Chapter 08 – Cash and Internal Control
VISUAL #8-1
BANK RECONCILIATION
Reasons for discrepancies between
bank statement balance and checkbook
balance: Handle as follows:
Unrecorded deposits Add to Bank Balance
Outstanding checks Deduct from Bank Balance
Bank service charges Deduct from Book Balance
Debit memos Deduct from Book Balance
Credit memos Add to Book Balance
NSF checks Deduct from Book Balance
Interest Add to Book Balance
Errors Must analyze individually
(bank errors affect bank
balance and book
errors affect book
balance)
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Chapter 08 – Cash and Internal Control
Alternate Demonstration Problem
Chapter Eight
The Betsy Dough Company wants to prepare a bank reconciliation for the
month of June. When the bank statement for the month of June arrives
from the bank, the following steps are performed:
1. The deposits to the bank account, as recorded on the bank statement,
are compared to the deposit slips retained by the company. It is noted
that the last deposit, of $400, occurred after banking hours on the day of
the bank statement and therefore has not been recorded by the bank on
this bank statement.
2. Checks returned with the bank statement are compared to the checks
written and listed in checkbook. This comparison shows that there are
checks outstanding amounting to $1,456.
3. The ending balances on the statement and in the company’s books are
determined. The ending bank statement balance is exactly $10,129
whereas the books show $9,000.
4. Other information contained on the bank statement, not previously
known to the company, is determined. This includes the following: (a) a
note of $180 plus $20 interest from a customer for a total of $200 has
been collected by the bank and credited to our account; (b) a check
from Frank Ony for $120 previously deposited by us has been returned
for lack of sufficient funds; (c) the bank has charged us $25 for its
services (this includes a $10 fee for the NSF check). The $10 fee for the
NSF check will be charged to the customer.
5. A bank reconciliation is prepared; it does not balance! The difference is
$18, so a transposition error is looked for (whenever the difference is a
multiple of 9, there is a very good chance that there has been an
inadvertent exchange of two digits (for example, writing 29 when it
should have been 92). An error is found. Check number 141 was written
for $235 for Advertising Expense and cleared the bank for $235, but was
recorded in the company records as $253.
Required:
Prepare a bank reconciliation for the Betsy Dough Company at June 30,
20XX.
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Chapter 08 – Cash and Internal Control
Solution: Alternate Demonstration Problem
Chapter Eight
BETSY DOUGH COMPANY
Bank Reconciliation
June 30, 20XX
Bank Statement
Bank statement balance……………………..………………. $10,129
Add:
Depositor’s Books
Book balance of cash……………….………………..………. $ 9,000
Add:
Proceeds of customer note collected
by bank…………………………………………….……….. 200
Error in recording Check No. 141..………..….... 18
Deduct:
Adjusting entries Based on the Bank Reconciliation (made by depositor)
Cash………………………………………………………………. 218
Notes Receivable …………………………………………. 180
Interest Revenue ………………………………………….. 20
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Chapter 08 – Cash and Internal Control
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