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Bank Reconciliation Exercise

Bank Reconciliations
January Bank Reconciliation

Ma and Pa started their new business Ma & Pa's Antiques and on January 5, xxxx deposited a portion of their life's savings with Wehavemoney State Bank to get started.

Ma and Pa don't know all that "fancy stuff" about bookkeeping but they know the importance of keeping an accurate check book so that they can plan and budget what they can spend and have their current balance available at all times.
Well Ma and Pa have made it thru their first month of operations and according to their check book they have a cash balance as of January 31, xxxx of $18,650.

They just received their statement from their bank Wehavemoney State Bank and Ma told Pa that they needed to compare their record (check book) to the record maintained by their bank bank (bank Statement).

The banks cutoff date for Ma & Pa's bank account is the 28th of the month.
Ma got out her listing of the Steps Needed In Preparing A Bank Reconciliation. The list included the following:

  • Organize your checks in numerical order
  • Review your checkbook for any obvious errors and check your additions and subtractions if keeping a "manual" checkbook
  • Compare Deposits
    • Prepare listing of Deposits In Transit
  • Compare Checks
    • Prepare listing of Outstanding Checks
  • Compare Other Charges
  • Find and fix any errors
  • Lastly, actually prepare the formal Bank Reconciliation

Ma organized the checks and deposit slips returned by the bank into numerical order.

Her Unadjusted Balances are as follows:

Next, she reviewed the checkbook and documents for any obvious errors. Ma found the following errors.
Checkbook Errors Marked With A ?

Compare Deposits
Next, she review and compared the Deposits in the Banks Statement with the Deposits in the Checkbook
Deposits Included in the Bank Statement Not Recorded in the Checkbook
These are the Deposits without a Checkmark

She also reviewed and compared the Deposits in the Checkbook with the Deposits In The Bank Statement
Deposits Included in the Checkbook Not Recorded in the Bank Statement
These are the Deposits without a Checkmark

Compare Checks
Checks Recorded In Checkbook Not Recorded In Bank Statement

Other Charges
Charges Included in the Bank Statement Not Recorded In Checkbook
These are the Charges without a Checkmark

Final Adjusted Checkbook Balance
Formal Bank Reconciliations January xxxx
Adjustments Made To Checkbook
Balance Per Bank2331524965

Deposits In Transit5100


Outstanding Checks3450

Adusted Bank Balance24965Adjusted Checkbook Balance24965

Why are there no Adjustments to the Checkbook Balance ?
Adjustments were made to the Checkbook Balance as the Steps of the Bank Reconciation were performed.
Adjustments Not Made To Checkbook
Balance Per Bank2331518650
Deposits In Transit5100Bank Deposits Not Recorded7000
Outstanding Checks3450Errors & Omissions400



Adusted Bank Balance24965Adjusted Checkbook Balance24965
Adjustments were not made to the Checkbook Balance as the Steps of Bank Reconciation were performed. Instead lists were prepared for the following:

  • Errors & Omissions
  • Deposits Recorded By Bank Not Recorded In Checkbook
  • Deposits In Transit List
  • Outstanding Checks List
  • Bank Charges & Fees List

After preparing the reconciliation Ma still needs to record these adjustments in her Checkbook.

You can use either method you prefer. They both end up with the same results.

Note: So you know, since in our example this was Ma & Pa's first month of operation we didn't perform two additional tasks that you normally have to perform. Normally we have to compare our Prior Month's List Of Outstanding Checks and our Prior Month's List Of Deposits In Transit with the Current Month's Bank Statement and check off any that have been processed by the bank.

Final Thoughts
Although necessary, preparing a bank reconciliation is a tedious and tiime consuming task. In our example, we only had a few transactions. What would we do if we had thousands of checks and deposits ? Thank goodness for Bookkeeping Software which automates the process.

What's next ?

Cash Forecast Basics
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