Accounting Tutorial_Checkbook and Bank Reconciliation Chapter 6
Bank Statement for Bromley's Formal Wear
Bank Reconciliation Template
Keeping track of cash is one of the most important tasks of the accounting department. The balance in the checking account is critical when paying bills, buying merchandise and paying salaries. The balance in the checking acccount is quite simple to calculate. It is a running balance, which means that the balance is recalculated after every transaction. The beginning balance in the cash account, which is found on the balance sheet is the starting balance. Each time a deposit is made it is added to the balance. Each check transaction or withdrawl is subtracted from the balance. Your banker will pay all the bills and record the deposits that are submitted by the accounting department. Your VE company might be structured differently and the banker and accounting person might be one in the same. The scroll box below and on the right-hand side of the screen, contains the required standard payments for all Virtual Enterprise companies. These are bills that must to be paid each month You will enter these later into a template checkbook program. Bromley's Formal Wear pays many of its bills electronically. Some of the suppliers and vendors also accept electronic transfers. All of your Virtual Enterprise bills are paid electronically. Even though the bank usually keeps very accurate records, it is important for the accounting department to keep a detailed record of all transactions involving cash as well. To see Bromley's transactions for the month of November, click on the Bromley's checkbook link. This spreadsheet is a checking account template that tracks all of the deposits and expenditures and represents a computerized checkbook. Prior to electronic bill paying and use of debit cards, checkbooks were maintained by companies and actual checks were issued for payment of goods and services. The checks were made out to the payee, the amount of the check was filled in, the check was dated, the memo portion recorded the invoice number or reason for the check and the check was signed by an authorized agent of the company. A stub on the check was used to keep track of the transactions and deposits. A running balance was also maintained so that you could see at any time the amount of cash in the checking account. The first transaction is to record your VE loan. It is listed as a deposit. The second transaction is a check to purchases the store fixtures. Remember these assets were included in the business loan. The third transaction is a check written to Staples for office furniture, a computer, desk, chair and some office supplies. These items were also part of the business loan. The fourth transaction is a check written to purchase the inventory necessary to start up our business. The next transaction is a deposit. It represents your VE business contract. It contains your salary expense and a percentage of your cost of goods sold. This amount should be deposited each month. The next check is to pay the rent. It is paid electronically to VirtuRent. The next three are payments for your utilities. Fire insurance is the next payment VE has loaned Bromley's $150,800. You must pay on that loan each month. The next check is for office supplies Eddie's Tailoring is check 1105 VirtuPhone paid electroncially 703.34 is a deposit. When charge sale customers pay off their bills for goods already purchased, they are listed as depoists in the checkbook Check 1106 was paid to Federal Express to have a package mailed to a customer On November 7, we held our grand opening. We totaled up all the cash sales made and it totaled $125,000. The sales tax on this amount was $9,687.50 We deposit this amount into our checking account. Check 1107 was paid to do some plumbing in our building Sometimes customers are unhappy with their purchases, or it did not fit right, etc. We issued a check to Jack Jones. We run daily ads in our newspaper. The $500 amount represents ads that we are running in the month of November. We paid Kerry Hall some contract work on our web page David James paid us the $377.13 that he owes us from a previous charge sale. Check 1112 was paid to our local TV station for advertising spots. The next series of checks relate to our employees' salaries. The net payroll for the month was $55,702.99 We maintain a separate account that we use for paying our salaries. We write out a check and deposit it in the special account. We then issued individual employee paychecks from that account. The next check is to the Franchise Tax Board. The amount includes sales tax, state income tax deducted from our paychecks. State Unemployment tax, State Disability and State Employment training. In the lesson on Journalizing, we will show you how these amounts are calculated. Check 1115 was issued to the Internal Revenue Service. This amount equals Federal Income Tax withheld, FICA, Medicare and Federal Unemployment Tax. The amount of 48,915.41 is to the VirtuBank for cost of goods sold. (part of the VE business contract) After viewing the data in the Bromley's Formal Wear checkbook, click on the link for the checkbook template and enter the data listed in the scroll box below and on the left-hand side of the screen. Assume that you have 20 students in your class. Enter the beginning cash balance in cell F2 1. Enter the date Nov 1 2. Enter the payee (person who money is going to) 3. Invoice Number /Cash Sales 4. Amount of check 5. Amount of Deposit Use one row for each transaction. There is no need to enter the balance as it is calculated automatically Print out a copy for your instructor. BANK RECONCILIATION The bank keeps a record of your account. Deposits, withdrawls and checks paid are recorded on a daily basis. A copy of the depositor's account is sent each month by the bank. This