Bank Reconciliation (Theories and Concept) : Bank Reconciliation, According To Williams, Haka, Et - Al. (2008)

Bank Reconciliation
(Theories and Concept)
Accounting errors: numerical errors made by either the company or

the bank. The most common is transposition of numbers.
(Accounting 10th Edition: Concept and Applications)
According to Albrecht, et.al.(2008), bank reconciliation is the
process of systematically comparing the cash balance as reported
by the bank with the cash balance on the companys books and
explaining any differences.
More importantly, it can serve as an independent check to ensure
that the cash is being accounted for correctly within the
company.
Bank reconciliation, according to Williams, Haka, et.al.(2008),
is a schedule explaining any differences between the balance
shown in the bank statement and the balance shown in the
depositors accounting records. With the independent records of
the deposits between the bank and depositor, the depositor should
prepare a bank reconciliation each month to verify that these
sets are in agreement. For strong internal control, the employee
who reconciles the bank statement should not have any other
responsibilities for physically handling cash.
This recon may disclose internal control failures and identifies
certain transactions that must be recorded in the depositors
accounting records and helps to determine the actual amount of
cash on deposit.
Normal differences between Bank Records and Accounting Records.
The balance shown in a monthly bank statement seldom equals the
balance appearing in the depositors accounting records. Certain
transactions recorded by the depositor may or may not have been
recorded by the bank. Common examples:
Outstanding checks
Deposits in transit
Transactions appearing in the Bank Statement may not have been
recorded by the depositor. Example:
Service charges.
Charges for depositing NSF (Not Sufficient Funds) Checks.
Credits for interest earned.
Miscellaneous bank charges and credits.
*In a bank recon, the balances shown in the bank statement and
the accounting records are both adjusted for any unrecorded
transactions.
Steps in Preparing a Bank Reconciliation:
1. Compare deposits listed in the bank statement with the
deposits shown in the accounting records. Any deposits not
yet recorded by the bank are deposits in transit and should
be added to the balance shown in the bank statement.
2. Compare checks paid by the bank with the corresponding
entries in the accounting records. Any checks issued but not
yet paid by the bank should be listed as outstanding checks
to be deducted from the balance reported in the bank
statement.
3. Add to the balance per the depositors accounting records
any credit memoranda issued by the bank that have not been
recorded by the depositor.
4. Deduct from the balance per the depositors records any
debit memoranda issued by the bank that have not been
recorded by the depositor.
5. Make appropriate adjustments to correct any errors in either
the bank statement or the depositors accounting records.
6. Determine that the adjusted balance of the bank statement is
equal to the adjusted balance in the depositors records.
7. Prepare journal entries to record any items in the bank
reconciliation listed as adjustments to the balance per the
depositors records.
(Updating the Accounting Records: In the bank recon, every
adjustment to the balance per depositors records is a cash
receipt or a cash payment that has not been recorded in the
depositors accounts. Therefore, each of these items should be
recorded.)
Another important control used by nearly all companies to help
maintain control of cash is a bank reconciliation. It matches
the balance of cash in the bank account with the balance of
cash in the companys own records.
A bank recon connects the companys cash balance to the banks
cash balance by identifying differences due to timing and
errors. Timing differences in cash occur when the company
records transactions either before or after the bank records
the same transactions.
Reconciling the bank account involves three steps:
1. Reconcile the banks cash balance.
2. Reconcile the companys cash balance.
3. Update the companys Cash Account by recording items
identified in step 2. (Financial Accounting: 4th Ed.,
Spiceland, et.al, (2016)
Definition of terms:
o Bank Reconciliation
o Timing differences
o Deposits outstanding
Cash receipts of the company that have not been added to
the banks record of the companys balance.
o Checks outstanding
Checks the company has written that have not been
subtracted from the banks record of the companys
balance.
References:
a. Albrecht, W.S, et.al. (2016). Financia Accounting

Bank Reconciliation (Theories and Concept) : Bank Reconciliation, According To Williams, Haka, Et - Al. (2008)

Uploaded by

Copyright:

Available Formats

Bank Reconciliation (Theories and Concept) : Bank Reconciliation, According To Williams, Haka, Et - Al. (2008)

Uploaded by

Document Information

Original Description:

Original Title

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

Bank Reconciliation (Theories and Concept) : Bank Reconciliation, According To Williams, Haka, Et - Al. (2008)

Uploaded by

Copyright:

Available Formats

Bank Reconciliation

(Theories and Concept)

Accounting errors: numerical errors made by either the company or

You might also like