7.3 Bank Accounts Flashcards
why do companies use banks
because this minimizes amount of cash that must be kept on hand, and bank statements provide a second record of cash transactions!
when do companies use online banking
-to authorize employees to monitor account balances/transaction
-transfer funds
-make online payments
-deposit heques
-view acct details
-download transactions into accounting software (for bank reconciliation)
what is shown on a bank statement
-transcctions for th emonth
-account balance at month end
WHAT IS THE ABSOLUTELY MOST CRITICAL THING???? IN BANK STATEMENTs?
Cash is a normal debit balance for a company
FOR A BANK, CASH DEPOSITED IS A LIABILITY!!!!! SO NORMAL CREDIT BALANCE!!!
IN A BANK ACCOUNT FROM A BANKS PERSPECTIVE, CASH DEPOSITED IS A DR OR CR?
CR (cUZ INCREASE IN LIABILITY)
IN A BANK ACCOUNT FROM A BANKS PERSPECTIVE, CASH WITHDRAWN IS A DR OR CR?
DR!!!! because decrease in liability
If transaction is deducted from bank acc, on bank statement DR or CR
DR
If transactions were added to bank account, Dr or CR
CR liability
if a company makes na electronic payment or writes a cheque, the bank is paying out this amount
how is it recorded (Dr or cr)
DR
if a company is recieving electronic colletcion or deposit money into its bank acc, how is it shown in bank statment
CR
What are amounts deducated from a bank account
DEBITED
Examples of all amounts deducted from a bank account (debited accounts)
4 types
1) EFT payments: deposit payments to employee salaries or to recurring payments (insurance rent loan etc)
2) Cheques: written order signed by an employee that tells bank to pay a aspecific amount to a payee
3) NSF cheques: non sufficient funds cheque, customer cheque that has been deposited but RETURNED by the bank
4) service fees: service fees charged for transactions processed using debit and bank credit cards
what are nsf cheques
when a customer signs a cheque to the company but they do not have neough money to pay the cheque “the cheque has bounced”
the company credits cash because it decreased and the bank debits the amount
What are amounts added to a bank account (Credits)
1) EFT deposits
2) deposits made at the bank
3) interest: any money earned on the money in the account
4) other transfers: amounts recieved by the company from operating lines of credit and funds recieved from any new bank loans taken out
how can a bank reccord and company record disagree:
1) timing differences
2)errors
how can timing differences make discrepancy between bank and company records
->outstanding cheques
->depsotis in transit
how can errors make differences in bank vs company records
company errors occur depending on the quality of internal controls; bank erorrs are rare
outstanding cheques meaning
cheques issued (Written and distributed) and recorded by a company that have not yet been paid(cleared) by the bank
deposits in transit meaning
amounts deposited at a bank and recroded by the depositor, that have NOT been recorded by the bank
who should perform bank reconciliations
an employee who has no other relations to cash
what are the 2 sections of a bank reconciliation?
1) bank statement balance
2) book balance
Steps in preparing the reconciliation
1) determine the month end cash balance per bank (on bank statement) and the month-end cash balance per books (in the Cash account of General Ledger)
2)identify the reconicling items and how each affects either the bank or the company
3) calculate the reconiciled cash balance
IN DEPTH steps of bank reconciliation procedures:
1) Find cash balance per bank statement
-add deposits in transit
-subtract outstanding cheques
-add/sub any errors
2) Find cash balance per books
- add unrecorded EFT collections, interest, and other deposits
-subtract NSF cheques
-subtract unrecorded EFT payments, service charges
-add/sub any errors
3)should be same amount
Reconciling cash balance per bank
-deposits in transit STEPS
STEPS:
1) compare each individual deposit on the bank statement with THE DEPOSITS IN TRANSIT FROM LAST BANK RECON and DEPOSITS RECORDED IN COMPANYS BOOKS
2) any deposits that are not in bank statement are deposits in transit (Recorded in companys books but not by bank yet)
3)add these to the banks cash amount
formula for determining deposits in transit at end of period
deposits that could have been processed by bank- deposits that were processed by bank= deposits yet to be processed by bank
( deposits in transit at start of period + deposits recorded in companys books this period)- (deposits recorded on this periods bank statement)= deposits in transit at end of period
Reconciling cash balance per bank
-outstanding cheques STEPS
1) compare cheques deducted from bank statment with a) cheques outstanding from the preceding bank reconicliation and b) cheques issued by the company
2)any cheuqes missing in bank statment are outstanding ((because they have not been deposited by the recipient of the cheque, are still in the mail, or are still being processed by either the issuer’s or recipient’s bank))
3) subtract these from BS
FORMULA for calculating otustanding cheuqes at end of period
cheques that could have been prcoessed by bank- cheques that WERE processed by bank= cheques that have to be still prcoessed by bank
(outstanding cheques at beginning of period + cheques recorded in companys books this period) - (Cheques recorded on this periods bank statement)= oustanding cheques at the end of period
how are bank statments reconciled after errors?
-if the amount of a deposit was 1500 and the bank recorded it as 1000, then the difference of 500 is credited
JUST USE LOGIC TO ADJUST THE BANK AMOUNT
steps to reconciling cash balance per book
EFT COLLECTIONS, interest earned, other deposits
- compare the bank deposits w company deposit records, any recorded by bank but not company should be added
ex: customer who paid online and was missed by books
steps to reconciling cash balance per book
EFT payments, service chargs, and NSF cheques
Any of these identified should be deducted to the amount per the companys books
steps to reconciling cash balance per book
book errors
adjust w logic babyes
do we need to do JEs for bank reconciliations?
yes duh
do we need JEs in relation to the cash balance per bank?
no! the amounts are adjusted automatically when the otustanding deposits and outstanding cheques are processed
THE BANK CANNOT CORERCT A COMPANYS ERRORS ON ITS BOOKS AND A COMPANY CANNOT CORRECT THE BANKS ERRORS ON ITS BOOKS
WORD
ALL BANK RECONCILIATION COMPANY JES AFFECT WHICH ACCOUNT
cash
how to do JE for electronic recipets on account
DR CASH
cr a/R
how to do JE for bank error on account
Dr Cash
Cr A/P
how to do JE for NSF CHEQUE on account
DR A/r
CR cash
how to do JE for bank charges expense on account
DR bank charges expense
cr cash
how to do bank reconcilation actually
Prepare the bank reconciliation in two sections: one for the bank and one for the company.
Determine which section eachreconciling item relates to.
Be careful when you determine the direction of an error correction.
Prepare journal entries only for the book side, not the bank side.
The reconciled cash balances must agree with each other when complete, and with the Cash account in the general ledger after the journal entries are posted.
