Lesson: 63

Topic: Bank Reconciliation Statement

Objectives:

During this class, students will examine, in detail, one of the techniques used by businesses to maintain control over their accounting of cash receipts - namely, Bank Reconciliation Statement.

The primary focus of this topic is the Bank Reconciliation Statement. However, we shall also examine a typical bank statement in order to help us prepare the Bank Reconciliation statement.

Finally, we will examine how adjusting entries must be made in order to record any changes which have effected the business' Cash Account.

Assessment Exercise:

i) From the information outlined below, complete a Report Form Bank Reconciliation Statement.

Note: The information below has resulted from identifying and listing the discrepancy items for Jessica’s Clinic Inc., as of the June 30th bank statement:

• Royal Bank, bank statement balance, June 30: $1,378.00
• Jessica’s Clinic, cash account balance, June 30: 1,627.00
• Deposit in transit, June 30: $560.00
• Outstanding cheques:
  • No. 314 60.00
  • No. 320 15.00
  • No. 321 245.00
• Bank credit memo for interest earned: $17.45
• Bank service charges: $35.45
• Finally, a transposition error is found to have occurred. The bank correctly cashed a cheque we issued when we purchased $45.00 of supplies, but Jessica mistakenly recorded the cheque in her records as a $54.00 cheque - resulting in $9.00 less being taken from her bank account than she had initially recorded.

ii) Complete the journal entries associated with this Bank Reconciliation Statement.

(Save this spreadsheet as "yourname, Bank Reconciliation", print it, and submit it.)

Expectations Addressed:

The "Internal Control, Financial Analysis, and Decision Making" strand of the BAF3M Ministry of Education Curriculum Guidelines outlines all of the following specific expectations. The expectations addressed by this lesson have been highlighted below.

• Internal Control Procedures:
  • describe the basic elements of an internal control system (e.g., separation of duties, prenumbered documents, rotation of staff);
  • apply appropriate control measures used in accounting for assets (e.g., petty cash procedures, bank reconciliation procedures);
  • describe the role of budgeted financial statements in planning, controlling, and evaluating business results (e.g., difference between budgeted and actual income statements);
  • describe the role and work of an auditor.
• Financial Analysis:
  • explain the importance of current assets and current liabilities when interpreting a balance sheet;
  • analyse a company’s liquidity and solvency by using simple financial ratios (e.g., current ratio, debt ratio) and other financial analysis tools (e.g., comparative statements, trend analysis, common size statements);
  • analyse a company’s profitability by using simple financial ratios (e.g., gross profit percentage, return on equity) and other financial analysis tools (e.g., comparative statements, trend analysis, common size statements).
• Decision Making:
  • describe how accounting information is used by company personnel (e.g., department managers, owners) in making decisions;
  • explain the role of financial analysis in decision making from the standpoint of potential investors (e.g., mutual fund managers, institutional investors, individual investors);
  • describe how accounting information is used by individuals or organizations outside the company (e.g., governments, Ontario Securities Commission, police, forensic accountants) in making decisions.

Reference: text, chapter #10, pages 398 - 404