Companies usually open an account with the bank through which money is deposited and withdrawn to and from the bank account, and the withdrawal and deposit process takes place either through an authorized person, or through issued and incoming bank checks.
Accounting treatment of cash in the bank
Bank statement
From time to time, the establishment receives an account statement from the bank showing the financial movements that obtained the account from deposits and withdrawals during a certain period, as well as the actual balance available in the account until a certain date, and the establishment then matches the statement received from the bank with what is recorded in the books The facility, after which the settlement entries for the bank account are prepared.
From time to time, the establishment receives an account statement from the bank showing the financial movements that obtained the account from deposits and withdrawals during a certain period, as well as the actual balance available in the account until a certain date, and the establishment then matches the statement received from the bank with what is recorded in the books The facility, after which the settlement entries for the bank account are prepared.
Bank settlement
It is rare for the bank balance contained in the bank statement to coincide with the bank balance shown in the books of the establishment, due to the presence of financial operations that the bank may record in the statement but the establishment has not recorded in its books, and vice versa, the establishment may record financial transactions in its books that the bank has not recorded in its books. Statement, and this is a set of financial operations that may lead to a difference in the book balance from the balance contained in the bank statement, some of which require the preparation of settlement entries:
It is rare for the bank balance contained in the bank statement to coincide with the bank balance shown in the books of the establishment, due to the presence of financial operations that the bank may record in the statement but the establishment has not recorded in its books, and vice versa, the establishment may record financial transactions in its books that the bank has not recorded in its books. Statement, and this is a set of financial operations that may lead to a difference in the book balance from the balance contained in the bank statement, some of which require the preparation of settlement entries:
2 Financial transactions recorded in the books of the establishment and not recorded in the account statement received from the bank
In this case, there is no need to prepare the settlement entries in the books of the establishment, and among these operations are the following:
- Checks issued that were recorded in the books of the establishment and their owners did not come forward to cash them from the bank.
As we explained in the bank checks lesson, the establishment may purchase goods or pay its account through a check delivered to the supplier, then the transaction is recorded in the establishment’s books by making the supplier’s account a debit and the bank’s account a credit, but the supplier may delay cashing the check from the bank, so this process does not appear in the bank statement, In this case, it is not necessary to make settlement entries in the books of the establishment, because they have been previously recorded.
- The facility deposited cash amounts in the bank and it was not recorded in the account statement received from the bank.
In this case, there is no need to prepare the settlement entries, because the deposit process was previously recorded in the books of the establishment, but the bank was late in proving it according to the statement received from it.
3 The existence of errors in recording financial transactions in the books of the establishment or in the statement received from the bank:
If the error is present in the books of the establishment, then the settlement entries are prepared to amend the error, but if the error is from the bank, there is no need to prepare the settlement entries, but rather the bank is reviewed to amend it in the statement, and among the errors that may occur to the employee of the bank or the establishment is that the establishment, for example, records a deposit To the bank with a value of 945, and in the incoming statement, 954 appears, or the bank employee deposits an amount for the benefit of another company, and so on.
Preparing the bank reconciliation note
The facility prepares a statement called the bank settlement memorandum in order to match and compare the balance appearing in the bank statement with the balance appearing in the books and records of the establishment and to reach the adjusted balance. To prepare the settlement memorandum, we need a bank statement, either monthly or annually, or according to the request, to be matched with the registered bank account In the books, the reconciliation is done in one of two ways:
The facility prepares a statement called the bank settlement memorandum in order to match and compare the balance appearing in the bank statement with the balance appearing in the books and records of the establishment and to reach the adjusted balance. To prepare the settlement memorandum, we need a bank statement, either monthly or annually, or according to the request, to be matched with the registered bank account In the books, the reconciliation is done in one of two ways:
The first way:
Starting with the balance shown in the bank statement, then listing the financial movements that were recorded in the books of the establishment and not recorded in the bank statement to reach the adjusted bank balance.
