Controlling and Reporting Cash

Transcription

1 Controlling and Reporting Cash Essential Principles for Safeguarding Cash and Reporting It On Financial Statements Gregory Mostyn, CPA Worthy and James Publishing

2 Controlling and Reporting Cash Essential Principles for Safeguarding Cash and Reporting It On Financial Statements Published by Worthy and James Publishing To view our publications and other content, go to: < Terms of Use This material is copyrighted Worthy and James Publishing. All rights reserved. Except for the single page bank reconciliation template, no part of this work may be reproduced, transmitted, or used in any other form or by any means electronic or mechanical including photocopying, Internet distribution, or any other manner without the written permission of the publisher except as may be permitted by Federal copyright law. If you use this material, then you understand and agree to these terms of use: Warning - Disclaimer: If you decide to use this material, then you agree that this material is designed and intended to provide you only general educational instruction in accounting principles. These materials are sold with the understanding that the author and publisher are not engaged in providing accounting, financial, tax, legal, or any other type of professional services. If professional services are needed, competent professional advice should be obtained. Although every effort has been made to make this material as relevant, useful, and accurate as possible up to the date of publication, the material may contain errors and omissions. The author and publisher make no guarantees or warranties, express or implied, and shall have neither liability nor responsibility, even if advised of such possibility, for any loss or damage caused or alleged to be caused, directly or indirectly, by use of these materials. If you do not agree to these conditions you may return the materials immediately upon purchase for a full refund. With the exception of companies and organizations whose identities as actual entities are made clear within the context of the text discussion, all persons, organizations, and entities in this material, including in illustrations and Practice, are completely fictional. Any resemblance to actual persons, organizations, or entities, past or present, is purely coincidental.

3 Table of Contents Reporting Cash on Financial Statements Internal Control for Cash Using a Checking Account Bank Reconciliation Overview Bank Reconciliation Procedure and Example What to Do When Your Bank Reconciliation Does Not Reconcile Bank Reconciliation: Another Example The Petty Cash Fund The Change Fund The Voucher System Cash Receipts Controls Internet and E-Commerce Requirements Summary of Internal Control Principles Internal Control for Computerized Accounting Systems Quick Review Vocabulary Practice Questions and Problems Solutions to Questions and Problems Bank Reconciliation Template iii

4 Controlling and Reporting Cash 1 Reporting Cash Cash Defined Overview The following discussion identifies items that are included in the definition of Cash and explains how and where cash appears on the financial statements. Currency and Coin Most of us are familiar with the money we carry in our wallets and the coins in our pockets. We refer to this paper and metal money as currency and coin. Usually, most businesses keep a relatively small amount of this on hand only as much as is needed to make change or pay for small expenditures. Dollar-Labeled Items Checks, money orders, stamps, and travelers checks are examples of items labeled in dollar amounts. Are they cash? Rule: Include as cash any dollar-labeled item that a bank will accept as a deposit. Examples of Cash: Checks, money orders, travelers checks Not Cash: Stamps (a prepaid expense) and coupons. Bank Account Balances Checking and savings account balances are also included in the definition of cash because these accounts must be paid to the depositor in the form of currency, on demand. continued

5 2 Controlling and Reporting Cash Cash Defined, continued Cash Equivalents A few limited types of very short-term and very safe ( liquid ) investments are considered to be the equivalent of cash. The most common examples are money market funds and short-term bank certificates of deposit and U.S. treasury securities with original maturities of not more than three months. Not Cash Equivalents: Corporate stocks and bonds Any government securities with an original maturity longer than 3 months How Cash Is Reported on the Balance Sheet Typical Reporting Normally cash is a current asset. Because assets on a balance sheet are usually presented in order of liquidity, cash should be the first asset shown the most liquid of the current assets. The total cash shown on a balance sheet includes all the items included in our definition of cash. This is often reported as Cash and Cash Equivalents. Restricted Cash A cash balance is restricted when the cash can only be used for a specific purpose. For example, some cash may be designated exclusively for an asset purchase or for a loan repayment. Restricted cash is reported as a separate cash balance. A restricted cash balance should be classified as either a short-term or longterm investment asset depending on when the cash is likely to be used. Compensating Balances A compensating balance is a minimum cash balance that a business is required to maintain in an account. Such a requirement usually occurs as part of a bank loan agreement. The part of the total cash that is a compensating balance must be disclosed in the notes to the financial statements.

