Caused By 1. Time. 2. Errors. lags $ XXX. but not by bank (e.g., deposits. Add: Deposits recorded by business. Cash balance per bank statement

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1 ILLUSTRATION 8-5 BANK RECONCILIATION FORMAT Balances Should Agree Bank Reconciliation (Date) balance per bank statement Add: Deposits recorded by business but not by bank (e.g., deposits in transit) Less:Charges recorded by business but not by bank (e.g., outstanding checks) Adjusted cash balance per bank balance per books Add: Deposits recorded by bank but not by business (e.g., note collection, interest) Less:Charges recorded by bank but not by business (e.g., service charges, NSF checks) Adjusted cash balance per books $ X $ X $ X $ X Differences Caused By 1. Time lags 2. Errors Prepare Adjusting Entries To Correct Books 56

2 ILLUSTRATION 8-6 PREPARING THE BANK RECONCILIATION Bank Statement Bank balance June $10,000 Deposits and credits Checks and debits June # June # June # June CM # June # # # # # NSF S.C Total credits $2, Total debits $1, Bank balance June $10,198 Books Book balance June $10,150 Receipts Disbursements June 10 June 20 June 28 June 30 Total $ $1, #210 #211 #212 #213 #214 #215 #216 #217 #218 #219 #220 #221 #222 #223 Total Bank balance June $9,585 $ void $1, CM Represents $725 Note Receivable collection plus interest revenue of $50 less bank charges of $25. NSF represents $125 check from ABC Company deposited on 6/20. May Bank Reconciliation Balance per bank statement Add: Deposits in transit $10, ,200 HINT: One error was made in recording disbursements. Less: Outstanding checks #201 #209 Adjusted balance per bank $ $10,150 Procedures for Finding Differences between Bank and Book Balances: 1. Examine last month's bank reconciliation and list items that have not changed, i.e., outstanding checks from prior month which have not cleared (again) or other reconciling items which were not corrected (bank service charges). 2. Compare all recorded disbursements per books to bank debits (charges) and list differences. 3. Compare all recorded receipts per books to bank credits and list differences. 4. Prepare bank reconciliation from data collected. 57

3 ILLUSTRATION 8-6 (Continued) PREPARING THE BANK RECONCILIATION June Bank Reconciliation Balance per bank $10,198 Add: Deposit in Transit: June ,473 Less: Outstanding checks #201 $ 40 # # # # # Adjusted balance per bank $10,114 Prepare adjusting entries to adjust cash balance per books to adjusted balance per book Balance per books Add: Bank collection of N/R Less: NSF (ABC Co.) Bank service charge Error: Check #217 Adjusted balance per book $ $9, $10, $10,114 Bank Reconciliation Adjusting Entries Bank collects a $725 Notes Receivable and $50 Interest Revenue less $25 for bank charges (net $750). 750 Miscellaneous Expense 25 Interest Revenue 50 Notes Receivable 725 Book error of $90 resulted from recording check No. 217 as $560 when actual check amount and invoice amounted to $650 (XYZ Company Accounts Payable). Bank service charges of $6. Accounts Payable XYZ Company Miscellaneous Expense NSF check for $125 from ABC Company returned by bank Accounts Receivable ABC Company

4 F08_12 file://h:\uc Davis Extension Accounting Program\UC Davis Extension Documents\Fall 2... Page 1 of 1 11/2/2006 Weygandt Financial Accounting 5e / F08_12 Chapter 8 - Internal Control and Image Gallery F08_12.jpg

5 Dan's Guitar Shop Petty Reimbursement Detail For The Month of Item Description GL Code Amount 1 Purchases (Direct Materials) Office Supplies Supplies Small Equipment (<$500) Meals Printing and Copying Postage and Shipping Repairs and Maintenance Total

6 ILLUSTRATION 8-4 PETTY CASH FUND Petty Fund Entries To establish $100 Petty fund ( check for $100). Petty To replenish Petty (Freight-in $40, Supplies $30, and cash count of $25) to $100. Freight-in 40 Supplies Expense 30 Over and Short 5 ($100 $25) 75 Internal Control Features PRINCIPLES APPLICATION TO PETTY CASH 1. Establishment of Appoint a petty cash custodian. responsibility. 2. Segregation of duties. Custodian of petty cash fund makes payments from fund. Treasurer's office reviews petty cash receipts and other documentation before replenishing fund. 3. Documentation Prenumbered cash receipts signed by fund procedures. custodian and the individual receiving payment. 4. Physical, mechanical, Locked petty cash box or drawer. and electronic controls. 5. Independent internal The treasurer's office examines petty cash receipts verification. and supporting documents to verify proper expenditures before replenishment of fund. Surprise count of cash on hand plus receipts made by internal auditors. 6. Other controls. Cancelling paid receipts so that they cannot be resubmitted. 55

7 UC Davis Extension Financial Accounting Bank Reconciliation Form Balance Per Bank Add: Deposits in Transit Date Amount Subtotal Less: Outstanding Checks: Check Number Amount Adjusted balance per bank Balance per books Add: Bank Adjustments Less: Bank Adjustments Adjusted balance per books

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