Section 2Reconciling the Bank Account

Section 2Reconciling the Bank AccountWhat You’ll Learn

Why a business reconciles a bank statement.

How to journalize and post entries relating to bank service charges.

The accounting procedure for stopping payment on a check.

How to record an NSF check. How electronic funds transfer systems

enable banks to transfer funds quickly and accurately.

What You’ll Learn Why a business reconciles a bank

statement. How to journalize and post entries

relating to bank service charges. The accounting procedure for stopping

payment on a check. How to record an NSF check. How electronic funds transfer systems

enable banks to transfer funds quickly and accurately.

Why It’s ImportantReconciling the bank account

ensures that a business owner is aware of all transactions that affect cash.

Why It’s ImportantReconciling the bank account

ensures that a business owner is aware of all transactions that affect cash.

Section 2 Reconciling the Bank Account (con’t.)Section 2 Reconciling the Bank Account (con’t.)

Key Terms bank statement canceled checks reconciling the

bank statement outstanding checks outstanding

deposits

Key Terms bank statement canceled checks reconciling the

bank statement outstanding checks outstanding

deposits

bank service charge

stop payment order

NSF check electronic funds

transfer system (EFTS)

bank service charge

stop payment order

NSF check electronic funds

transfer system (EFTS)

Proving CashProving Cash

Section 2 Reconciling the Bank Account (con’t.)Section 2 Reconciling the Bank Account (con’t.)

General Ledger

Cash inBank account

General Ledger

Cash inBank account

CheckbookBalance

CheckbookBalance

==

The Bank StatementThe Bank Statement

A bank statement is an itemized record of all the transactions in a depositor’s account over a given period, usually a month.

When a bank sends a statement to a depositor, it may return the checks paid by the bank and deducted from the depositor’s account. These returned checks are called cancelled checks.

A bank statement is an itemized record of all the transactions in a depositor’s account over a given period, usually a month.

When a bank sends a statement to a depositor, it may return the checks paid by the bank and deducted from the depositor’s account. These returned checks are called cancelled checks.

Section 2 Reconciling the Bank Account (con’t.)Section 2 Reconciling the Bank Account (con’t.)

The Bank Statement (con’t.)The Bank Statement (con’t.)

Section 2 Reconciling the Bank Account (con’t.)Section 2 Reconciling the Bank Account (con’t.)

Beginning balanceBeginning balance

Checks paid by bank (cancelled checks)Checks paid by bank (cancelled checks)

OtherdeductionsOtherdeductions

Deposits intothe accountDeposits intothe account

Ending balanceEnding balance

The Bank Statement (cont.)The Bank Statement (cont.) The process of determining any differenced between the bank statement and the checkbook is called reconciling the bank statement.

Outstanding checks are checks that have been written but have not yet been presented to the bank for payment.

Outstanding deposits are deposits that have been made and recorded in the checkbook but do not appear on the bank statement.

A bank service charge is a fee the bank charges for maintaining bank records and processing bank statement items for the depositor.

The process of determining any differenced between the bank statement and the checkbook is called reconciling the bank statement.

Outstanding checks are checks that have been written but have not yet been presented to the bank for payment.

Outstanding deposits are deposits that have been made and recorded in the checkbook but do not appear on the bank statement.

A bank service charge is a fee the bank charges for maintaining bank records and processing bank statement items for the depositor.

Section 2 Reconciling the Bank Account (con’t.)Section 2 Reconciling the Bank Account (con’t.)

Reconciling a Bank StatementReconciling a Bank Statement

Documents the differences between

the bank balance and the checkbook

balance.

Documents the differences between

the bank balance and the checkbook

balance.

Section 2 Reconciling the Bank Account (con’t.)Section 2 Reconciling the Bank Account (con’t.)

2

3

6

45

7

Section 2 Reconciling the Bank Account (con’t.)Section 2 Reconciling the Bank Account (con’t.)

Recording Bank Service ChargesRecording Bank Service ChargesA bank service charge is an expense

that is recorded in the accounting records.

A bank service charge is an expense that is recorded in the accounting records.

Closing Entry (con’t.)

JOURNAL ENTRY

On November 1 Roadrunner received the bank statement. A bank service charge of $8 appeared on the statement.

Special Banking ProceduresSpecial Banking Procedures

Stop payment order is a demand by the drawer that the bank not honor a certain check.

An NSF check is a check returned to the depositor by the bank because there are not sufficient funds in the drawer’s checking account to cover the check.

Banks use electronic funds transfer system (EFTS) to transfer funds among accounts quickly and accurately without the exchange of checks. An example is on p272, Figure 11-15.

Stop payment order is a demand by the drawer that the bank not honor a certain check.

An NSF check is a check returned to the depositor by the bank because there are not sufficient funds in the drawer’s checking account to cover the check.

Banks use electronic funds transfer system (EFTS) to transfer funds among accounts quickly and accurately without the exchange of checks. An example is on p272, Figure 11-15.

Section 2 Reconciling the Bank Account (con’t.)Section 2 Reconciling the Bank Account (con’t.)

Demonstration ProblemsDemonstration Problems

Problems 11-3 to 11-5.Problems 11-3 to 11-5.

Section 1 Banking Procedures (con’t.)Section 1 Banking Procedures (con’t.)

2

3

6

4

5

7

1

3,172.50

-24.50

3148.00

731 245.--742 88.--745 461.--

794.--

1242.--2700.--3942.--

794.--3148.--

Aug 8 Miscellaneous Expense 12.75Cash in Bank 12.75

20--

July Bank Statement

21

Aug 21Accounts Receivable-Fran Alexander 98.45

Cash in Bank 98.45

20--

NSF Check

24

AssignmentAssignment

Check Your Understanding•Thinking Critically 1&2

1 is worth 5 points 2 is worth 4 points

•Problem 11-2

Check Your Understanding•Thinking Critically 1&2

1 is worth 5 points 2 is worth 4 points

•Problem 11-2

Section 2 Reconciling the Bank Account (con’t.)Section 2 Reconciling the Bank Account (con’t.)