6 Controlling and Reporting Cash 3 Cash Reported on the Statement of Cash Flows Same Definition The statement of cash flows explains the change in the cash account balance between two balance sheet dates. Therefore, the definition of cash (including cash equivalents) is exactly the same on the statement of cash flows as it is on the balance sheet. The format of the statement of cash flows classifies the causes of change in the cash balance into three activities: operating, investing, and financing. The net result of these three activities during the latest period, combined with the cash balance at the beginning of the period, equals the ending cash balance that is shown on the current balance sheet at the end of the period. Controlling Cash Internal Control Definition Internal control means the policies, procedures, and organizational design that a company uses for the purpose of: safeguarding assets, recording accurate and reliable accounting information, and encouraging operating efficiency. Internal Control for Cash Internal control is a big topic with many applications. In this material, however, we are primarily concerned with using internal control to safeguard cash. Cash is the easiest asset to steal and the most desirable asset. Cash thefts are often the most difficult to identify, and loss of cash can be extremely damaging to a business. For these reasons, it is essential to establish adequate internal control for cash. In the following sections, we will discuss the following widely used and important cash controls: Use of a checking or savings account The bank reconciliation The imprest petty cash system Use of credit cards The voucher system Cash receipts procedures Basic internal control principles that apply to all assets Internet and e-commerce requirements continued

7 4 Controlling and Reporting Cash Internal Control, continued Limitations Internal control is not a guarantee against theft; it is intended to be a barrier to theft and to reduce the probability of asset loss. Human error and fraud are potentially serious weaknesses of internal control. For example, several employees acting together to steal cash, called collusion, can defeat an internal control system. Also, simple carelessness, neglect, or fatigue can weaken internal control. Finally, good internal control costs money. The cost required to maintain an internal control system should not exceed the losses that it prevents. Using a Checking Account Overview A checking account is an important internal control device. It allows a business to minimize the use of currency and keep funds safe and helps control payments and receipts. A bank checking account also serves as an independent detailed record of cash received and paid. To properly use a checking account, you should understand the use of the following five items: Signature card Check Deposit form Bank statement Bank reconciliation The Signature Card A signature card is a bank document that is required to open a checking account. The card contains the signatures of people who are authorized to sign checks. A check is not valid without an authorized signature, and a bank will not process a check unless it has a signature that corresponds to a signature on the card. The Check A check is a document given by a maker to a payee that directs the maker s bank to pay a specified amount to the payee, on demand. The check is a three-party document : the maker, the payee, and the bank.

8 Controlling and Reporting Cash 5 Using a Checking Account, continued Check Features The example of a check below identifies the following features. A check involves these three parties: 1. The maker (also called drawer or payor) is the party who is making the payment and whose account is being reduced here, the Paia company. 2. The payee is the party named on the check to receive the cash payment. Here, the payee is Lee Office Supplies. 3. The bank here, Metropolitan makes payment and reduces the maker s account. Other features of the check are: 4. Check number: As an internal control device, checks are sequentially numbered so all checks are accounted for. 5. ABA (American Bankers Association) number. This is a unique number that identifies a bank for check routing and processing in the banking system. This number is also used to identify each check listed on a deposit slip. 6. Cleared check amount. When a bank pays a check, the verified amount of actual payment is recorded in special magnetic ink characters on the lower right part of the check. 1 3 Paia Consulting Services 80 Kahala Parkway Honolulu, Hawaii Metropolitan Bank 4381 Holland Ave. Honolulu, Hawaii (Example only) /4242 Date Pay to the 2 Order of $ 0104 Lee Office Supplies Three hundred ninety & 21/ /3/07 4 Dollars For continued

