February Bank Reconciliation

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Ma and Pa received their February Bank Statement in the mail and began getting organized to do their Bank Reconciliation for February. After being "mildly" scolded and shown the proper steps they should follow in order to make preparing their reconciliation a breeze by their accountant (me), they set about gathering the information and records that they needed.

  • Actual Deposit Slips and Deposit Book for February
  • Daily Sales and Management Reports for February
  • Prior Month's (January xxxx) Bank Statement
  • Prior Month's (January xxxx) Bank Reconciliation
    • Listing Of Deposits In Transit
    • Listing Of Outstanding Checks
  • Current Month's (February xxxx) Bank Statement
  • Check Book
  • Any correspondence from the bank

Let's dwell a minute on an area Prior Month's Deposit In Transit and Outstanding Checks that we didn't discuss during the preparation of our January xxxx Bank Reconciliation. Why didn't we discuss it then ? The reason was that Ma and Pa just started their business bank (checking) account in January and we didn't need to at the time.

The listing of the prior month's Outstanding Checks are the checks that were recorded in Ma and Pa's checkbook last month that had not yet been processed by the bank. In other words, some checks written during the previous month did not make it back to the bank. In the current (following) month normally all these checks but not always are received and recorded by the bank and appear on the current month's bank statement. One of our steps in the current month is to mark these outstanding checks off in our bank statement, check book, and our prior month's outstanding checks list. What if some of the checks written in the prior month are still not processed by the bank ? These checks are carried forward and included in our current month's listing of outstanding checks.

Likewise, we need to do the same thing with our listing of Deposits In Transit. Deposits In Transit are deposits that we recorded in our check book in the prior month that were not recorded and processed by the bank in the previous month. In the current (following) month normally all these deposits have been processed and recorded by the bank and appear on the current month's bank statement. One of our steps in the current month is to mark these deposit off in our bank statement, check book, and our prior month's deposit in transit list. What if any of the deposits on the prior month's Deposit In Transit listing do not appear ion the current month's bank statement. This usually signifies a problem or error and requires a thorough investigation - hopefully nobody ran off with the deposit for a day ?

This month we're not going to discuss each check, error, and deposit, but rather summarize and review the steps taken to prepare a Bank Reconciliation.

I know you've seen these already, but a little repetition can't hurt.

Steps In Preparing A Bank Reconciliation

  1. Probably the first step that should be done is to review your check book for any omitted check numbers or deposits. In other words, double check that all your cash transactions have been recorded in your check book. Since your checks are numbered look for any missing numbers in your check book. Likewise, if you assign a number to your deposit tickets all you need to do is look for any missing numbers.

    You also need to check your additions and subtractions and your calculated balances to make sure that the check book balances have been accurately calculated. While performing your review of your check book also be on the lookout for any transactions that were accidentally recorded twice.

  2. If your bank returns your checks in your bank statement and the checks aren't already sorted in numerical order, you need to take the time to put your checks in numerical order. I hate to do this, but it makes it a lot easier if you need to later locate and review an actual check. You also need to review all the checks and make sure that all the checks have the proper signature.
  3. Using the section of your bank statement that lists the checks processed by the bank (usually listed in check number order) and your check book or register you need to compare the two records to see what checks have been recorded in your records and what checks have also been recorded by the bank. In addition, you need to make sure that the check number and amounts recorded on your bank statement and in your check book or register also agree. Note that the date of the check transaction on your bank statement may be the same date (rarely) as recorded in your check book or a few days or even weeks later depending on when your payee deposits his/her check in their bank account and when your check is finally processed by your bank.

    This is simply the process of putting a check mark (or any other symbol or notation you want to use) by the check number on the bank statement and also a check mark (or your symbol or notation) by the check number in your check book or register for all the transactions that appear in each record and that have the correct check numbers and amounts. For those transactions that appear in both records but have a different check number or amount place an ? (or any other symbol or notation you want to use) beside the transaction on the bank statement and also an ? (or your symbol or notation) in your check book or register.

