Bank Rec Tutorial

Summary

Highlights

• Learn to reconcile a bank statement to a cash book in just seven steps! Easy peasy! 📚
• Omissions, timing differences, and errors - the trio causing discrepancies in your bank records! 😵
• Timely reconciling uncovers true cash balances after taking into account outstanding checks and deposits. Cash is king! 👑
• Samantha shares insights from her accounting career, making complex concepts simple and digestible. Professional secrets revealed! 🤫
• Smaller or larger businesses can adapt bank reconciliation processes to suit their frequency needs. Monthly, weekly, daily – take your pick! 📅

Key Takeaways

• Bank reconciliation is crucial for accurate financial records. Keeping tabs on your true cash balance is essential! 🏦
• Understand common issues: omissions, timing differences, and errors can cause discrepancies. Identifying these is vital! ⏲️
• Seven simple steps can transform an intimidating task into a systematic process. Follow them for success! 🎯
• Regular bank reconciliation helps maintain the integrity and accuracy of your financial records. Consistency is key! 📊
• Prepare necessary journal entries to correct any discrepancies found during reconciliation. Precision matters! ✏️

Overview

Chapters

• 00:00 - 00:30: Introduction to Bank Reconciliation In this chapter, Samantha introduces the concept of bank reconciliation. She explains that the process involves reconciling the bank statement with the cash book using a specific method she will detail. Despite the seemingly complex nature of bank reconciliation, Samantha assures learners that she will break it down into seven simple steps, making it accessible and manageable for everyone to understand and execute easily.
• 00:30 - 05:00: Definitions and Purpose The chapter titled 'Definitions and Purpose' starts by introducing the speaker's background in handling bank reconciliations as a public accountant and auditor. The speaker intends to share a straightforward and easy-to-follow approach to bank reconciliations. The chapter begins with defining a bank statement, which is a list of all the cash deposits and withdrawals that a business believes it has made over a certain period.
• 05:00 - 10:00: Reasons for Discrepancies This chapter delves into the topic of 'Reasons for Discrepancies' between a bank's accounting records and a company's cash book. It explains that the cash book, managed by the company, records all cash inflows (debits) and outflows (credits) and is typically maintained by a bookkeeper or accountant. Conversely, the bank produces a bank statement. The chapter sets up a discussion about discrepancies which arise when the closing balances of these two statements do not match.
• 10:00 - 35:30: The Seven-Step Bank Reconciliation Process The chapter details the seven-step bank reconciliation process, highlighting the importance of reconciling differences between the bank statement and the cash book. It begins by acknowledging that in reality, the numbers often don't match, which is why bank reconciliation is necessary. The chapter promises to explore why such discrepancies occur and aims to ensure that both statements accurately reflect the bank's financial activities. Initially, three main reasons for discrepancies are introduced, which will be further elaborated. The focus is on understanding these inconsistencies to rectify them.

