Practical example of bank reconciliation

In this presentation, I will initially explain to you step by step, how differences are generated between the balance in banks in a company against the balance in the banking institution; Later I present an exercise to prepare a bank reconciliation.

Bank reconciliation

Account opening (corresponding balances).

We assume that the Company opened a checking account for $ 50,000 on December 1.

Banks Various creditors

50,000		50,000
50,000		50,000

Since the balance in the bank account in the company and in the banking institution coincide, it is not necessary to carry out a bank reconciliation.

Effect of company charges not reciprocated by the bank (Deposits in transit).

On December 31, a check deposit is made for $ 5,000 from another banking institution, which was not returned on December 31, but until January 2 of the following year. Starting from the balance according to the banking institution, we will add the charge of the company not considered by the bank (deposit in transit), in order to

Banks Various creditors

50,000 5,000		50,000
50,000
55,000

December bank reconciliation

50,000

Balance according to banks

(+) Our charges not corresponded by the bank (Deposits in transit):

5,000

On December 31, the bank made a collection not considered by the company for $ 1,000. If it were a bank commission, it would have to be recorded in accounting and, therefore, it would not be a reconciling item. Therefore, to the balance in the bank to which we add the unrequited charge in the company, so that the balance coincides.

Banks Various creditors

1,000	50,000
1,000	50,000
	49,000

50,000 5,000
55,000

December bank reconciliation

49,000

Balance according to banks

(+) Our charges not corresponded by the bank (Deposits in transit):

Deposit 31-Dec 5,000 5,000

(+) Unrequited bank charges:

Dec 31, 1,000 Bank Fee

Balance according to accounting

Effect of bank credit not matched by the company.

On December 31, the bank credits an electronic transfer to the company's bank account for $ 3,000, which is not identified by the company. In this case, you must subtract the payment made by the bank and not considered by the company in the bank balance.

Banks Various creditors

1,000	50,000 3,000
1,000	53,000
	52,000

50,000 5,000
55,000
55,000

December bank reconciliation

Balance according to banks 52,000

(+) Our charges not corresponded by the bank (Deposits in transit):

Deposit 31-Dec 5,000 5,000 2

(+) Unrequited bank charges:

Dec 31, 1,000 1,000 Bank Fee

(-) Unrequited bank payments:

Transfer ### received on Dec 31 -3,000 4

Balance according to accounting

Effect of company credit not corresponded by the bank (checks in transit).

On December 31, the company wrote a check for $ 4,000; which was not collected by the beneficiary at the bank at the end of the year. In this case, the payments (checks in transit) made by the company must be subtracted from the balance in the banking institution, so that the balances coincide.

Banks Various creditors

1,000	50,000 3,000
1,000	53,000
	52,000

50,000 5,000	4,000
55,000	4,000
51,000

1) (5 3) (1

2) (4

H.H

December bank reconciliation

Balance according to banks 52,000

(+) Our charges not corresponded by the bank (Deposits in transit):

Deposit 31-Dec 5,000 5,000 2

(+) Unrequited bank charges:

Dec 31, 1,000 1,000 Bank Fee

(-) Unrequited bank payments:

Transfer ### received on Dec 31 -3,000 -3,000 4

(-) Our unrequited payments (checks in transit):

Check ### from 31-Dec -4,000 5

Balance according to accounting

Summary: Normally the bank reconciliation we start from the balance in banks according to the banking institution and, we end with the balance in banks according to the company, so the charges will always be added and the credits subtracted.

EXERCISE

Suppose that the bank reconciliation is going to be carried out for the month of December of the year, it will be necessary to previously obtain the following:

TO). Bank reconciliation for the month of November (previous month), in order to verify that the items in transit of that reconciliation, are already corresponded in the bank account statement of the following month. B). Bank statement for the month of December.

C). Accounting assistant of the bank account for the month of December.

Bank reconciliation November

Balance according to banks (+) Our unrequited charges:		95,000
Deposit 30-NOV	20,000	20,000

(-) Our unrequited payments (checks in transit):
Check 1013	-10,000
Check 1014	-5,000	-15,000

Should	To have 20,000 20,000
5,000 5,000	7,000
10,000 10,000	12,000 8,000
10,000 2,000	500
42,000	47,500
Should	To have
20,000	10,000 5,000
7,000	10,000
12,000 8,000 10,000	20,000 10,000
57,000	55,000

Balance according to accounting 100,000

December bank statement

Company

Accounting Assistant for December

Bank reconciliation November

Balance according to banks (+) Our unrequited charges:			95,000
Deposit 30-NOV	one	20,000	20,000

(-) Our unrequited payments (checks in transit):
Check 1013	two	-10,000
Check 1014	3	-5,000	-15,000

Should	To have 20,000 20,000
5,000 5,000	7,000
10,000 10,000	12,000 8,000
10,000 2,000	500
42,000	47,500

Balance according to accounting 100,000

December bank statement

With the previous procedure, the items pending reconciliation as of November, were corresponded in December; if for any reason any item is not matched, this item would be included in the December bank reconciliation, however this should be investigated as this is uncommon and could be an incorrectness.

Particular care should be taken with the detected inaccuracies, since bank reconciliation is a control instrument, which allows detecting errors or omissions in records and, according to International Auditing Standards, inaccuracies may be due to errors or fraud, Even though these two origins are very different, it is sometimes the line that separates them is very thin, even frauds that seem like simple errors.

Procedure B. We proceed to reconcile the accounting assistant of banks against the bank statement of the month of December, preferably as follows:

B.1 Charges (bank deposits) in accounting assistant against credit in bank statement.

B.2 Deposits in the bank statement (unrequited) against charges in the bank's accounting assistant.

B.3 Fertilizers (checks drawn) in accounting assistant against charges in bank statement.

B.4 Charges in bank statement (not corresponded) against payments in accounting assistant.

Company

Accounting assistant

Bank statement

The amounts crossed out are the corresponding items in banks and in the company, which are numbered in red, for identification, the unrequited items (which are not crossed out), are the items that will be in the bank reconciliation for the month of December, in this case I relate them to a blue T #, for identification in said reconciliation.

December bank reconciliation

Balance according to banks (+) Our unrequited charges:		120,500
Deposit 31-DEC	10,000	10,000	T1

(+) Unrequited bank charges:
Commission 31-DEC	2,000	2,000	T2

(-) Unrequited bank payments:
Earned interests	-500	-500	T3

(-) Our unrequited payments (checks in transit):
Check 1018	-20,000		T4
Check 1019	-10,000	-30,000	T5
Balance according to accounting		102,000

The items in transit "T2" and "T3" must be registered by the company in December, so they should not appear in the final bank reconciliation, so the corresponding accounting records must be made.

1 MUST HAVE

Operating expenses Bank fees	2,000
Banks		2,000
Bank commission registration for the month of December. two	2,000 SHOULD	2,000 TO HAVE

Banks	500
Financial products		500
	2,000	2,000

Registration of interests in favor for the month of December.

As a consequence of entries 1 and 2 above, the balance in banks goes from $ 102,000 to $ 100,500; reason why it is necessary to update the bank reconciliation, eliminating the items in transit T2 and T3, to be as follows:

December bank reconciliation