    The transactions marked with a ? (or your symbol or notation) need to be investigated to determine what the correct check numbers and amounts are.

    What does the check mark (or your symbol or notation) in both the bank statement and check book mean ? All this means is that the cash transaction, in this case a check, has been accurately recorded in your check book and also recorded by the bank in your bank statement. The check mark (or your symbol or notation) in your check book or register also means that the check has been presented to your bank and paid (cleared).

    Since normally some checks that you write during a given month do not appear on your bank statement in the month written because they have not yet been "cashed", you may find the check that you need to mark in your Check Book listed in it in an earlier month. These type of checks are referred to as Outstanding Checks From a Prior Month. You use your previous month's bank reconciliation as an aide in helping to identify to these checks. You should also place a check mark by them on your prior bank reconciliation to signify that these checks have now been processed and recorded by the bank.

  4. You follow the exact same procedure for the deposits listed in the deposit section of your bank statement and the deposits recorded in your check book or register. In other words, place a check mark (or your symbol or notation) by the deposit recorded in the bank statement and also a check mark (or your symbol or notation) by the same deposit recorded in your check book or register. Again, if the amounts are different place an ? (or your symbol or notation) by the deposit on the bank statement and also an ? (or your symbol or notation) beside the deposit in your check book or register. Note that the date of the deposit on your bank statement may be the same date as recorded in your check book or a day or two later due to the time it takes the bank to process your deposit.

    Since at times some of the deposits that you prepare during a given month do not appear on your bank statement in the month written because they have not yet been "processed by your bank, you may find the deposit that you need to mark in your Check Book listed in it in an earlier month. These type of deposits are referred to as Deposits In Transit From a Prior Month. Again, you need to refer to your previous month's bank reconciliation that has these deposits listed. You should also place a check mark by them on your prior bank reconciliation to signify that these deposits have now been processed and recorded by the bank.

  5. Prepare a listing of your outstanding checks (checks that the bank has not yet processed and paid).
    Where do you think the information for this list comes from ? It's real simple, simply include all the checks (check number, date, payee and amount) from your check book or register that don't have a check mark or a ? (or the symbols or notations you use) beside them. This listing of checks is called your Outstanding Checks. Also, check that all checks listed as outstanding on the prior month's bank reconciliation have a check mark beside them. Make sure that any that don't are carried forward and included in your current month's outstanding check list.
  6. Prepare a listing of receipts / deposits (date and amount) recorded in your check book or cash register that have not been recorded in the bank statement. This is also quite simple. Simply list the deposits in your check book or register that don't have a check mark or a ? beside them (or your symbol or notation). This listing of deposits is called your Deposits In Transit. Also, check that all deposits listed as Deposits In Transit on the prior month's bank reconciliation have a check mark beside them. Normally all Deposits In Transit from a prior month should have been processed by your bank in the current month. Make sure that any that don't have a check mark are investigated.
  7. Compare any other transactions listed in your check book or register with your bank statement and place a check mark (or your symbol or notation) beside the transaction that appears in your check book and a check mark (or your symbol or notation) beside the transaction that also appears on the bank statement if the reference and/or amounts are correct. If not, place an ? (or your symbol or notation) beside the transaction on the bank statement and an ? (or your symbol or notation) beside the the transaction in your check book or register.
  8. What about those cash transactions checks, deposits, etc. marked with an ? (or your symbol or notation) ?
    These are errors that need to be investigated, explained, and corrected.
  9. Review your bank statement for any other transactions that don't have a check mark or a ? (or your symbols or notations) beside them. These transactions represent transactions that have not been recorded in your check book or register.

    Examples of some transactions that you might encounter are:

    Deductions:

    • Bank Fees
    • Check and Deposit Ticket Printing Fees
    • Bank Drafts (Charges) for Insurance
    • Bank Drafts (Charges) for Note Payments
    • NSF (non-sufficient funds) or "bad checks.

