Bank Reconciliations

Bank Reconciliation Procedure

1. On the bank statement, compare the company’s list of issued checks and deposits to the checks shown on the statement to identify uncleared checks and deposits in transit.
2. Using the cash balance shown on the bank statement, add back any deposits in transit.
3. Deduct any outstanding checks.
4. This will provide the adjusted bank cash balance.
5. Next, use the company’s ending cash balance, add any interest earned and notes receivable amount.
6. Deduct any bank service fees, penalties, and NSF checks. This will arrive at the adjusted company cash balance.
7. After reconciliation, the adjusted bank balance should match with the company’s ending adjusted cash balance.

Example

XYZ Company is closing its books and must prepare a bank reconciliation for the following items:

• Bank statement contains an ending balance of $300,000 on February 28, 2018, whereas the company’s ledger shows an ending balance of $260,900
• Bank statement contains a $100 service charge for operating the account
• Bank statement contains interest income of $20
• XYZ issued checks of $50,000 that have not yet been cleared by the bank
• XYZ deposited $20,000 but this did not appear on the bank statement
• A check for the amount of $470 issued to the office supplier was misreported in the cash payments journal as $370.
• A note receivable of $9,800 was collected by the bank.
• A check of $520 deposited by the company has been charged back as NSF.