that cannot
conveniently be made by check.
2. Limit the amount set aside for petty cash to the approximate
amount needed to cover one month's payments from the
fund.
3. Write petty cash fund checks to the person in charge of the

fund, not to the order of "Cash."
9-53
The following internal control
procedures apply to petty cash:
4. Assign one person to control the petty cash fund. This person has
sole control of the money and is the only one authorized to make
payments from the fund.
5. Keep petty cash in a safe, a locked cash box, or a locked

drawer.
6. Obtain a petty cash voucher for each payment. The

voucher should be signed by the person who receives the
money and should show the payment details. This
provides an audit trail for the fund.
9-54
Internal Control over Cash
The internal control over cash should be

tailored to the needs of a business.
Accountants play a vital role in designing,
establishing, and monitoring the cash control
system.
9-55
Essential Cash Receipt Controls
1. Have only designated employees receive and

handle cash. In some businesses employees
handling cash are bonded.
Bonding is the process by which will insure

the business against losses through employee theft
or mishandling of funds.
9-56
2. Keep cash receipts in a cash register, a locked

cash drawer, or a safe while they are on the
premises.
3. Make a record of all cash receipts as the funds

come into the business.
4. Check the funds to be deposited against the

record made when the cash was received. The
employee who checks the deposit is someone
other than the one who receives or records the
cash.
9-57
5. Deposit cash receipts in the bank promptly.
Deposit the funds intact. The person who makes
the bank deposit is someone other than the one
who receives and records the funds.
6. Enter cash receipt transactions in the accounting

records promptly. The person who records cash
receipts is not the one who receives or deposits
the funds.
7. Have the monthly bank statement sent to and

reconciled by someone other than the employees
who handle, record, and deposit the funds.
9-58
Essential Cash Payment Controls
1. Make all payments by check except for payments from
special purpose cash funds such as a petty cash fund.
2. Issue checks only with an approved bill, invoice, or other

document that describes the reason for the payment.
3. Have only designated personnel approve bills and

invoices.
4. Have checks prepared and recorded in the checkbook or

check register by someone other than the person who
approves the payments.
9-59
Essential Cash Payment Controls
5. Have still another person sign and mail the checks to creditors.
6. Use prenumbered check forms.
7. During the bank reconciliation process, compare the canceled

checks to the checkbook or check register. The person
responsible for this should be someone other than the person
who prepares or records the checks.
8. Enter promptly in the accounting records all cash payment

transactions. The person who records cash payments should
not be the one who approves payments or the one who writes
the checks.
9-60
Bank Statement
First Texas National Bank
The Style Shop
Dallas, TX 75268
12,025.50
9-61
Bank Reconciliation Statement
A bank reconciliation statement is a

statement that accounts for all differences
between the balance on the bank statement
and the book balance of cash.
9-62
A credit memorandum is a form that
explains any addition, other than a
deposit, to a checking account.
A debit memorandum is a form that

explains any deduction, other than a
check, from a checking account.
9-63
A dishonored check is a check
returned to the depositor unpaid
because of insufficient funds in the
drawer’s account. It is also called an
NSF check.
A service charge is a fee charged by

a bank to cover the costs of
maintaining accounts and providing
services.
9-64
The Bank Reconciliation Process:
An Illustration
When the bank statement is received, it is

reconciled with the financial records of the
business.
The ending bank balance on January 31 was
$21,838.50.
On January 31 the Cash account, called the

book balance of cash, is $14,390.70.
9-65
Bank Statement
First Dallas National Bank
The Style Shop
38-19-98867
Dallas, TX 75268
12,025.50
The ending cash balance

according to the bank is
$21,838.50.
21,838.50
9-66
Sometimes the difference between the bank
balance and the book balance is due to errors.
Errors made by banks Errors made by businesses