9 6 Controlling and Reporting Cash Using a Checking Account, continued How Does a Check Get Paid? When you write a check, the payee deposits the check in a bank account. If, by chance, the payee s bank happens to be the same as your bank, the bank simply transfers funds out of your account into the payee s account. If the payee s account is in a different bank, that bank sends the check to another bank, called an intermediary bank. An intermediary bank sorts millions of checks from many banks and identifies each bank by its routing number the first nine digits printed on the lower left corner of the check in the example above. The intermediary returns the check to your bank with a request for payment, and your bank verifies that there are sufficient funds in your account. If there are sufficient funds, your bank pays the intermediary and reduces your account. The intermediary bank then transfers payment to the payee s bank, and the amount becomes a deposit in the payee s account. The back of a check is stamped to indicate payment; this is called a cleared check or a canceled check. In some cases a check may clear in only a few days. In other cases, when the payee is slow to deposit, there may be a delay of more days or even weeks before the check is cleared. In 2004, a federal law called the Check Clearing for the 21st Century Act, also known as Check 21 became effective. This law permits the processing of digital images of checks instead the actual physical checks. One result is that checks will be processed much faster and will be subtracted ( cleared ) from a maker s account more quickly. Another result is that paper copies of checks are returned to the maker instead of the original checks. A copy may be used for proof of payment in the same manner as an original check. The Deposit Form A deposit form is used to identify the amount of the total deposit and the amount of cash and checks that are in a deposit. Deposit forms, like checks, are standard printed forms that show account number and customer and bank information. A completed deposit form should show: 1. The total amount of currency 2. The total amount of coins 3. The total amount of checks. List each check individually and show: The part of the ABA number of each check deposited (item 5 in check example above) before the diagonal line ( in the example) followed by The amount of the check

10 Controlling and Reporting Cash 7 Using a Checking Account, continued Example The example below shows a typical deposit form. PLEASE ENDORSE ALL CHECKS AND LIST EACH SEPARATELY CENTS DOLLARS , Metropolitan Bank 4381 Holland Ave. Honolulu, Hawaii TOTAL ITEMS 4 5, ENTER TOTAL OF CHECKS HERE Paia Consulting Services 80 Kahala Parkway Honolulu, Hawaii DATE January 11, 2008 DEPOSITS MAY NOT BE AVAILABLE FOR IMMEDIATE WITHDRAWAL DOLLARS CENTS CURRENCY COINS TOTAL CASH FRONT SIDE TOTAL REVERSE SIDE TOTAL TOTAL DEPOSIT $ , Endorsed Checks A check must be endorsed before it can be deposited. A check endorsement is a legal transfer by the payee to another party (in this case, a bank) of ownership of a check, and therefore the right to receive payment from the maker. There are two types of endorsements: Blank endorsement: The payee simply signs the back of the check. This makes the check payable to anyone who physically possesses it. Restrictive endorsement: The payee signs the back of the check but adds a restriction, such as for deposit only (or pay Jane Doe only if transferred to another individual). It is safer to use restrictive endorsements. The Bank Statement The bank statement is a report from a bank to the customer that shows in detail the bank s record of the account activity and balances for a specified period of time, generally monthly. An example of a bank statement is presented in the next section. Coming Up... The overview to this section indicated that an essential procedure used with a checking account is the bank reconciliation. The next section explains what a bank reconciliation is and the procedure for preparing one.

