© The McGraw-Hill Companies, Inc., 2009McGraw-Hill/Irwin

Chapter 8

Cash and Internal Controls

© The McGraw-Hill Companies, Inc., 2009McGraw-Hill/Irwin

Reconciling Items

Bank Statement Balance Add:

Deposits in transit Deduct:

Outstanding Checks

Add or Deduct: Bank errors

Bank Statement Balance Add:

Deposits in transit Deduct:

Outstanding Checks

Add or Deduct: Bank errors

Book Balance• Add: Collections

made by the bank• Add: Interest earned

on checking account• Deduct:

Nonsufficient funds check (NSF)

• Deduct: Bank service charge

• Add or Deduct: Book errors

Book Balance• Add: Collections

made by the bank• Add: Interest earned

on checking account• Deduct:

Nonsufficient funds check (NSF)

• Deduct: Bank service charge

• Add or Deduct: Book errors

© The McGraw-Hill Companies, Inc., 2009McGraw-Hill/Irwin

Bank Reconciliation Example

Let’s prepare a November 30 bank reconciliation statement for Jamboree Enterprises.

The November 30 bank statement indicated a balance of $38,520.

The cash general ledger account on that date shows a balance of $16,380.

Additional information necessary for the reconciliation is shown on the next two

screens.

Let’s prepare a November 30 bank reconciliation statement for Jamboree Enterprises.

The November 30 bank statement indicated a balance of $38,520.

The cash general ledger account on that date shows a balance of $16,380.

Additional information necessary for the reconciliation is shown on the next two

screens.

© The McGraw-Hill Companies, Inc., 2009McGraw-Hill/Irwin

Bank Reconciliation Example

a) Then book and bank balances were as detailed on the preceding slide.

b) Checks No. 2024 for $4,810 and no. 2036 for $5,000 are outstanding.

c) A $1,000 rent check was erroneously recorded in the records as $880.

d) The Nov. 30 deposit of $17,150, which had been deposited the previous night did not appear on the bank statement.

e) A check written by Jumbo enterprises in the amount of $160 was erroneously drawn against Jamborees acct.

© The McGraw-Hill Companies, Inc., 2009McGraw-Hill/Irwin

Bank Reconciliation Example

f) A credit memo indicated a collection of $30,000 plus $900 interest was collected on Jamboree’s behalf, but hadn’t been recorded in the accounting records.

g) A debit memo for $1,100 lists a $1,100 NSF check received from a customer, Marilyn Welch. Jamboree had not recorded the item.

h) Bank service charges for November total $40. These charges have not been recorded by Jamboree.

aa

bb

cc

dd

ee

ff

gg

hh

© The McGraw-Hill Companies, Inc., 2009McGraw-Hill/Irwin

Recording Adjusting Entries from a Bank Reconciliation

Only amounts shown on the book portion of the reconciliation require an adjusting entry. Here is the entry to record the increase to cash.

Only amounts shown on the book portion of the reconciliation require an adjusting entry. Here is the entry to record the increase to cash.

Nov 30 Cash 30,900 Notes Receivable 30,000 Interest Earned 900

to record collection

© The McGraw-Hill Companies, Inc., 2009McGraw-Hill/Irwin

Recording Adjusting Entries from a Bank Reconciliation

Only amounts shown on the book portion of the reconciliation require an adjusting entry. Here are the entries to record the decreases to cash.

Only amounts shown on the book portion of the reconciliation require an adjusting entry. Here are the entries to record the decreases to cash.

Accounts Receivable-Welch 1,100 Cash 1,100

NSF check M Welch

Rent Expense 120 Cash 120

to correct recordingerror on #2025

Bank Service Charge 40 Cash 40

to record bank fees