Arithmetic errors Arithmetic errors
Giving credit to the wrong Not recording a check or

depositor deposit
Charging a check against Recording a check or

the wrong account deposit for the wrong amount
Many banks require that errors in the bank statement be

reported within a short period of time, usually 10 days.
9-67
Other than errors, there are four reasons why the book
balance of cash may not agree with the balance on the
bank statement.
1. Outstanding checks.
2. Deposit in transit.
3. Service charges and other deductions not recorded in
the business records.
4. Deposits, such as the collection of promissory notes,
not recorded in the business records.
9-68
A deposit in transit is a deposit that
is recorded in the cash receipts
journal but that reaches the bank too
late to be shown on the monthly
bank statement.
Outstanding checks are checks that

have been recorded in the cash
payments journal but have not yet
been paid by the bank.
9-69
Format of a bank reconciliation statement
First Section Second Section
Bank statement balance = Book balance
+ deposits in transit + deposits not recorded
– outstanding checks – deductions
+ or – bank errors + or – errors in books
Adjusted bank balance = Adjusted book balance
9-70
Steps to reconcile bank balance:
First Section
1. Enter the bank balance on the bank statement.
2. Compare the deposits in the checkbook with the deposits
on the bank statement.
3. List the outstanding checks.
4. List any bank errors.
5. Compute the adjusted bank balance.
9-71
TheThe
Trend
StyleCenter
Shop
January 31, 20--
Bank statement balance 21,838.50
Step 1: Enter the balance on the bank statement, $21,838.50
9-72
TheThe
Trend
StyleCenter
Shop
January 31, 20--

Additions:
Deposit of January 31 in transit 5,940
Step 2: Compare the deposits in the checkbook with the deposits on

the bank statement.
On January 31 receipts of $5,940 were placed in the bank's night
deposit box.
The bank recorded the deposit on February 1. The

deposit will appear on the February bank statement.
9-73
TheThe
Trend
StyleCenter
Shop
January 31, 20--

Additions:
Deductions for outstanding checks:

Check 124 of January 31 565
Check 125 of January 31 4,950
Check 128 of January 31 172.80
Total outstanding checks 15,537.80
Step 3: List the outstanding checks. The Style Shop has seven
outstanding checks totaling $15,537.80.
9-74
TheThe
Trend
StyleCenter
Shop
January 31, 20--

Additions:
Check incorrectly charged to account 1,600 7,540
29,378.50
Step Check 129any
4: List of January
bank31errors. 6,300
A $1,600 check was incorrectly deducted from The

Style Shop’s account.
9-75
TheThe
Trend
StyleCenter
Shop
January 31, 20--

Additions:
29,378.50
Adjusted bank balance 13,840.70
Step 5: Compute the adjusted bank balance.
9-76
Steps to reconcile book balance:
Second Section
1. Enter the balance in books from the Cash account.
2. Record any deposits made by the bank that have not been
recorded in the accounting records.
3. Record deductions made by the bank.
4. Record any errors in the accounting records that were discovered

during the reconciliation process.
5. Compute the adjusted book balance.
9-77
TheThe
Trend
StyleCenter
Shop
January 31, 20--

Additions:
29,378.50
Step 1: EnterCheck
the 128
balance in books
of January 31 from the 172.80
Cash account, $14,390.70.
Book balance 14,390.70
9-78
TheThe
Trend
StyleCenter
Shop
January 31, 20--

Additions:
29,378.50
Step 2: Record any
Checkdeposits
125 of Januarymade
31 by the bank
4,950 that have not been
recorded in the accounting
Check 126 of Januaryrecords.
31 3,200
The Style Shop did
Checknot
128 ofhave
Januaryany.
31 172.80
9-79
TheThe
Trend
StyleCenter
Shop
January 31, 20--

Additions:
29,378.50
Step 3: Record deductions made
Check 124 of January 31 by the bank.
565 There are two items:
 The NSF check for126
Check $525of January 31 3,200
 The bank service
Checkcharge for31$25
128 of January 172.80

Deductions:
NSF Check 525
Bank service charge 25 550
9-80
TheThe
Trend
StyleCenter
Shop
January 31, 20--

