Chapter 7

Cash
Accounting, 21st Edition
Warren Reeve Fess

© Copyright 2004 South-Western, a division

PowerPoint Presentation by Douglas Cloud of Thomson Learning. All rights reserved.
Professor Emeritus of Accounting
Pepperdine University Task Force Image Gallery clip art included in this
electronic presentation is used with the permission
of NVTech Inc.
A summary received from
the bank of all account
transaction is called a
statement of account.
A bank reconciliation is a listing
of the items and amounts that
cause the cash balance reported
in the bank statement to differ
from the balance of the cash
account in the ledger.
Reasons for Differences Between Depositor’s
Records and the Bank Statement

 Outstanding checks
 Deposits in transit
 Service charges
 Collections
 Not-sufficient-funds (NSF)
checks
 Errors
 Steps in a Bank Reconciliation
1. Compare each deposit listed on the bank statement
Add deposits not recorded by the bank to the
with unrecorded deposits appearing on the preceding
balance
period’s according and
reconciliation to the
withbank statement.
deposit receipts.
2.Deduct
Compare paid checks
checks with outstanding
outstanding that havechecks
been paid
appearing on the preceding period’s reconciliation and
by the bank from the
with recorded checks.
balance according to the
bank statement.
3. Add
Compare
creditbank credit memorandums
memorandums to entries
that have in the
not been
journal.
recorded to the balance according to the
depositor’s records.
 Steps in a Bank Reconciliation
4.Deduct
Compare bankmemorandums
debit debit memorandums to entries
that have not been
recording cash payments.
recorded from the balance according to the
5. List any errors discovered during the preceding steps.
depositor’s records.
 BANK

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

Power Network prepares to reconcile the

monthly bank statement as of July 31,
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
$4,175.98

A deposit of $816.20 did not

appear on the bank 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
$4,175.98 $2,957.99

The bank collected a note in the

amount of $400 and the related
interest of $8 for Power 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
$4,175.98 $2,957.99
Deduct outstanding
checks:
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99

ThreeAchecks
deposit of $637.02
that did not appear
were written during the
on appear
period did not the bankon
statement.
the bank statement:
#812, $1,061; #878, $435.39, #883, $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
$4,175.98 $2,957.99
Deduct outstanding 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 bank returned an NSF check from one of the

firm’s customers, Thomas Ivey, in the amount of
$300. This was a payment on 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
$4,175.98 $2,957.99
Deduct outstanding 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 bank service charges totaled $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
$4,175.98 $2,957.99
Deduct outstanding 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 No. 879 for $732.26 to Taylor Co. on account,

erroneously recorded in journal as $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
$4,175.98 $2,957.99
Deduct outstanding 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
 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
The End