Bank Reconciliation: Statement and Journal Entries


Hello and welcome to Professor Nance’s
Accounting Academy! I am so excited to launch our new YouTube page, but today
we’re gonna do a little something special. I’m gonna give you a little
taste of what you can expect from the new and improved Accounting Academy so
sit tight and I promise you, you won’t be disappointed So today, what we’re gonna do is we’re
gonna discuss bank reconciliations. So I know what you’re thinking, “like why do we
have to do this? What’s the point?” But do you remember maybe when we used to do a
little thing called “balancing our checkbooks?” No? Probably not.
Do you remember maybe your parents doing that? Okay.
Well essentially that’s exactly what we’re doing. We’re just balancing our
checkbook because what happens is throughout the month we do things on our
end that the bank doesn’t know about, and the bank does things on their end that we
don’t know about so it’s very important that at some point we sit down together
and balance those two things. That’s all a bank reconciliation is. Okay so the way
you’re gonna set this up is you’re going to have the bank side and then the book
side. Okay? So what you do is you start with the beginning balance for the bank
and the beginning balance for your books. When I say your books we’re talking
about your cash account, your accounting system, or whatever method that you’re
using to keep up with your cash. Okay? So we have those two beginning balances. If
you look at them and you compare them they likely don’t match, right? You have
five hundred in one and maybe five hundred and fifty dollars in the other.
So what we have to do is find the things between the two that one doesn’t know
about, that the other doesn’t know about and make those adjustments, okay?
So let’s start with the bank side of things, all right? So on the bank side
what could be some things that we know on the book side but the bank doesn’t
know yet? Yeah, you’re probably thinking like, “Oh we made a deposit at the end of
the month that’s not showing up!” That’s a very good point!
So that’s what we call a deposit in transit because we know on our side that
we deposited some money into the bank, but the bank statement was printed
before the deposit shows up so we have to add that
deposit in transit to the bank side. What’s something that we may subtract
from the bank? That’s right, yeah we wrote some checks, right? We wrote a few checks
at the end of the month they’re not showing up in the bank yet. That’s
because, you know, you’ve sent a check off to somebody and they’re holding your
check for whatever reason. Which is so annoying, right? You want people to
deposit your check as soon as you write the check, right? But anyway, I digress.
There are some people who like to hold checks and because of that, we write the
checks on our books side, but they haven’t come out on the bank side yet so
we have to subtract those from the bank balance. So then we have to add those to the
deposits in transit, subtract all of the outstanding checks, and then we’ll
figure out what that new balance is. Now over on the books side, there’s things
that have happened in the bank that you don’t know about, right? So, some of the
things that you’re thinking about possibly are like some proceeds, like
sometimes the bank will accept money on your behalf, right? Like if you wrote
somebody… you gave somebody a loan, or a note from a company standpoint, and
they’ll collect that money. But you didn’t know about it because the bank is
like doing all of that for you. So now that you have your bank statement you
know that you need to go ahead and record that, right? So you’re gonna add
that money that was collected on your behalf to your book balance, all right? So
that’s one thing that you’re gonna add to your book. The other things that you
may have to subtract and you’re gonna notice these things because they’re
gonna be on the bank statement, but you don’t have them in your cash balance.
Okay? So some other things are some non-sufficient fund checks. Yeah…
well they’re never fun and I mean, you know, there’s totally a lot of reasons
why that happens, right? Totally! But anyway sometimes checks bounce,
right? We wrote a check, it bounced whatever the case is, so we have to go back in and
add the money back to our account – which is the money that we thought we paid
that didn’t get paid, but then usually the bank
charges a little fee for that… huh, but if that is the case we have to subtract
that fee from our book balance because we didn’t know about the fee. The bank
just went ahead and charged us that fee and took it out of our cash balance.
Another fee that we could run into is if there’s a bank service charge, right?
That’s money coming out of our account, so that means we need to subtract it
from our book balance, and then if there’s any errors in calculations – let’s
say we wrote a check for one hundred, sixty-four dollars, but somehow it got
cashed for one hundred and forty six dollars well that’s an error somewhere.
So we have to figure out who made the error and how we correct it and
depending on which side of the books they need to go on the bank or your
books, then you have to correct that error. And then once you add everything
up on the books side, on the bank side you should have an ending balance that
is equal – that is a bank reconciliation my friends! That’s pretty much it, okay?
So the only last thing to remember is there’s usually some journal entries
associated with a bank reconciliation. The journal entries are only going to be
to which side? Are we going to make journal entries for the bank? No – they do
their own journal entries! We have to make journal entries to the book.
Anything that we have added to the bank reconciliation on the book side is going
to require us to do some type of journal entry. So that we can report it in our
books and make it balance with the bank. All right so that’s important to
remember. Another little small, helpful hint is cash is either gonna go up or
down. So half of the journal entry is either gonna be a debit or a credit to
cash – so that’s – you got one of the accounts already! That’s like a freebie
right there. Professor Nance just threw that in there at you, okay? All right?
So as always, let’s get into our stance and do our dance as we dance
on out of here – and I will see you next time. Don’t forget to “like,” “comment,” and
“share” this video and definitely hit that “subscribe” button! I’ll see you later – bye!!

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