    Deposits:

    • Credit Card Direct Deposits that we failed to record in our Check Book or Register
    • Bank Loans Deposited directly to our bank account
    • Interest Earned on Checking Account
  10. Review your check book or register for any other transactions that don't have a check mark (or your symbol or notation) beside them. These transactions represent transactions that have not been recorded on your bank statement and that require further investigation.
  11. Review your Listing Of Outstanding Checks and double check that the checks listed do not appear on the bank statement.

    Also review your Listing Of Deposits In Transit and double check that the deposits do not appear on the bank statement.

Coding System (Symbols) Used In This Illustration

Again for illustrative purposes and in order to clarify what's involved in comparing and identifying the transactions that are recorded in the bank statement and the check book, I used simple Yes / No answers as my symbols to identify what transactions appear in both records and what transactions appear in one but not the other.

Ma & Pa's February Information

We gathered up the following information presented below in order to begin preparing Ma & Pa's February Bank Reconciliation.

  • February Bank Statement
  • February Check Book
  • January Bank Reconciliation
    • Listing of Outstanding Checks as of Jan 31, xxxx (Prior Month)
    • Listing Of Deposits In Transit as of Jan 31, xxxx (Prior Month)

Ma & Pa's Bank Statement for February xxxx

Wehavemoney State Bank
Anywhere Street
Anywhere City, Anywhere State xxxxx
 
Ma and Pa's Antiques
Account Number: 1111111111
Anywhere Street
Anywhere City, Anywhere State xxxxx
 
Balance From Prior Statement 23315
Deposits 16100
Disbursements  
Checks 11250
Bank Fees and Charges 10
Other Drafts & Charges 500
Balance as of Feb 28, xxxxx 27655
 
Deposit Details:
Jan 29 700  
Jan 30 2500  
Jan 31 1900  
Feb 4 3000  
Feb 10 4500  
Feb 15 1500  
Feb 25 2000  
 
Total Deposits 16100
 
Disbursement Details:
Jan 29 105 400  
Jan 30 110 750  
Feb 15 113 1800  
Feb 19 114 200  
Feb 19 116 500  
Feb 6 117 650  
Feb 10    ID 400  
Feb 12 118 100  
Feb 20 119 6500  
Feb 22 120 250  
Feb 25 121 100  
Feb 25   CCF 100  
Feb 28 MSF 10  
 
Total Checks 11250
Total Bank Charges & Fees 10
Total Other Drafts & Charges 500
 
Total Disbursements 11760

Abbreviations
NSF- Non Sufficient Funds Check - also known as a "bad check" -
CDP- Check/Deposit Ticket Printing Fees
CCF- Credit Card Fees - fees charged for processing credit card transactions
MSF- Monthly Service Charge
ID - Insurance Draft -preauthorized deduction

Ma and Pa's Checkbook for February xxxx.

Date Reference Number Payee / Description Deposit Amount Deduction
Amount
Balance On Bank Statement
Feb 1, xxxx   Beginning Balance     24965  
Feb 3, xxxx Deposit Slip 10 Daily Sales and Collections Report 3000   27965  
Feb 4, xxxx Check 116 Smalltown Newspaper   500 27465  
Feb 6, xxxx Check 117 Hotwire Electric   650 26815  
Feb 9, xxxx Check 118 Dirtyman Garbage   100 26715  
Feb 11, xxxx ID Insurance Draft   400 26315  
Feb 11, xxxx Deposit Slip 11 Daily Sales and Collections Report 4500   30815  
Feb 15, xxxx Check 119 Old Store   6500 24315  
Feb 15, xxxx Deposit Slip 12 Daily Sales and Collections Report 1500   25815  
Feb 20, xxxx Check 120 Talkalot Service   250 25565  
Feb 23, xxxx Check 121 Cheap Office Supply   100 25465  
Feb 25, xxxx Check 122 Topnotch Shelves   500 24965  
Feb 25, xxxx Deposit Slip 13 Daily Sales and Cash Report 2000   26965  
Feb 25, xxxx CCF Credit Card Processing Fees   100 26865  
Feb 27, xxxx Check 123 Fixit Right   200 26665  
Feb 28, xxxx Check 124 No stink Plumbing   250 26415  
Feb 28, xxxx Check 125 Void     26415  
Feb 28, xxxx Check 126 Nice Landlord   1000 25415  
Feb 28, xxxx Deposit Slip 14 Daily Sales and Collections Report 2500   27915  