Bank Rec Tutorial Transcription

• 00:00 - 00:30 hi everyone i'm samantha in this video we're going to learn how to reconcile the bank statement to the cash book in seven simple steps we are going to prepare a bank reconciliation like this one from scratch it might look a little scary but we're going to break it down into seven easy steps so it's going to be easy peasy for you
• 00:30 - 01:00 i had to review and prepare a fair amount of bank reconciliations in my previous career as a public accountant and auditor and i'm going to share with you an approach that is straightforward and easy to follow so let's get started there are a couple of definitions we need to cover off first a bank statement what is this a bank statement is a list of all the cash deposits and withdrawals that a business thinks it has made over a period of time
• 01:00 - 01:30 as you may guess it is managed by the bank the cash book is an accounting record of what the company thinks it has in the bank it includes all the cash inflows or debits and cash outflows or credits it is managed by the business itself usually by a bookkeeper and an accountant so the bank produces a bank statement and the company maintains a cash book in an ideal world the closing balance of each of these statements
• 01:30 - 02:00 would match however in the real world this never actually happens and this is the reason why the bank reconciliation actually exists we're going to reconcile the differences between the bank statement and the cash book to make sure that they agree as to what has actually been going on at the bank we'll go into this in a minute but first let's talk about why the bank statement and the cash book might disagree with each other in the first place there are three ways that these
• 02:00 - 02:30 differences can come about so the first difference can be from emissions so emissions relates to transactions that appear on the bank statement but that have not been recorded by the business in the cash book so this includes things like missing receipts interest received bank fees and nsf checks so an nsf check is a non-sufficient fund check so it's a bounced check a business may not even know that these transactions have hit their bank
• 02:30 - 03:00 account until they actually receive their bank statement at the end of the month so the second reason why your bank statement and your cash book may not agree are due to timing differences these are transactions that are recorded in the bank statement and the cash book at different periods so the two most common timing differences are deposits in transit and outstanding checks so a deposit in transit relates to a
• 03:00 - 03:30 cash that the business receives and records in its cash book in one period and it's deposited into the bank account in another period usually these are electronic fund transfers so an eft or emt that a business receives from its customers towards the end of the month or the period that the bank doesn't process right away an outstanding check is a check that a business sends to its suppliers in one period the supplier doesn't cash the check right away maybe it's sitting on
• 03:30 - 04:00 somebody's desk and it gets cashed in a different period so there's a timing difference between when the transaction is recorded in the cash book and when it actually flows through the bank statement so the third reason why your bank statement and your cash book may not agree is somebody's made an error uh it happens errors can be made by the business or the bank so most often um errors are made over here in the cash
• 04:00 - 04:30 book so this is where we want to check first everybody's still with me so we've identified omissions timing differences and errors as three ways that can cause differences between the bank statement and the cash book so what is the purpose of a bank rack the purpose of the bank rack is to identify every single one of these differences so we know what is going on and we have confidence
• 04:30 - 05:00 in the bank balance identifying the errors and omissions allows us to post a journal entry into the general journal to bring our cash book or ledger up to date there isn't much accountants can do about timing differences other than identify them and wait for them to sort themselves out okay so why is this necessary why are we doing bank reconciliations the bank reconciliation is essential if you want to make sure that your books are up to date and useful it also allows you to calculate your
• 05:00 - 05:30 true cash balance of the business that is how much money do you have after all your outstanding checks and deposits in transit have cleared the bank remember cash is king it's a really important number to know so you might be asking yourself when do we do a bank reconciliation most businesses prepare their bank racks on a monthly basis that being said large companies with lots of transactions may reconcile their banks on a weekly or
• 05:30 - 06:00 even a daily basis smaller companies with few transactions may prepare a bankrupt on a annual basis or maybe every six months so we've dealt with what why and when now let's get into the how so first things first there's seven steps we're gonna work and we're gonna work through an example so let's talk about that seven step process step one is that we need to get copies of the
• 06:00 - 06:30 bank statement and the cash book so here you can see that we've got the mailer company's bank statement for the month of june you can see that we've got our opening balance here 234.75 we've got our closing balance of 1504 14. um and that these are the transactions that happened during the month according to the bank we can see down here we've got our cash book it shows us what is our cash
• 06:30 - 07:00 register so what checks did we write during the month of june it's got our summary of cash deposits so what are the deposits that we made to the bank and then we've got our cash balance so our opening adding in our deposit subtracting our checks and giving us our closing balance and so we can see that our closing balance here does not equal the bank closing balance so let's move on to step two let's set up our bank reconciliation template so we're going to open up a spreadsheet