11 8 Controlling and Reporting Cash Check Your Understanding Write the completed sentences on a separate sheet of paper. Any item that a bank accepts as a can be considered to be cash. A few limited types of very short-term items that are very safe and are very liquid investments such as short-term bank certificate of deposits and money market funds are called and are treated as cash. Cash that can only be used for a specific purpose is called cash, and if not available to pay current liabilities is shown on the balance sheet as either a short- or long-term, depending on the type of. A minimum balance of cash that is required to maintained at all times is called a, and this part of the cash balance must be disclosed in the. The essential means of protecting cash and other assets is called, and a checking account is an important way of applying this protection to cash. The party who writes a check is called the and the party who will receive payment is called the. A check is a legal transfer of funds by the payee to another party of the right to receive payment from the maker. A transfers the right to receive payment to any party who physically holds a check. A transfers the right to receive payment to a specific party. Answers Any item that a bank accepts as a deposit can be considered to be cash. A few limited types of very short-term items that are very safe and are very liquid investments such as short-term bank certificate of deposits and money market funds are called cash equivalents and are treated as cash. Cash that can only be used for a specific purpose is called restricted cash, and if not available to pay current liabilities is shown on the balance sheet as either a short- or long-term investment, depending on the type of restriction. A minimum balance of cash that is required to maintained at all times is called a compensating balance, and this part of the cash balance must be disclosed in the footnotes. The essential means of protecting cash and other assets is called internal control, and a checking account is an important way of applying this protection to cash. The party who writes a check is called the maker and the party who will receive payment is called the payee. A check endorsement is a legal transfer of funds by the payee to another party of the right to receive payment from the maker. A blank endorsement transfers the right to receive payment to any party who physically holds a check. A restrictive endorsement transfers the right to receive payment to a specific party.

12 Controlling and Reporting Cash 9 The Bank Reconciliation Overview What Is It? A bank reconciliation is an analysis prepared by a depositor (a bank customer) that compares the cash balance in the depositor s books to the cash balance that shows on the bank statement. There are really two records of cash. First, the depositor maintains accounting records that show receipts, payments, and cash balance. Second, the bank keeps its own record of receipts, payments, and cash balance, which it presents to the customer in the form of a bank statement. These two records seldom show the same cash balance. What Does It Do? The reconciliation: (1) corrects the bank statement balance for missing items located in the depositor s records and (2) corrects the depositor s book balance for missing items that are shown on the bank statement. The result is the same number for both records called the adjusted cash balance, or the true cash balance or the reconciled cash balance. What Does It Look Like? A bank reconciliation is divided into two sections: one section shows adjustments to the bank balance and the other section shows adjustments to the book balance. When the reconciliation is complete, the totals of both sections must agree. This is the reconciled cash balance. An example is shown on the next page. Frequency Bank reconciliations are prepared at regular intervals, such as monthly for smaller businesses and weekly for larger businesses (which require weekly bank statements). Internal Control Rule You may recall from our discussion on page 3 that internal control refers to the methods used to safeguard assets. The bank reconciliation is a very important internal control device for safeguarding cash. Rule: For a bank reconciliation to function properly, when an employee prepares a bank reconciliation, that employee must never be involved in receiving cash, paying cash, or have any other access to cash. If this rule is violated, the employee will be able to steal cash in various ways and hide the theft by falsifying the bank reconciliation. continued

13 10 Controlling and Reporting Cash Overview, continued Example The example below shows the format of a completed bank reconciliation. Montague Company Bank Reconciliation June 30, 2008 Balance Per Bank, June 30 Add: deposit in transit Less: outstanding checks #285 #287 #290 Adjusted cash balance per bank, June 30 $ $11, $10, Balance Per Books, June 30 Less: Service charges NSF check Adjusted cash balance per books, June $11, $10, Reconciled Balances Adjustments to the bank balance Adjustments to the book balance. Reconciling Items Overview The reason that the cash balance on the depositor s (bank customer s) books and the cash balance on the bank statement seldom agree is that some items are included on one set of records but not on the other. These items are called reconciling items. They have three causes: Timing differences between books and bank, unrecorded bank charges and credits, and errors (books or bank.)