Ma and Pa's Final Outstanding Check List as of January 31, xxxx

Date Check Number Payee Amount
Jan 10, xxxx 105 Fixit Right 400
Jan 23, xxxx 110 Sturdy Shipping Crates 750
Jan 27, xxxx 113 Talktoyou Phones 1800
Jan 28, xxxx 114 Talkalot Service 200
Jan 29, xxxx 115 Bean Counter Accounting 300
       
Month Totals     3450

Ma and Pa's Final Deposits In Transit as of January 31, xxxx

Date Reference Amount
Jan 28, xxxx Deposit Slip 7 700
Jan 30, xxxx Deposit Slip 8 2500
Jan 31, xxxx Deposit Slip 9 1900
Total   5100

Final Bank Reconciliation - January xxxx

Balance Per Bank 23315 Our Adjusted Balance
Per Check Book
24965
Plus:      
Deposits In Transit 5100    
Less:      
Outstanding Checks 3450    
       
Adjusted Bank Balance 24965 Adjusted Book Balance 24965
Our Analysis and Bank Reconciliation for February

Now let's mark up our check book and bank statement and identify:

  • Transactions that appear in the Check Book and also in the Bank Statement
  • Transactions that appear only in the Bank Statement
  • Transactions that appear only in the Check Book

Remember we're going to use Yes / No to identify our transactions. Also were going to use the abbreviations PM which means Prior Month and CM which means Current Month.

In addition we need to:

  • Review our Prior Month's Outstanding Check List (January) and mark off any checks that have been processed by the bank in February.
  • Review our Prior Month's Deposits In Transit (January) and mark off any deposits that have been processed by the bank in February.

We didn't have to do this in January because January was the first month of operations therefore it was impossible to have any outstanding transactions carried over from December.

We first reviewed and compared all the checks recorded in our Check Book to the checks that were processed and recorded by the bank on our Bank Statement. All the checks with a Yes beside them on the Bank Statement and a Yes in the On Bank Statement Column in the Check Book have been recorded in the Bank Statement and also in Ma's Check Book.

In addition, we also reviewed our Outstanding Check List as of the end of January in order to check off any checks that were Outstanding in January that were processed and recorded by the bank on our Bank Statement in our current month (February). These checks were checked off on our Outstanding Check List as of January, and, although not shown, were also checked off in our January Check Book.

Likewise, we compared all the deposits recorded in our Check Book to the deposits that were processed and recorded by the bank on our Bank Statement.

All the deposits with a Yes beside them on the Bank Statement and a Yes in the On Bank Statement Column in the Check Book have been recorded in the Bank Statement and also in Ma's Check Book. p> In addition, we also reviewed our Deposits In Transit List as of the end of January in order to check off any deposits that had not been processed by the bank in January that were processed and recorded by the bank on our Bank Statement in our current month (February). These deposits were checked off on our Listing Of Deposits In Transit as of January, and, although not shown, were also checked off in our January Check Book.