• 07:00 - 07:30 and we are going to start our template of how it is that we're going to complete our bank rack so here i am i've got my reconciliation template set up here so you'll notice that there are two sides one is reconciling the bank statement and the other one is reconciling our cash book or our cash ledger so the first thing first we want to do is what is our bank statement balance so we're just going to go ahead and we're going to take that straight from our bank statement so that 1504-14
• 07:30 - 08:00 we're going to go ahead and get our opening balance per the general ledger or cash book or cash ledger and so our opening balance is 1696 so we're taking the closing balance in our books and then we're going to take that and we're going to reconcile that to the amount that is in our bank account so our goal here is to have this
• 08:00 - 08:30 reconciled balance on the bank statement and the reconciled balance on our cash book to actually match so there should be no difference by the time we're ending our reconciliation so what are we doing next you'll notice that there's a whole bunch of blank space here well you'll remember that differences between our bank statement and our cash book come from three different places omissions timing differences and errors
• 08:30 - 09:00 so this is where we're going to go ahead and we're going to put this information in and try to reconcile the two different uh bank balances or cash balances so you'll remember that our timing differences our outstanding deposits will need to be added to the bank statement balance any outstanding checks will need to be subtracted from the bank statement balance any errors could go either way they could be added or subtracted from the
• 09:00 - 09:30 bank statement or from the cash book depending on who it is that made the error and which way the error is going omissions again could affect the cash book so that's where those differences are going to go ahead and be made so now we're going to get into step three we're gonna take off all the mac matching transactions so the matching transactions are the ones that are already represented in both the bank
• 09:30 - 10:00 statement and in the cash book so we know that if they're in both of those those are not items that need to be reconciled so i am basically just going to go ahead and i'm going to tick through and see where what matches so i'm looking at the bank statement here and i can see that there was a deposit for 245.62 so i'm just going to go down and i want to see was there a cash deposit recorded here in june for that and there wasn't but there's one other
• 10:00 - 10:30 place i can look i want to know is this an outstanding item from the previous month so was this an item that was outstanding in may so if i look at the previous month's bank reconciliation i can see that it is so i can go ahead and take this off it was a reconciling item in may but it has now cleared the bank so this timing difference has now sorted itself out so i'm going to go ahead and i'm going
• 10:30 - 11:00 to check that off so i find it easiest let to do all the deposits first and then go ahead and do all the outstanding checks so the next deposit was on june the 6th for 55.30 so i'm just going to scroll down and see did that hit our cash book and it did so i'm going to go ahead and i'm just going to go up tick that off in both places on june the 10th there was a deposit for 385.70 and that is in both places so i'm going
• 11:00 - 11:30 to go ahead and take that off on june 20th for 462.95 gonna go ahead and take that off and then on june 30th there was a an interest amount deposited for two dollars and thirty cents so this has not been reflected in our cash books why do i need to do something with that if i look at the cash book i can see that there was a deposit made of 220
• 11:30 - 12:00 and 85 cents and that has not been reflected in the bank statement so that's a timing difference that the um bank statement doesn't yet reflect so i'm going to want to go ahead and add that in as a reconciling item so i'm going to add that into the bank statement side so let's just go ahead and back it up one step here we've got an interest amount being deposited here for two dollars and 30 cents
• 12:00 - 12:30 this is being reflected on the bank statement but not in the cash book so that's going to be a reconciling item on our cash book or our general ledger so i'm going to go ahead and write this in we need to increase our amount of cash for this so for two dollars and 30 cents and you can see we're just slowly making the changes here and at the end of the day we're hopeful
• 12:30 - 13:00 that we're going to be able to reconcile it okay so let's go through and let's work on our outstanding checks so we've got a check 376 for 185.30 and we're gonna go through here and we'll notice that it's not there but what we what do we need to do we need to check and see is this a timing difference that originated in a previous period
• 13:00 - 13:30 that is now sorting itself out so if we look at the may reconciliation we can see that it was recorded as a reconciling item in may and so this is now it clearing the bank and the timing difference is now been sorted out so it's not going to be hitting our bank rack again so we also have a check on june 5th for 250 so check 2 3 383 and so we can see that that has been
• 13:30 - 14:00 reflected in our cash book so i'm just going to go ahead and take that off we've got a check 384 for 48.90 so we're just going to go ahead and tick that off 385 for to 152.30 we've got 387 for 113.78 we've got 388
• 14:00 - 14:30 no we don't we've got um oops let's just take that off we've got 389 for 238.95 so let's take that off we've got check 386 for 138.40 we'll go ahead and take that off check 382 for 172.15. so if we look at our check register here we can see that
• 14:30 - 15:00 check 382 is not here so we need to go and check our bank rec from may again to see if this is a timing difference that is now sorting itself out and we can see that it is so we can go ahead and tick that off we've got check 391 for 74.20 so we can see here now that we've actually got four outstanding checks so i'm just gonna go ahead and i'm going to highlight them so that they're clear so we've got check number 388 check number
• 15:00 - 15:30 390 check number 392 and 393. and so we are just going to want to go ahead and this is a timing difference that we're going to go ahead and enter into uh the reconciling of the bank statement side so here we go we're just going to insert a couple of rows so we're just going to go ahead we're going to type the check and the amount in here so we've got