14 Controlling and Reporting Cash 11 Reconciling Items, continued Common Types of Reconciling Items The table below identifies common types of reconciling items. On the Depositor s Records (but not the bank s): Outstanding Checks (time delay) Deposits in Transit (time delay) Depositor s Book Errors Checks written that have not yet cleared the bank for payment. The checks have been recorded in the depositor s books but do not yet appear on the bank statement. Deposits recorded in the depositor s books but not appearing on the bank statement. Caused by deposits that do not reach the bank before the bank statement is printed. Usually the result of mis-recording the amount of a check or a deposit, or math errors in journals or ledgers. On the Bank Statement (but not the depositor s records): Debit and Credit Memoranda (time delay) Bank Errors A debit memo is a notice by the bank of a reduction in the account balance. It is often shown by a DM followed by the amount of reduction. A credit memo is a notice by the bank of an increase in the account balance. It is often shown by a CM followed by the amount of increase. The bank customer may not be aware of debit and credit memo items until the bank statement is received, so will not have recorded them. Usually an error in recording the amount or source of a deposit or a check. Debits and Credits on the Bank Statement From a bank s viewpoint, a bank account is a liability because the bank has an obligation to pay out funds from the account at any time the depositor wants to withdraw them. Thus, decreases in the account, such as by paying checks, reduce the bank s liability, and the bank reports this to the depositor as a debit. When an account increases, such as by a deposit, the bank s liability increases and the bank reports this as a credit. Notice that these debits and credits are the opposite of the depositor s own cash records. In addition to checks and deposits, there can be many other bank statement debit (liability decrease) and credit (liability increase) items. These items are usually reported on the bank statement as specific kinds of debit and credit memoranda. The following table shows you some common items. continued

15 12 Controlling and Reporting Cash Reconciling Items, continued Specific Debit Memo Items Service Charges and Fees NSF Checks EFT Transactions Specific Credit Memo Items Collections Interest Earned EFT Transactions Description of Decrease SC means charges for maintaining the account or other bank activities, such as printing checks. NSF stands for non-sufficient funds. After a check is deposited and the bank discovers that the check is not good, the bank reduces the depositor s account by the amount of the bad deposit the worthless check. Often the bank also charges the depositor an additional fee. EFT stands for electronic funds transfer. With this system, banks transfer funds out of and into accounts electronically using little or no paper. Transfers out, such as for paying debts or expenses or making purchases, are account decreases. Description of Increase CM or other symbol. A bank often accepts payment for a note receivable and interest on behalf of a depositor. Credit card sales are also credited directly to an account. IN or CM or other symbol. Some checking accounts usually personal, not business pay interest. EFT stands for electronic funds transfer. Transfers into an account, such as for various types of collections or borrowing, are account increases. TIP An NSF check is any check for which the maker s account does not have sufficient funds in the account to pay the amount of the check. It is easy to confuse NSF with RTM. RTM means return to maker, which is a more general term indicating that the check is not good for a variety of other possible reasons. Any check that is deposited and later turns out not to have sufficient funds is then subtracted from the depositor s account by the bank. Such a check is often jokingly referred to as a bounced check. An intentionally fraudulent check is sometimes called a hot check.