Bank reconciliation note
Bank balance in bank statement xxx
Added to it:
All financial transactions added to the books of the establishment and not added to the bank's statement, such as deposits and transfers on the way, which the establishment recorded in its books, and did not appear in the bank's statement. xxx
Deducted from it:
All financial transactions that were deducted in the books of the establishment and were not deducted in the bank statement, such as checks issued to others and whose owners delayed paying them and receiving their value from the bank. (xxx)
Add or subtract:
Errors in the bank statement xxx
Adjusted bank balance xxx
The second method:
Bank balance in bank statement xxx
Added to it:
All financial transactions added to the books of the establishment and not added to the bank's statement, such as deposits and transfers on the way, which the establishment recorded in its books, and did not appear in the bank's statement. xxx
Deducted from it:
All financial transactions that were deducted in the books of the establishment and were not deducted in the bank statement, such as checks issued to others and whose owners delayed paying them and receiving their value from the bank. (xxx)
Add or subtract:
Errors in the bank statement xxx
Adjusted bank balance xxx
The second method:
Starting with the bank balance appearing in the books of the establishment, then listing the financial movements that were recorded in the bank statement and not recorded in the books of the establishment to reach the adjusted book balance.
Bank reconciliation note
The bank balance in the books of the establishment xxx
Added to it:
All financial transactions added to the bank’s statement and not added to the books of the establishment, such as bills of exchange and incoming checks (with a collection fee) that the bank collected from debtors and showed in the bank’s statement and were not recorded in the books of the establishment due to the delay in receiving a notice from the bank stating that the value has been collected. xxx
Deducted from it:
All financial transactions that were deducted in the bank statement and were not deducted in the books of the establishment, such as commissions, expenses and bounced checks, which the bank deducted and showed in the bank statement, but were not deducted in the books of the establishment due to the delay in receiving a notification from the bank. (xxx)
Add or subtract:
Errors contained in the books of the establishment xxx
Adjusted book balance xxx
The adjusted bank balance must match the adjusted book balance, and this balance will appear in the statement of financial position on the assets side under the current assets item.
The bank balance in the books of the establishment xxx
Added to it:
All financial transactions added to the bank’s statement and not added to the books of the establishment, such as bills of exchange and incoming checks (with a collection fee) that the bank collected from debtors and showed in the bank’s statement and were not recorded in the books of the establishment due to the delay in receiving a notice from the bank stating that the value has been collected. xxx
Deducted from it:
All financial transactions that were deducted in the bank statement and were not deducted in the books of the establishment, such as commissions, expenses and bounced checks, which the bank deducted and showed in the bank statement, but were not deducted in the books of the establishment due to the delay in receiving a notification from the bank. (xxx)
Add or subtract:
Errors contained in the books of the establishment xxx
Adjusted book balance xxx
The adjusted bank balance must match the adjusted book balance, and this balance will appear in the statement of financial position on the assets side under the current assets item.
Example
On 12/31/2015, the bank’s balance in the books of the Al-Salam facility was debit in the amount of $5589, and in the statement received from the bank, the debit balance appeared in the amount of $6000, and upon reconciliation between them, the following was revealed:
On 12/31/2015, the bank’s balance in the books of the Al-Salam facility was debit in the amount of $5589, and in the statement received from the bank, the debit balance appeared in the amount of $6000, and upon reconciliation between them, the following was revealed:
1 The bank deducted commissions and expenses in the amount of $80, of which no notice reached the establishment.
2 There are checks issued to the order of third parties whose owners did not advance to cash them from the bank, and they are as follows: Check No. 55 with a value of $500, Check No. 58 with a value of $200, Check No. 59 with a value of $1500.
3 There are checks received from Al-Amal Company that the bank did not cash (returned) due to insufficient balance of $1,000.
4 There are cash deposits of $3,000 that were sent to the bank on 12/30/2015 and did not appear in the bank statement.
5 A bill appeared, the bank collected its value and added it to the account in the amount of $500, and no notice of it reached the establishment.
6 On the back of a check bearing the number 50, the facility paid it for maintenance expenses in the amount of $565, and the amount of $556 was recorded in the books of the facility by mistake.
Required
Preparing a bank reconciliation memorandum and extracting the amended bank balance
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