• 15:30 - 16:00 check number 388 we've got number 390 392 and number 393 and so we want to go ahead and we're going to be subtracting this from our bank balance because these checks have not yet been reflected on the bank statement side
• 16:00 - 16:30 okay so here we go we can see we've got all four of these checks in here as being reconciling items so these are checks that we have written but they actually haven't been cashed yet by our suppliers so our next step is we're going to want to calculate the adjusted bank statement balance
• 16:30 - 17:00 and then we're going to want to calculate our adjusted cash book balance so we've already kind of started inserting the information into our bank rec but we're going to go through and see what other information we can find between the bank statement and our cash book okay so now we want to go through our bank statement and see are there any other um transactions that happen that we did not pick up on so an omission so if we look
• 17:00 - 17:30 through our bank statement here we can see that there was an nsf check for 55 dollars and 30 cents so on june the 7th the bank issued a debit memo for 55.30 because the check from the customer d beat deposited on june 6 was returned nsf so it's been reflected on our bank statement side but it hasn't yet been reflected on our cash book side so it was an nsf check so we need to subtract that from our cash
• 17:30 - 18:00 book so we're going to go ahead and we're going to subtract that 55 30 because it's not actually sitting in our bank so next we're going to look at this transaction here this debit memo note payable for 503.75 so on june 15th a 9 500 note payable to the bank by mailer was
• 18:00 - 18:30 automatically paid out of the checking account along with one month's interest so this has not yet been reflected in our cash book it's reflected in our bank statement in our bank account but it hasn't been reflected in our books and records so we need to go ahead and record that this note payment has been made so the note payment was for five hundred dollars so we're going to subtract 500 out of our cash book but we also need to make sure
• 18:30 - 19:00 that we're recording that interest charge so you'll notice that the amount the value was for 500 and 375 and so there was one month's interest included in there so we've got an interest charge of three dollars and seventy-five cents so we need to subtract that also out of our books and records so we're going to go ahead and subtract that 375. so we've now taken care of this transaction that's in our bank statement if we look at june 15th there was also a
• 19:00 - 19:30 debit memo for interest for 375. so the bank has taken out our interest and deducted the interest twice so one time being an error so the bank has made an error again usually errors are made on the cash book side but in this case the error has been made on the bank statement side so they've subtracted out that interest twice so we're going to contact the bank and
• 19:30 - 20:00 ask them to replace that 3.75 so we want to go ahead and account for that in our bank rack so we're going to add back that 3.75 cents on our bank statement reconciliation so if we continue looking down here we can see that there were service charges charged so the service charges were 15.70 so they've been been deducted out of our
• 20:00 - 20:30 bank account they're showing up on the bank statement but we have not yet reflected that in our books and records so in the cash book so we want to go ahead and make sure that that gets captured here so we're going to subtract that 15 70. so now if we come and look over here at our reconciliation we can see that the balance per the bank statement and the balance per the books it actually matches so our reconciled balance is 1124.50
• 20:30 - 21:00 so this is usually a good indication when you've actually got it reconciles that you've captured all of the different um transactions that that are different between the bank statement and the cash book however so is it just a good idea to go through and make sure that you have accounted for every transaction between your uh bank statement and your cash book or cash ledger
• 21:00 - 21:30 and so that brings us to our seventh step prepare the necessary journal entries so you'll remember that when there's an omission or an error on the cash book side that we need to do a journal entry in order to catch our books and records up to date if it's a timing difference we don't do anything about a timing difference so that those outstanding checks or those deposits in transit we don't make journal entries for those
• 21:30 - 22:00 those will just sort themselves out over time but we do need to go ahead and correct any errors or omissions so in order to do our journal entry we're going to take a look at the cash side the cash book side so our first transaction is we've got an nsf plus service charge so we had an nsf check uh for 55 dollars and 30 cents so we're gonna want to go ahead and debit our accounts receivable to
• 22:00 - 22:30 reinstate that accounts receivable account for 55.30 and we're going to go ahead and we're going to credit cash for that 55 30. looking at our second reconciling item we've got that we made a note payment so we're going to want to go ahead and debit our note payable so decreasing the amount of the note because we've made a payment on it for five hundred dollars
• 22:30 - 23:00 and we're gonna go ahead and we're gonna credit cash for that five hundred dollars if we take a look at our next transaction we've got bank service charges so i'm actually going to combine the next three items into one journal entry so we've got bank service charges so we're going to want to go ahead and debit bank fees for 15 70. and then we've got interest let's
• 23:00 - 23:30 let's get down to the interest charge so we've got an interest charge of 3.75 so we're gonna go interest expense for 375. oops and that's a debit and we can see that we earned some interest we earned two dollars and thirty cents so we're gonna go ahead and we're gonna credit interest revenue
• 23:30 - 24:00 for two dollars and thirty cents and then we're going to go ahead and we're going to credit cash for the balance amount which is 17. and 15 cents and so by posting these journal entries in the next period these items will not be reconciling items anymore so hopefully you found this to be a useful exercise and you'll be able to use these seven steps in your creating your bank
• 24:00 - 24:30 reconciliations