16 Controlling and Reporting Cash 13 Check Your Understanding Write the completed sentences on a separate sheet of paper. A bank reconciliation is a document prepared by the (depositor/bank) because the cash balances shown by the bank and the depositor s records usually (are/are not) the same on any given date. The reason for this is that certain items are included on one set of records but not the other. These are called items. A common type of this item that is in the depositor s records but not in the bank statement are checks written by the depositor that have not yet cleared the bank for payment. These are called. Another common item that is in the depositor s records but not on the bank statement is a which is a cash receipt recorded by the depositor but not by the bank statement. Items that have been recorded by the bank that reduce the depositor s balance are shown by the bank as (debit/credit) memoranda. Examples of these items are service charges, electronic withdrawals, and bad checks in a deposit, which are called checks. Items recorded by the bank that increase the depositor s balance are shown by the bank as (debit/credit) memoranda. An example is an electronic deposit from a customer s account. Electronic transactions are called transactions. Answers A bank reconciliation is a document prepared by the depositor (depositor/bank) because the cash balances shown by the bank and the depositor s records usually are not (are/are not) the same on any given date. The reason for this is that certain items are included on one set of records but not the other. These are called reconciling items. A common type of this item that is in the depositor s records but not in the bank statement are checks written by the depositor that have not yet cleared the bank for payment. These are called outstanding checks. Another common item that is in the depositor s records but not on the bank statement is a deposit in transit which is a cash receipt recorded by the depositor but not by the bank statement. Items that have been recorded by the bank that reduce the depositor s balance are shown by the bank as debit (debit/ credit) memoranda. Examples of these items are service charges, electronic withdrawals, and bad checks in a deposit, which are called NSF checks. Items recorded by the bank that increase the depositor s balance are shown by the bank as credit (debit/credit) memoranda. An example is an electronic deposit from a customer s account. Electronic transactions are called EFT transactions.

17 14 Controlling and Reporting Cash The Bank Reconciliation Procedure Procedure The following table shows all the steps to prepare a bank reconciliation. Step Getting Started Action 1 Title: On three lines at the top of the page, write: The company name The document identification as Bank Reconciliation The date (the end of some period) as of which you want to reconcile the cash balance in the accounting records (balance per books) to the ending balance on a bank statement (balance per bank). 2 On the same page, begin two separate sections by writing the: Ending cash balance from the bank statement for the period that ends on or before the date selected in Step 1. Ending cash balance per books on the date selected in Step 1. Deposits and Other Receipts 3 Compare each deposit on the bank statement to each deposit shown in the cash receipts journal (or other record of receipts) for the same period: IF a deposit... AND the deposit... THEN A in the accounting records is not on the bank statement, is verified as authentic and valid add the deposit ( deposits in transit or bank error) to the balance per bank. is not authentic or valid subtract the deposit from the balance per books (book errors). B on the bank statement is not in the accounting records, is ours, authentic and valid is not ours, authentic or valid add the deposit to the balance per books (unrecorded deposits) subtract the deposit from the balance per bank and inform the bank (bank error). C matches on the books and bank statement by date, but the amounts differ, analyze the difference, which will result in adding or subtracting for either a bank or book error. 4 Credit memoranda from bank statement: Identify and add any unrecorded amounts to the balance per books (bank collections, EFT receipts, credit card sales, etc.). 5 Undeposited cash on hand: Add to the balance per bank. (This should be very temporary.)

18 Controlling and Reporting Cash 15 The Bank Reconciliation Procedure, continued Checks and Other Payments 6 In the accounting records, locate the individual check amounts (cash payments journal or checkbook.) Compare each check amount: If canceled checks (or paper copies) are: 7 Returned by the bank, sort the canceled checks into check number sequence, examine each check, and then compare the amount on each check to the amount shown in the cash payments journal or checkbook. Not returned by the bank, compare each check amount printed on the bank statement to each check amount recorded in the cash payments journal or checkbook. IF a check... AND the check is... THEN A is on the accounting records but not on the bank statement, verified as approved list and subtract the check ( outstanding checks ) from balance per bank. not approved add the check amount to the cash balance per books and possibly stop payment (book errors). subtract the check from the cash balance per books (book errors). (Also consider employee fraud.) add the check to the balance per bank and inform the bank (bank errors). analyze the difference, which may result in adding or subtracting for either a bank or book error. B is on the bank statement but not on the accounting records, verified as ours, authentic and valid not ours, authentic and valid C matches on the books and the bank statement by check number, but the amounts are different 8 Debit memoranda from bank statement: Identify and subtract any unrecorded amounts from the balance per books (bank fees, NSF checks, EFT payments, etc.). 9 Prior outstanding checks: List and subtract all checks still outstanding from prior period reconciliations from the balance per bank. (Include them sequentially with 7A above.) TIP For an easy way to analyze book errors, compare the effect of the item on the bank to the effect on the books. The difference is the adjustment. Example: A check was written for $218 and cleared the bank for this amount. It was recorded in the books as $182. Effect on bank balance: $218 (actual amount that reduced bank balance) Effect on book balance: 182 (reduction of book balance is too small) Difference: 36 (book balance not reduced enough, reduce Cash by $36)

