Bank Reconciliations

Question 1

What are the benefits provided by a bank reconciliation?

Answer 1

1. ) Enable periodic comparison of the bank account balance and cash balance
2. ) Help identify errors in the firm’s records or bank records
3. ) Establish the correct ending cash balance
4. ) Provide information for adjusting entries
5. ) Help reduce cash theft by employees if the reconciler does not have access to cash records or does not have access to cash

Question 2

What is the purpose of the “Simple Bank Reconciliation?”

Answer 2

Explains the difference between the balance per books and the balance per bank at the end of the month.

Question 3

What are the 3 formats for the “Simple Bank Reconciliation”?

Answer 3

1. ) Bank to Book - Starting point is balance per bank. All adjustments are made to this balance to arrive at balance per book.
2. ) Book to bank - Starting point is balance per book. All adjustments are made to this balance to arrive at balance per bank
3. ) Bank and book to true balance - The bank balance and book balance are separately reconciled to the true cash balance, which is reported on the B/S

The 3rd format is usually emphasized on CPA exam

Question 4

What are the most common adjustments to the bank balance (Going from bank to “True Cash”)on the Simple Bank Reconciliation?

Answer 4

1. ) Deposit in transit - Deposits have been made by company, but not cleared by the bank as of statement date
2. ) Cash on hand - Cash that is received after deposit is made, and is “Cash on hand” at the end of month
3. ) Outstanding Checks - Checks written and mailed by the company which have not cleared the bank
4. ) Errors made by the bank

Question 5

What are the most common adjustments to the book balance (Going from book to “True Cash”)on the Simple Bank Reconciliation?

Answer 5

1. ) Interest Earned - Interest earned on the checking account not yet recognized by company
2. ) Note collected - Represents principle and interest added to the company’s checking balance by the bank upon collection. Normally, the company will recognize after the bank statement is received
3. ) Service Charges - Service charges the bank deducted
4. ) NSF checks - “Non-sufficient funds” checks received from customers
5. ) Errors in firms records - errors made in company’s records.

Question 6

Are there any differences between U.S. GAAP and IFRS in relation to Bank Reconciliations?

Answer 6

No, no differences