Ma & Pa's Bank Statement for February xxxx
Reconciled

Wehavemoney State Bank
Anywhere Street
Anywhere City, Anywhere State xxxxx
 
Ma and Pa's Antiques
Account Number: 1111111111
Anywhere Street
Anywhere City, Anywhere State xxxxx
 
Balance From Prior Statement 23315
Deposits 16100
Disbursements  
Checks 11250
Bank Fees and Charges 10
Other Drafts & Charges 500
Balance as of Feb 28, xxxxx 27655
 
Deposit Details:
Jan 29 700 Yes-PM
Jan 30 2500 Yes-PM
Jan 31 1900 Yes-PM
Feb 4 3000 Yes-CM
Feb 10 4500 Yes-CM
Feb 15 1500 Yes-CM
Feb 25 2000 Yes-CM
 
Total Deposits 16100
 
Disbursement Details:
Jan 29 105 400 Yes-PM
Jan 30 110 750 Yes-PM
Feb 15 113 1800 Yes-PM
Feb 19 114 200 Yes-PM
Feb 19 116 500 Yes-CM
Feb 6 117 650 Yes-CM
Feb 10    ID 400 Yes-CM
Feb 12 118 100 Yes-CM
Feb 20 119 6500 Yes-CM
Feb 22 120 250 Yes-CM
Feb 25 121 100 Yes-CM
Feb 25   CCF 100 Yes-CM
Feb 28 MSF 10  
 
Total Checks 11250
Total Bank Charges & Fees 10
Total Other Drafts & Charges 500
 
Total Disbursements 11760

Abbreviations
NSF- Non Sufficient Funds Check - also known as a "bad check" -
CDP- Check/Deposit Ticket Printing Fees
CCF- Credit Card Fees - fees charged for processing credit card transactions
MSF- Monthly Service Charge
ID - Insurance Draft -preauthorized deduction

Ma and Pa's Final Outstanding Check List as of January 31, xxxx

Date Check Number Payee Amount Recorded By Bank
Jan 10, xxxx 105 Fixit Right 400 Yes-Feb Bank Statement
Jan 23, xxxx 110 Sturdy Shipping Crates 750 Yes-Feb Bank Statement
Jan 27, xxxx 113 Talktoyou Phones 1800 Yes-Feb Bank Statement
Jan 28, xxxx 114 Talkalot Service 200 Yes-Feb Bank Statement
Jan 29, xxxx 115 Bean Counter Accounting 300  
         
Month Totals     3450  

Ma and Pa's Final Deposits In Transit as of January 31, xxxx

Date Reference Amount Recorded By Bank
Jan 28, xxxx Deposit Slip 7 700 Yes-Feb Bank Statement
Jan 30, xxxx Deposit Slip 8 2500 Yes-Feb Bank Statement
Jan 31, xxxx Deposit Slip 9 1900 Yes-Feb Bank Statement
Total   5100  

Ma and Pa's Checkbook for February xxxx.

Date Reference Number Payee / Description Deposit Amount Deduction
Amount
Balance On Bank Statement
Feb 1, xxxx   Beginning Balance     24965  
Feb 3, xxxx Deposit Slip 10 Daily Sales and Collections Report 3000   27965 Yes
Feb 4, xxxx Check 116 Smalltown Newspaper   500 27465 Yes
Feb 6, xxxx Check 117 Hotwire Electric   650 26815 Yes
Feb 9, xxxx Check 118 Dirtyman Garbage   100 26715 Yes
Feb 11, xxxx ID Insurance Draft   400 26315 Yes
Feb 11, xxxx Deposit Slip 11 Daily Sales and Collections Report 4500   30815 Yes
Feb 15, xxxx Check 119 Old Store   6500 24315 Yes
Feb 15, xxxx Deposit Slip 12 Daily Sales and Collections Report 1500   25815 Yes
Feb 20, xxxx Check 120 Talkalot Service   250 25565 Yes
Feb 23, xxxx Check 121 Cheap Office Supply   100 25465 Yes
Feb 25, xxxx Check 122 Topnotch Shelves   500 24965 No
Feb 25, xxxx Deposit Slip 13 Daily Sales and Cash Report 2000   26965 Yes
Feb 25, xxxx CCF Credit Card Processing Fees   100 26865 Yes
Feb 27, xxxx Check 123 Fixit Right   200 26665 No
Feb 28, xxxx Check 124 No stink Plumbing   250 26415 No
Feb 28, xxxx Check 125 Void     26415 NA
Feb 28, xxxx Check 126 Nice Landlord   1000 25415 No
Feb 28, xxxx Deposit Slip 14 Daily Sales and Collections Report 2500   27915 No