19 16 Controlling and Reporting Cash Some Explanations and Practical Suggestions The following explanations and suggestions will clarify the process, reduce errors, and help safeguard cash. (The step numbers refer to the steps in the procedure tables on the previous pages.) Step 2 Step 3A Step 7A The reason we prefer not to use a bank statement that has a balance after the selected reconciliation date is that the statement might contain some checks and deposits that occurred after the reconciliation date. This complicates the procedure because these items must be removed from the bank balance (deposits subtracted, checks added). The ending balance per books is usually available in the Cash ledger account or the checkbook record. But, if not, you might have to begin with the prior reconciled cash balance and then add the current period s receipts (cash receipts journal) and subtract the current period s checks (cash payments journal) to get the ending balance per books. Every deposit in transit should appear as a cleared deposit on the very next bank statement. If this does not happen, check your records immediately and call the bank. How do I Examine Checks? When you examine canceled checks and compare them to check amounts in the accounting records, do not refer to the amount written on the check by the maker. Instead, refer to the amount printed by the bank in magnetic ink characters on the bottom right part of the check. This is the amount that the check actually cleared for, and sometimes this is different than the amount written on the check by the maker. Investigate any checks that (1) are outstanding for more than a month (2) have a number not in sequence with the rest of the checks (3) have a questionable signature. Other issues Matching: 1.) match the payee on a check to an authorizing document 2.) match the check amount to an authorizing document. (Note: This should be done BEFORE a check is signed) What if the Cash account has never been reconciled? If the bank account is relatively new say, several months begin reconciling the first period and work your way to the current period. (Do not try to do all the periods together.) However, if the bank account is not new and has had substantial activity, it is best to open another bank account. Use only the new account while you let all the items clear out through the old account. In the meantime, you can reconcile the new account. Close the old account when all the checks and deposits have cleared. What if we want to maintain more than one bank account? Keep a separate account in the ledger for each bank account and reconcile each account separately.

20 Controlling and Reporting Cash 17 Bank Reconciliation Example Bank Statement The bank statement below is for the Paia Company as of November 30. Metropolitan Bank 4381 Holland Ave Honolulu, Hawaii Account Number Paia Consulting Services 80 Kahala Parkway Honolulu, HI Period of: November 2 to November 29, 2008 Prior Balance Total Deposits Total Withdrawals Ending Balance $00.00 $12, $3, $8, Checks and Other Debits Deposits and Other Credits Daily Balance Date Number Amount Date Amount Date Amount 11/05 11/06 11/ , /2 11/14 11/22 10, CM 1, /02 11/05 11/06 10, , , /09 SC /08 8, / /09 8, Note: The total deposits 11/ of $12, includes all 11/14 8, /20 DM credit items, and the total 11/16 7, / withdrawals of $3, /20 7, /29 NSF includes all debit items. 11/22 11/24 11/29 9, , , Symbols: CM Credit Memo DM Debit Memo SC Service Charge ATM Automatic Teller NSF Not Sufficient Funds EC Error Correction INT Interest Earned OD Overdraft Procedure Illustrated Following each step in the procedure table, we can prepare the bank reconciliation illustrated below. Highlighted numbers in boxes identify the steps in the previous procedure table that correspond to specific items. This bank reconciliation is for a new business called Paia Consulting Services, which began business by opening a bank account at Metropolitan Bank on November 2. The company reconciles its cash balance as of the last day of each month. This is the first bank reconciliation for the company. continued