Jul 29

Bank Side and Book Side of Reconciliation

Bank Side of the Reconciliation Bank side of the bank reconciliation includes: Deposits in transit (outstanding deposits). You have recorded these deposits, but the bank has not. Add deposits in transit on the bank reconciliation. Outstanding checks. You have recorded these checks, but the bank has not yet paid them. Subtract outstanding checks. Bank errors. Correct all bank errors on the Bank side of the reconciliation. For example, the bank may erroneously subtract from your account a check written by someone else.

Book Side of the Reconciliation Book side of the bank reconciliation includes: Bank collections. Bank collections are cash receipts that the bank has recorded for your account. But you haven t recorded the cash receipt yet. Many businesses have their customers pay directly to their bank. This is called a lock-box system and reduces theft. An example is a bank collecting an account receivable for you. Add bank collections on the bank reconciliation. Electronic funds transfers. The bank may receive or pay cash on your behalf. An EFT may be a cash receipt or a cash payment. Add EFT receipts and subtract EFT payments. Service charge. This cash payment is the banks fee for processing your transactions. Subtract service charges. Interest revenue on your checking account. On certain types of bank accounts, you earn interest if you keep enough cash in your account. The bank statement tells you of this cash receipt. Add interest revenue. Non-sufficient funds (NSF) checks. These are cash receipts from customers for which there are not sufficient funds in the bank to cover the amount. NSF checks (sometimes called hot checks) are treated as cash payments on your bank reconciliation. Subtract NSF checks. The cost of printed checks. This cash payment is handled like a service charge. Subtract this cost.

Journalizing Transactions from the Bank Reconciliation The bank reconciliation is an accountant’s tool separate from the journals and ledgers. It does not account for transactions in the journal. To get the transactions into the accounts, we must make journal entries and post to the ledger. All items on the Book side of the bank reconciliation must require journal entries. Online banking allows you to pay bills and view your account electronically. You don’t have to wait until the end of the month to get a bank statement. With online banking you can reconcile transactions at any time and keep your account current whenever you wish. The account history like a bank statement lists deposits, checks, EFT payments, ATM withdrawals, and interest earned on your bank balance. But the account history doesn’t show your beginning balance, so you can’t work from your beginning balance to your ending balance.

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