Additions:
29,378.50
Step 4: Record any
Checkerrors in the
125 of January 31 accounting4,950records that were
discovered during
Checkthe
126 reconciliation
of January 31 process.
3,200
The Style Shop did
Checknot
128 ofhave
Januaryany
31 errors in January.
172.80

Deductions:
NSF Check 525
9-81
TheThe
Trend
StyleCenter
Shop
January 31, 20--

Additions:
29,378.50
Step 5: Compute the adjusted
Check 128 of January 31
book balance.
172.80

Deductions:
NSF Check 525
Adjusted book balance 13,840.70
9-82
TheThe
Trend
StyleCenter
Shop
January 31, 20--

Additions:
29,378.50
Notice that theCheck
adjusted bank
127 of January 31 balance and175the adjusted book
balance agree.Check 128 of January 31 172.80

Deductions:
NSF Check 525
Adjusted book balance 13,840.70
9-83
For The Style Shop, two entries must be made.
GENERAL JOURNAL PAGE 16

REF.
Jan 31 Accts. Rec./David Newhouse 525

Bank Fees Expense 25
Cash 550
To record NSF check and service charge
 The first entry is for the NSF check from David Newhouse, a
credit customer.
 The second entry is for the bank service charge.
The effect of the two items is a decrease in the Cash account

balance.
9-84

1st Bank Reconcilation

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

1st Bank Reconcilation

Uploaded by

Copyright:

Available Formats

Chapter

Was cash RECEIVED? Was inventory PURCHASED?

Record the Record the Record the Was it a credit SALE?

Use the CRs and CDs Journals to prepare

A cash receipts journal is a special

Consider the cash sales entries for

When errors happen, the cash in the cash register is

 When cash in the register is more than the audit tape,

CASH RECEIPTS JOURNAL PAGE 1

7 R. Anderson 432.00 432.00

15 Cash Sales 384.00 4,800.00 Cash Short/Over 18.00 5,166.00

$384 + $4,800 = $5,184

Debits are not the normal balance of the

 The Style Shop does not offer cash discounts.

 However, many wholesale businesses offer cash discounts to

 Businesses with many sales discounts add a Sales Discounts

The account name and amount

Roy Anderson 432.00 432.00

The name and amount are entered in the

A promissory note is a written promise to

Sometimes promissory notes are used to

$800 July 31, 20--

GENERAL JOURNAL Page 16

DATE DESCRIPTION POST. DEBIT CREDIT

Interest rate = 9% per year

Time = six months

Interest amount $800 x 9% x 6/12 = $36

Total amount with interest = $836

CASH RECEIPTS JOURNAL PAGE 1

20-- The note and the interest are

31 Collection of Notes Receivable 800.00

Posting the Column Totals

At the end of the month, the cash receipts journal is

CASH RECEIPTS JOURNAL PAGE 1

2,133 + 1,800 + 22,500+ 15,909 = 42,342

CASH RECEIPTS JOURNAL PAGE 1

Post entries from the Accounts Receivable Credit

On January 7, $432 was posted to Roy

The “CR1” indicates that the transaction appears

Name Roy Anderson Terms n/30

DATE DESCRIPTION POST. DEBIT CREDIT BALANCE

The cash receipts journal:

 Saves time and effort when recording and posting

 Allows for the division of work among the

 Strengthens the audit trail by recording all cash

A cash payments journal is a special

Was cash RECEIVED? Was inventory PURCHASED?

Record the Record the Record the Was it a credit SALE?

Use the CRs and CDs Journals to prepare

Businesses write checks for a variety of expenses

The account name and amount are

The credit is entered in the

Merchandising businesses usually make

If there is no cash discount, the entry in

Purchases Discounts is a contra cost of

Credit Cash for the amount

Businesses use cash to purchase equipment

The account name and amount appear

The credit is recorded in the

Retail businesses collect sales tax from their

Notice that the account name and

The credit is entered in

Although most merchandising businesses buy

31 126 Purchase of goods Purchases 3200.00 3200.00