Question

The Concept of Bank Reconciliation is to compare the company's book balance (balance shown in the Cash Account) with the Bank Statement balance. Imagine a business carrying $500,000 balance in the books but the bank only shows $300,000. Will the bank pay the business $200,000 difference? Hence, Bank Reconciliation is an Internal Control measure assuring the books is recorded correctly.

Do you have a bank account? Think about your own account. Banks generally have a cut-off time of 3PM but stays open longer for the convenience of the customers. Hence, when a deposit is made after 3PM either i with a teller or night-drop is counted as deposit made the next business day (M-F excluding Sa, Su and Holidays).

For instance, if you made a deposit on Monday 3/31 after 3PM. It would not appear on Mar01-31 bank statement as it would be considered deposit made on 4/1.

If you wrote a check to pay someone, it would be deducted on your own check register. But from the bank side, it would only appear in your account when the payee cashes the check. For example, you wrote a $500 check on 3/31 and recorded in your check register reducing your balance $500. The check was not cashed until 4/10. When you receive your Mar01-31 statement, your bank balance will show $500 more than your check register because the bank does not have record of the $500 check.

Following are the transactions which usually appear in company's records but not in the bank statement:

• Deposits in Transit: Deposits which have been sent by the company to the bank but have not been received by the bank at proper time before the issuance of bank statement.
• Checks Outstanding: Checks which have been issued by the company but were not presented or cleared before the issuance of bank statement.

Following are the transactions which usually appear in bank statement but not in company's cash account:

• Service Charges: Service charges may have been deducted by the bank. Such charges are usually not known to the company before the issuance of bank statement.
• Interest Income: If any interest income has been earned by the company on its bank account, it is not usually entered in company's cash account before the issuance of bank statement.
• NSF Checks: NSF stands for "not sufficient funds". These are the checks deposited by the company in bank account but the bank is unable to receive payment on those checks due to insufficient funds in the payer's account.

Please prepare Bank Reconciliation:

Company ABC's bank statement dated Dec 31, 2011 shows a balance of $24,594.72. The company's cash records on the same date show a balance of $23,196.79. Following additional information is available:

1. Following checks issued by the company to its customers are still outstanding:

   No. 846 issued on Nov 29	$320.00
   No. 875 issued on Dec 26	49.21
   No. 878 issued on Dec 29	275.00
   No. 881 issued on Dec 31	186.50

2. A deposit of $400.00 made on Dec 31 does not appear on bank statement.
3. An NSF check of $850 was returned by the bank with the bank statement.
4. The bank charged $50 as service fee.
5. Interest income earned on the company's average cash balance at bank was $1,237.22.
6. The bank collected a note receivable on behalf of the company. Amount received by the bank on the note was $550. This includes $50 interest income. The bank charged a collection fee of $10.
7. A deposit of $430 was incorrectly entered as $340 in the company's cash records.

Answer 1

ABC Company
Bank Reconciliation
Month Ended December 31 20111
Cash Balance as per bank statement	24594.72
Add: Deposit in Transit	400
Less: Outstanding checks	-830.71
Adjusted Cash Balance	24164.01
Cash balance as per books	23196.79
Add: Note Collected	500
Add: Interest on Note	50
Add; Interest INCOME	1237.22
Add: Error in recording deposit	90
Less: Bank Service charges	-50
Less: Note Collection Fee	-10
Less: NSF Check	-850
Adjusted Cash Balance	24164.01