Accounting Training

Chapter 6
Banking
Checking
Bank Reconciliation

Copyright ©Jerry Belch 2015

Projects this week
Chapter 6 worksheet
Bromley's Formal Wear Check-book
Check-book Template
Bank Statement for Bromley's Formal Wear
Bank Reconciliation Template
Banker's Duties
Jerry's Banking 1 video 

Jerry's Banking 2 video 
Jerry's Banking 3 video 

Jerry's Banking 4 video 

Jerry's Banking 5 video 

Set up your company bank account, check-book, bank reconciliation
Chapter Test


Tutorial


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 account 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 withdrawal is subtracted from the balance. Your banker will pay all the bills and record the deposits that are submitted by the accounting department. Your company might be structured differently and the banker and accounting person might be one in the same.
The column just to the right 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 check-book 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. These internal records are used to produce monthly financial records.
The column farthest to the right contains the transactions for the month of November for Bromley's Formal Wear. To see Bromley's check register transactions for the month of November, click on the Bromley's check-book link.
This spreadsheet is a checking account register that tracks all of the deposits and expenditures and represents a computerized check-book.
Prior to electronic bill paying and use of debit cards:
  • Check-books 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
  • 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.

Bromley's Formal Wear Checking transactions appear in the column to the far right. As you can see after buying the capital equipment(Display cases, Inventory, office equipment and supplies)
  • The beginning balance was $85,000.
  • The business contract is listed
  • Payment of standard rates bills like rent and utilities are listed.
  • The cost of goods sold reimbursement from business contract is listed.
  • The net payroll is listed.
  • The amounts owing to the Franchise Tax Board and IRS are listed as well. These amount include deductions withheld and payroll taxes.
  • Just below the table summarizing these transactions appears a screen shot of the actual check register for Bromley's Formal Wear starting from October and ending in November.
  • To see the actual spreadsheet click on the link for Bromley's Formal Wear Checkbook in the projects box.


Your Company's Check Register


  1. Enter your beginning cash balance in cell F2
  2. Enter the date for each transaction
  3. The payee is who gets paid
  4. Under subject for VE companies the Bank account number for those in California is listed.
  5. There is a column for check amounts and deposit amounts.
  6. There is a balance column which calculates a running balance (deposits-checks plus beginning cash balance.)
  7. At the bottom of the check register is a total of checks and one for deposits.
  8. Using the Check-book Template, fill in your company's checks and deposits.
  9. Save your check register. You will add to it each month.
  10. Print out a copy for your instructor and one for your records.

    Bank Reconciliation


    • The bank keeps a record of your account.
    • Deposits, withdrawals 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.
      1. The form looks a lot like your check-book.
      2. Virtual Enterprise 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.
      3. 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 withdrawals, deposits and an ending balance.
      4. The bottom part of the bank statement shows the detail of all transactions during the month: the date, description, withdrawal, checks and deposits.
      5. Some banks charge a service charge for processing your account and some do not.
      6. Virtual Enterprise Center charges $9.00 per month.
      7. Some banks pay interest on the balance in your account.
      8. VEC pays interest on the your account balance at the end of each day.
      9. The interest rate is subject to change and is determined by market conditions.
      10. If you are part of the VE network, check you account to see the amount of interest paid.
      11. The bank that Bromley's Formal Wear uses charges $0.00 per month, and pays no interest.
      12. The process of comparing your records with the bank statement is called reconciling.

    Steps Involved


    1. To begin the process of completing a bank reconciliation, first click on the bank reconciliation template for Bromley's Formal Wear. It is located in the projects box.
    2. Follow these steps to reconcile your bank account
    3. Look at the ending balance in your check-book. It should be $195,993.00
    4. Look at the ending balance on the bank statement. It should be $401,038.86
    5. As you can see these numbers are not the same. We need to determine why they are different.
    6. Look at the starting date of your check-book and its ending date. Starting date is November 1 and ending date is November 30.
    7. The October transactions are listed above November. The beginning balance November 1 is $85,000
    8. Look at the starting and ending dates on the bank statement. The starting date is November 1 and ending date is November 29.
    9. Our records will differ since we have more transactions, checks, deposits and withdrawals that occurred from Nov 29 to Nov 30.
    10. These transactions are called outstanding deposits and outstanding checks and withdrawals.
    11. 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 transaction.
    12. The bank reconciliation process can be done manually or using a spreadsheet template. The process is the same.
    13. Start out with your ending check-book balance. Subtract any service charges and then add any interest paid.
    14. Next, get the ending balance of your account from the bank statement.
    15. Layout your check-book next to the bank statement so we can look for outstanding checks, withdrawals and deposits.
    16. Mark off on both forms the transactions that the bank has received.
    17. The ones that go unmarked are outstanding. In our situation all of the checks written, deposits made and withdrawals from Nov 29 to Nov 30 are outstanding.
    18. Add up the outstanding deposits.
    19. Add up the outstanding checks and withdrawals.
    20. Take the bank's ending balance and add the total of the outstanding deposits.
    21. Subtract the total of the outstanding checks and withdrawals from this amount.
    22. Compare this number with your company's ending check-book balance.
    23. The numbers should be the same.
    24. If not the same, do the process again.
    25. When you have reconciled, make any adjustment as to service charge and interest to your company's check-book.

    Below are the numbers for Bromley's bank reconciliation for November 30

    Ending Check-book Balance

    $196,040.95

    Subtract service charge

    $0.00

    Add interest paid

    $0.00

    Ending balance

    $196,040.95

    Bank's Ending balance

    $401,086.81

    (+) Total outstanding deposits

    $0.00

    Adjusted total

    $401,086.81

    (-) total outstanding checks

    $205,045.86

    Reconciled balance

    $196,040.95

    As you can see our ending check-book 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.
    Enter these numbers into the Bank Reconciliation Template. Save a copy and print one out

Standard Payment Rates For Companies


Companies

Rates/Month

Account Number

Dates Due

Water

$3.50 per person

Acct:
610119060

paid by 10th

Gas

$3.50 per person

Acct:
610119079

paid by 10th

Electric

$35.00 per person

Acct:
610119087

paid by 10th

Central Bank/gasoline

$3.75 per gal

Acct:
610119230

paid by 10th

Cell Phone

$27.50 per person

Acct:
610119109

paid by 10th

Central Bank

Any other payment that you cannot find a place to pay

Acct:
610119230

paid by 10th

Business Insurance

$32.50 per person

Acct:
610119133

paid by 10th

Workman's Comp

To be determined by each company

Acct:
610119141

paid by 10th

Car Insurance

To be determined by each company

Acct:
610119125

paid by 10th

Franchise Tax Board

Calif State Texes to be paid to this account(State Income, SDI and Sales Tax, SUTA)

Acct:
610119176

paid by 10th

Internal Revenue

Federal Taxes to be paid to this account(Federal Income tax, Social Security, Medicare, FUTA)

Acct:
610119176

paid by 10th

Loans

Business Loan

Acct:
610119222

paid by 10th

Internet Service

$350.00 per month

Acct:
610119192

paid by 10th

Cable

$100 per company

Acct:
610119168

paid by 10th

Property Management

$3,750 per company

Acct:
610119176

paid by 10th

All payments start November 1