Bank Reconciliation Statements Bank reconciliation statements are statements prepared to reconcile the balances of bank balances as per the company’s records and as per the balances of the bank statements, as they may not always match owing to timing differences of financial transactions. For example, when a check is issued today by a company to a vendor for past purchases, it records a cash outflow in its statements today and lowers the balance of the bank in its books. However the actual balance of the bank account may not reduce till the check actually clears and hence there is a timing difference. These timing differences lead to difference between the balances of bank balances as per the company’s records and as per the balances of the bank statements and bank reconciliation statements help in reconciling these balances. Adjusting Journal Entries in Bank Reconciliation Statements: Journal entries are the first step in recording financial transactions and preparation of financial statements. These represent the impact of the financial transaction and demonstrate the effect on the accounts impacted in the form of debits and credits. Assets and expenses have debit balances and Liabilities and Incomes have credit balances and according to the business transaction, the accounts are appropriately debited / credited to reflect the effect of business transactions and events. In order to prepare the Bank Reconciliation Statements, effect of those items that directly affect the balances as per the bank statements, are journalized and the Cash and Bank Account, being an asset is appropriately debited or credited to give effect to these items. Examples of such items include: Interest directly credited to Bank Account, Bank Charges debited directly etc. To Prepare: Journal Entries to record effect to items in the Bank Statements

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Chapter 8, Problem 10E

To determine

Introduction:

Bank Reconciliation Statements

Bank reconciliation statements are statements prepared to reconcile the balances of bank balances as per the company’s records and as per the balances of the bank statements, as they may not always match owing to timing differences of financial transactions.

For example, when a check is issued today by a company to a vendor for past purchases, it records a cash outflow in its statements today and lowers the balance of the bank in its books. However the actual balance of the bank account may not reduce till the check actually clears and hence there is a timing difference.

These timing differences lead to difference between the balances of bank balances as per the company’s records and as per the balances of the bank statements and bank reconciliation statements help in reconciling these balances.

Adjusting Journal Entries in Bank Reconciliation Statements:

Journal entries are the first step in recording financial transactions and preparation of financial statements. These represent the impact of the financial transaction and demonstrate the effect on the accounts impacted in the form of debits and credits.

Assets and expenses have debit balances and Liabilities and Incomes have credit balances and according to the business transaction, the accounts are appropriately debited / credited to reflect the effect of business transactions and events.

In order to prepare the Bank Reconciliation Statements, effect of those items that directly affect the balances as per the bank statements, are journalized and the Cash and Bank Account, being an asset is appropriately debited or credited to give effect to these items.

Examples of such items include: Interest directly credited to Bank Account, Bank Charges debited directly etc.

To Prepare:

Journal Entries to record effect to items in the Bank Statements

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