form is called a bank statement. The form looks a lot like your checkbook. Virtual Enterprise Center does not send a bank statement, but the accounting department needs to understand how the process of comparing your records with the bank's records works. The top portion of the bank statement includes customer name and account number. There is a summary section showing the beginning balance, checks paid, other withdrawls, deposits and an ending balance. The bottom part of the bank statement shows the detail of all tranactions during the month: the date, description, withdrawl, checks and deposits. Some banks charge a service charge for processing your account and some do not. Virtual Enterprise Center charges $9.00 per month. Some banks pay interest on the balance in your account. the VEC pays interest on the your account balance at the end of each day. The interest rate is subject to change and is determined by market conditions. Check you VE checking account to see the amount of interest paid. The bank that Bromley's Formal Wear uses charges no fee and pays no interest. The process of comparing your records with the bank statement is called reconciling. To begin the process of completing a bank reconciliation, first click on the bank statement form for Bromley's Formal Wear and print it out. Follow these steps to reconcile your bank account 1. Look at the ending balance in your checkbook. It should be $187.505.21 2. Look at the ending balance on the bank statement. It should be $340,350.85 As you can see these numbers are not the same. We need to determine why they are different. 3. Look at the starting date of your checkbook and its ending date. Starting date is November 1 and ending date is November 30. 4. Look at the starting and ending dates on the bank statement. The starting date is November 1 and ending date is November 29. Our records will differ since we have more transactions, checks, deposits and withdrawls that occured from May 29 to May 31. These transactions are called outstanding deposits and oustanding checks and withdrawls. Other checks may be outstanding if they were sent to the creditor and the creditor did not cash the check yet. In this case the banks records would not reflect this trasnaction. The bank reconciliation process can be done manually or using a spreadsheet template. The process is the same. 5. Start out with your ending checkbook balance. Subtract any service charges and then add any interest paid. 6. Next, get the ending balance of your account from the bank statement. 7. Layout your checkbook next to the bank statement so we can look for outstanding checks, withdrawls and deposits. Mark off on both forms the transactions that the bank has received. The ones that go unmarked are outstanding. In our situation all of the checks written, deposits made and withdrawls from May 29 to May 31 are outstanding. 8. Add up the outstanding deposits. 9. Add up the outstanding checks and withdrawls. 10. Take the bank's ending balance and add the total of the outstanding deposits. 11. Subtract the total of the outstanding checks and withdrawls from this amount. 12. Compare this number with your company's ending checkbook balance. 13. The numbers should be the same. 14. If not the same, do the process again. 15. When you have reconciled, make any adjustment as to service charge and interest to your company's checkbook. Below are the numbers for Bromley's bank reconciliation for November 30 Ending Checkbook balance $187,505.21 Subtract service charge Add interest paid Ending Balance $187,505.21 Bank's Ending Balance $340,350.85 (+) total outstanding deposits $ 000.00 Adjusted total $340,350.85 (-) total outstanding checks $152,845.64 Reconciled balance $187,505.21 As you can see our ending checkbook balance is the same as the reconciled balance. Now, enter the data for Bromley's Formal Wear and the bank statement into the bank reconciliation template. Just click on the link, enter the data and save the file on your computer. Print out a copy for your instructor.
Your company data for checkbook Beginnning cash balance $50,000 November 1 VEC Sales Contract Deposit Salaries (90,000 COGS 55%) $144,500.00 Calif VirtuWater Inv# 333 $60.00 Calif VirtuGas Inv# 490 $60.00 Calif VirtuElectric Inv#98 $600.00 VirtuTelephone Inv#982 $500.00 VirtuInsurance Inv#987 $600.00 VirtuBank (loan Payment) $4,000.00 Virtual Internet $350.00 VirtuProperty ( rent) $3,500.00 Salaries $90,000.00 VirtuBank (cost of goods) $49,500.00 Grand Opening Sales Deposit $80,000.00 VirtuFranchiseTax $10,194.83 VirtuIRS $20,984.24
VE Standard Payments for Companies Payee Amount /Month Calif VirtuWater $3.00 per person Calif VirtuGas $3.00 per person VirtuElectric $30.00 per person VirtuGasoline $3.95 per gal 60 gal min VirtuPhone $25.00 per person VirtuBank of Calif (Loan Payment) VirtuIns/ $30.00 per person Business/Workman's Comp .0125 times total gross monthly pay VirtuCarInsurance $250.00 per vehicle Virtu Franchise Tax State income tax and SDI (Sales and State Inc Tx, SDI) 8.25% VirtuIRS (Federal tx, Soc Sec + medicare) VirtuRedCross (all charitable donations) VirtuBank of Calif - If you can't find a place to pay VirtualInternet $350.00 VirtuProperty Mgmt. $3,500.00
1. To calculate the balance in a checking account?
Add beginning balance to checks and subtract deposits
Subtract beginning balance from checks
Add beginning balance to deposits and subtract checks and withdrawls
2. What is a running balance?.
One that remains unchanged
One that changes each time a check or deposit is recorded
One that changes only after a deposit is made
3. VE standard payment for companies represents?
Bills that must be paid each month
Bills that you do not have to pay each month
Bills that you pay at the end of the VE simulation
4. The form sent by the bank to the customer each month is called?
Statement of Account