Ma and Pa's Final Outstanding Check List as of February 28, xxxx

Date Check Number Payee Amount
Jan 29, xxxx 115 Bean Counter Accounting 300
Feb 25, xxxx 122 Topnotch Shelves 500
Feb 27, xxxx 123 Fixit Right 200
Feb 28, xxxx 124 Nostink Plumbing 250
Feb 28, xxxx 126 Nice Landlord 1000
       
Month Totals     2250

Ma and Pa's Final Deposits In Transit as of February 28, xxxx

Date Reference Amount
Feb 28, xxxx Deposit Slip 14 2500
Total   2500

Transactions That Make Up Our Outstanding Check and Deposits In Transit Listings

If you'll notice I highlighted all the transactions in yellow that are used to prepare our Listing Of Outstanding Checks and our Deposits In Transit as of the end of February. These transaction also have a NO in the column Appear On Bank Statement.

You should also have noticed that we had to carry one check forward that was written in January that has still not been processed by the bank. What check is this ? Shucks, it's the check that was written to me - Check Number 115 made out to Bean Counter Accounting and dated January 29,xxxx.

I don't want Ma mad at me so I guess I'd better deposit her check in my bank accountant so that next month it will be processed by Ma's bank. Looks like I was guilty of carrying it around in my billfold and forgot about it. Shame on me - looks my own control of cash was slipping a little. Well you're supposed to do as I say and not what I do.

Final Bank Reconciliation -February xxxx

Balance Per Bank 27655 Balance
Per Check Book
27915
Plus:      
Deposits In Transit 2500    
Less:      
Outstanding Checks 2250    
    Bank Statement Fee 10
       
Adjusted Bank Balance 27905 Adjusted Book Balance 27905

It looks to me as if Ma in February did an excellent job of recording her deposits and checks in her check book. The only item not recorded in her check book is the Monthly Statement Fee (MSF) charged by the bank.

After recording this monthly charge Ma's check book with all February transactions recorded appears as follows:

Ma and Pa's Checkbook for February xxxx.

Date Reference Number Payee / Description Deposit Amount Deduction
Amount
Balance On Bank Statement
Feb 1, xxxx   Beginning Balance     24965  
Feb 3, xxxx Deposit Slip 10 Daily Sales and Collections Report 3000   27965 Yes
Feb 4, xxxx Check 116 Smalltown Newspaper   500 27465 Yes
Feb 6, xxxx Check 117 Hotwire Electric   650 26815 Yes
Feb 9, xxxx Check 118 Dirtyman Garbage   100 26715 Yes
Feb 11, xxxx ID Insurance Draft   400 26315 Yes
Feb 11, xxxx Deposit Slip 11 Daily Sales and Collections Report 4500   30815 Yes
Feb 15, xxxx Check 119 Old Store   6500 24315 Yes
Feb 15, xxxx Deposit Slip 12 Daily Sales and Collections Report 1500   25815 Yes
Feb 20, xxxx Check 120 Talkalot Service   250 25565 Yes
Feb 23, xxxx Check 121 Cheap Office Supply   100 25465 Yes
Feb 25, xxxx Check 122 Topnotch Shelves   500 24965 No
Feb 25, xxxx Deposit Slip 13 Daily Sales and Cash Report 2000   26965 Yes
Feb 25, xxxx CCF Credit Card Processing Fees   100 26865 Yes
Feb 27, xxxx Check 123 Fixit Right   200 26665 No
Feb 28, xxxx Check 124 Nostink Plumbing   250 26415 No
Feb 28, xxxx Check 125 Void     26415 NA
Feb 28, xxxx Check 126 Nice Landlord   1000 25415 No
Feb 28, xxxx Deposit Slip 14 Daily Sales and Collections Report 2500   27915 No
Feb 28, xxxx Bank Monthly Statement Fee (MSF)     10 27905 Yes
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