Intermediate Accounting 6 Cash and Receivables Procedures in preparing a bank reconciliation Compare the deposits listed on the company's records with the deposits on the bank statement 2 Compare the checks listed in the company's records with the checks shown on the bank statement 3 Identify any deposits or charges made directly by the bank that are not included in the company's records Determine the effect of any errors 6 Complete the bank reconciliation
Procedures in preparing a bank reconciliation Intermediate Accounting 6 Cash and Receivables ① Compare the deposits listed on the company's records with the deposits on the bank statement; ② Compare the checks listed in the company's records with the checks shown on the bank statement; ③ Identify any deposits or charges made directly by the bank that are not included in the company's records; ④ Determine the effect of any errors; ⑤ Complete the bank reconciliation
Intermediate Accounting 6 Cash and Receivables Lee corporation Bank Reconciliation Jy31,2005 Balance per bank.. $4, 135 Balance per books $3950 Additions to bank Additions to book lnce∴ balance Deposits in transit..500 Direct deposit 450 $635 Interest $4.471 Deductions from bank balance Deductions from book Outstanding checks balance 191.….s251 Service charge 192 125 nSF check 100 195 75 451 Error in recording check 180 287 Adj. bank balance $4, 184 Adj. book balance S4,184
Balance per books.............. $3,950 Additions to book balance: Direct deposit...................… 450 Interest.............................… 71 Total............................… $4,471 Deductions from book balance: Service charge...........… $ 7 NSF check.................… 100 Error in recording check 180 287 Adj. book balance $4,184 Balance per bank.... $4,135 Additions to bank balance: Deposits in transit.... 500 Total................... $4,635 Deductions from bank balance: Outstanding checks: 191....... $251 192....... 125 195....... 75 451 Adj. bank balance $4,184 Intermediate Accounting 6 Cash and Receivables Lee Corporation Bank Reconciliation July 31, 2005
Intermediate Accounting 6 Cash and Receivables 3. Special topics Electronic funds transfer systems The use of computer systems to transfer funds between parties without th ne use of checks, is increasingly being used by banks to process the large number of cash transactions generated by large companies Because fewer physical source documents(in the form of checks) are available to substantiate such transactions, the importance of internal controls, such as bank reconciliations, is even greater
3. Special topics Electronic funds transfer systems The use of computer systems to transfer funds between parties without the use of checks, is increasingly being used by banks to process the large number of cash transactions generated by large companies. Because fewer physical source documents (in the form of checks) are available to substantiate such transactions, the importance of internal controls, such as bank reconciliations, is even greater. Intermediate Accounting 6 Cash and Receivables
Intermediate Accounting 6 Cash and Receivables Special topics Compensating balances Banks may require a portion of any amount loaned to remain on deposit with the bank for the duration of the loan period. These required deposits are called compensating balances SEC requires that compensating balances be separately reported on a company's balance sheet if the compensating balances are legally restricted. If they are not legally restricted they are disclosed in the notes to the financial statements
Special topics Compensating balances Banks may require a portion of any amount loaned to remain on deposit with the bank for the duration of the loan period. These required deposits are called compensating balances. SEC requires that compensating balances be separately reported on a company's balance sheet if the compensating balances are legally restricted. If they are not legally restricted, they are disclosed in the notes to the financial statements. Intermediate Accounting 6 Cash and Receivables
Intermediate Accounting 6 Cash and Receivables 4 Receivables Receivables are all claims against otherentitie ey are usually settled in cas Trade receivables Receivables arising from normal operating activities Nontrade receivables All receivables arising from activities other than normal operations
4. Receivables Receivables are all claims against other entities. They are usually settled in cash. ✓ Trade receivables: Receivables arising from normal operating activities. ✓ Nontrade receivables: All receivables arising from activities other than normal operations. Intermediate Accounting 6 Cash and Receivables