Chapter 11 Section 2 Reconciling the Bank Statement

Chapter 11, Section 2 Reconciling the Bank Statement What Do You Think? Why is the bank reconciliation considered an internal control? Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 0

SECTION 11. 2 Reconciling the Bank Statement Main Idea The bank reconciliation is an important internal control. You Will Learn § why businesses prove cash. § how to read and reconcile a bank statement. § about electronic funds transfer. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 1

Reconciling the Bank Statement SECTION 11. 2 Key Terms § § § § § bank statement canceled checks imaged checks reconciling the bank statement outstanding checks outstanding deposits bank service charge stop payment order NSF check Check 21 Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 2

Reconciling the Bank Statement SECTION 11. 2 Key Terms § § postdated check electronic funds transfer system (EFTS) bankcard automated teller machine (ATM) Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 3

SECTION 11. 2 Reconciling the Bank Statement Proving Cash Comparing the Cash in Bank account balance with the checkbook is called proving cash. If the two amounts do not match, there is probably an error in the checkbook. Common checkbook errors are: § faulty addition or subtraction § failure to record a deposit or a check § a mistake in copying the balance forward amount to the next check stub Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 4

SECTION 11. 2 Reconciling the Bank Statement The Bank Statement A bank statement contains an itemized record of all transactions in a depositor’s account. A bank returns the canceled checks, usually as imaged checks, with the bank statement. When these are received, the statement is compared to the checkbook, called reconciling the bank statement or bank reconciliation. A checkbook can be out of balance due to: § outstanding checks § outstanding deposits § bank charges Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 5

SECTION 11. 2 Reconciling the Bank Statement Outstanding Checks and Deposits Outstanding checks are checks that have been written, but have not been presented to the bank for payment. Outstanding deposits are deposits that have been made and recorded but do not appear on the bank statement. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 6

SECTION 11. 2 Reconciling the Bank Statement Bank Service Charges A bank service charge is a fee for maintaining bank records and processing bank statement items for the depositor. This fee is subtracted from the depositor’s account and must be subtracted from the checkbook balance before reconciling. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 7

SECTION 11. 2 Reconciling the Bank Statement Interest Paid Some checking accounts earn interest on account funds. The interest amount must be recorded in the checkbook, journalized, and posted. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 8

SECTION 11. 2 Reconciling the Bank Statement The Bank Reconciliation Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 9

SECTION 11. 2 Reconciling the Bank Statement Journalizing Bank Service Charges Bank service charges must be recorded in the accounting records. An example of recording a bank service charge follows: Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 10

SECTION 11. 2 Reconciling the Bank Statement Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 11

SECTION 11. 2 Reconciling the Bank Statement Special Banking Procedures Three problems may occur when checks are written or received and deposited: § A business does not want the bank to pay an issued check. § A business receives and deposits a check from a customer whose account does not have enough money to cover the check. § A customer presents a check that has a date in the future. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 12

SECTION 11. 2 Reconciling the Bank Statement Stopping Payment on a Check A stop payment order is issued when a drawer instructs the drawee not to pay a check. To record a stop payment order: § Write Stopped Payment on the check stub for the stopped check. § Add the amount of the stopped check on the next unused check stub. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 13

SECTION 11. 2 Reconciling the Bank Statement Recording NSF Checks An NSF check is returned to the depositor because the drawer’s account does not have enough funds to cover the amount. NSF stands for Not Sufficient Funds. The Check Clearing for the 21 st Century, known as Check 21, allows the conversion of a paper check to an electronic image that can be processed quickly. A bank can pay a check on the same day it is written, instead of several days later. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 14

SECTION 11. 2 Reconciling the Bank Statement Postdated Checks A check that has a future date instead of the actual date is called a postdated check. It should not be deposited until the date that appears on the check. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 15

SECTION 11. 2 Reconciling the Bank Statement Electronic Funds Transfer System The electronic funds transfer system (EFTS) handles large volume of funds transfers and allows banks to transfer funds among accounts quickly and accurately. There are several ways EFTS impacts banking activities: § direct payroll deposit § automated bill paying § bankcards used at automated teller machines (ATMs) § bank-by-phone § online banking Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 16

SECTION 11. 2 Reconciling the Bank Statement Key Terms § bank statement An itemized record of all the transactions in a depositor’s account over a given period, usually a month. § canceled checks A check paid by the bank, deducted from the depositor’s account, and returned with the bank statement to the account holder. § imaged checks A copy of a canceled check; it is sent with the bank statement in place of the original canceled check. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 17

SECTION 11. 2 Reconciling the Bank Statement Key Terms § reconciling the bank statement The process of determining any differences between a bank statement balance and a checkbook balance. § outstanding checks A check that has been written but has not yet been presented to the bank for payment. § outstanding deposits A deposit that has been made and recorded in the checkbook but does not yet appear on the bank statement. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 18

SECTION 11. 2 Reconciling the Bank Statement Key Terms § bank service charge A fee the bank charges for maintaining bank records and processing bank statement items for the depositor. § stop payment order A demand by the drawer, usually in writing, that the bank not honor a specific check. § NSF check A check returned to the depositor by the bank because the drawer’s checking account does not have sufficient funds to cover the amount; also called dishonored check. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 19

SECTION 11. 2 Reconciling the Bank Statement Key Terms § Check 21 The Check Clearing for the 21 st Century Act; it allows the conversion of a paper check to an electronic image that can be quickly processed between banks. § postdated check A check that has a future date instead of the actual date; it should not be deposited until the date on the check. § electronic funds transfer system (EFTS) A system that allows banks to transfer funds among accounts quickly and accurately without the exchange of checks. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 20

SECTION 11. 2 Reconciling the Bank Statement Key Terms § bankcard A bank-issued card honored by many businesses that can be used to withdraw cash and to make payments for goods and services at many businesses instead of writing checks; also called a debit card, ATM card, or check card. § automated teller machine (ATM) Computer terminal where account holders can conduct various banking activities. Glencoe Accounting Unit 2 Chapter 11 Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved. 21