Why is it necessary to record journal entries after the bank reconciliation has been prepared?

How to Prepare a Bank Reconciliation

Honestly, Bank Reconciliations are pretty easy.The bank statement states that there is a certain amount in the account.The accounting records state a different amount.The goal is to find the correct amount.

Let�s work the following problem:

The bank statement for Corley Co. indicates a balance of $9,000.00 on June 30.After the journals for June had been posted, the cash account had a balance of $4,675.00.Prepare a bank reconciliation on the basis of the following reconciling items:

(a)������� Cash sales of $342 had been erroneously recorded in the cash receipts journal as $324.����

(b)������� Deposits in transit not recorded by bank, $500.00.�����������

(c)������� Bank debit memorandum for service charges, $25.00.�����

(d)������� Bank credit memorandum for note collected by bank, $1,850, including $50 interest.���������

(e)������� Bank debit memorandum for $218.00 NSF (not sufficient funds) check from Alice Martin, a customer.�����

(f)������� Checks outstanding, $3,200.00.

First, determine the bank balance and the book balance.

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Item (a).The company received $342 from cash sales.They recorded that they received $324.They made a mistake!They actually have $18 more cash than they have recorded.Therefore, the BOOKS side needs to be corrected.

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Item (b.)Deposits in transit.These are deposits that the company has made, but the bank has not yet recorded. Therefore the BANK side needs to be corrected.

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Item (c.) Service charges.The bank has already recorded the service charge.The BOOKS side needs to be corrected.

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Item (d.) Note Collected by the bank.The bank has collected some money ($1,850) for the company.Correct the BOOKS.

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Item (e.) NSF Check.Oh no!A customer paid us with a check that was bad!We thought that we had the cash, but we really don�t!Correct the BOOKS.

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Item (f.) Checks Outstanding.These are checks that have been written by the company.The money has been spent, but the checks have not cleared the bank.Correct the BANK side.

See the FINAL solution

After a bank reconciliation is prepared, the company has to make journal entries to record the items that affected the BOOKS side.They have to record the corrections that they have found.Do we make journal entries for the items on the BANK side??? NO � that is the bank�s concern!From this bank reconciliation we would make 4 journal entries.

Journal entry to record Error in recording Cash Sales:

Cash has to be increased, and more sales have to be recorded.

Here is the entry:

CASH������������������������������������������������� 18.00

����������� SALES������������������������������������������������������������ 18.00

Journal entry to record The NOTE Collected by the bank�

Cash has to be increased.We decrease the Notes Receivable by the face amount.We record the interest that was earned.

Here is the entry:

CASH������������������������������������������������� 1,850.00

����������� NOTES RECEIVABLE����������������������������������� 1,800

����������� INTEREST REVENUE����������������������������������� ��� 50

Journal entry to record Service Charge.This is an expense!Cash has to be decreased.

Here is the entry:

MISC ADMINISTRATIVE EXPENSE������ 25.00

����������� CASH������������������������������������������������������������� 25.00

The last journal entry would be to record the NSF check.��� We thought that the customer had paid when actually they did not.Therefore, we need to increase accounts receivable and decrease cash.

Here is the entry:

ACCOUNTS RECEIVABLE��������������������������� 218.00

����������� CASH������������������������������������������������������������� 218.00

Well, what do you think??Why not take this practice quiz over bank reconciliations.

ONLINE QUIZ

Why do journal entries need to be prepared after completing the bank reconciliation?

Journal entries are required in a bank reconciliation when there are adjustments to the balance per books. These adjustments result from items appearing on the bank statement that have not been recorded in the company's general ledger accounts.

Which bank reconciliation item requires a journal entry?

Examples of items requiring a journal entry as the result of the bank reconciliation include:.
Bank service charges which are often shown on the last day of the bank statement. ... .
Check printing charges..
Customer checks that were deposited but are now returned as NSF (not sufficient funds).
Bank fees for returned checks..

Which of the following would require a journal entry after the bank reconciliation has been prepared?

an: Deposits in transit do require a journal-entry once the bank reconciliation is completed. Double Company collected the following information to prepare its September bank reconciliation: Cash balance per bank, September 30, $72,700.

What reconciling item on the bank reconciliation does not require a journal entry?

Reconciling item per banks are items that are not yet recorded, or improperly recorded by the bank but are already properly recorded in the Company's books. This will not require a journal entry as these items were already properly entered in the books.