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Financial Accounting

Learn the toughest concepts covered in your Financial Accounting class with step-by-step video tutorials and practice problems.

6. Internal Controls and Reporting Cash

Journal Entries for Bank Reconciliation

We must make adjusting entries for all items in the Book Column of the Bank Reconciliation.


Bank Reconciliation Journal Entries

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Alright so after you've completed your bank reconciliation you need to make journal entries for all of the items in the book column. Let's see how that works. So just like I said we have to make journal entries for every item in the book column. Okay so the book column right? We had some amount of cash and then we found all these things that had affected the cash account that we had not taken journal entries for yet. So let's see the bank collection. If the bank collects money on our behalf, that's usually some situation where a customer owes us money and they're finally paying us. So the journal entry is going to look something like this debit cash because we received cash. I'll just put X's for the amount and we're going to credit accounts receivable A. R. Right? Because it's a customer that's paying us. So we decreased the balance in accounts receivable and we received the cash. Okay? So this all happens with the bank reconciliation. After you've made the bank reconciliation you make these journal entries depending on which items showed up during your reconciliation fund of electronics fund, wow that's tough. Electronic funds transfer. Okay? So if you received an electronic funds transfer that's usually something that generally a customer paid you or something. So it would be same as bank collections and we would see something like this. Cash and a. Are just like above. Right? We received cash and we reduce our accounts receivable from a customer but if it's an E. F. T. Payment a situation where we paid somebody, well that would be cash leaving our account. Right? So we would be paying off something like accounts payable. We would debit accounts payable a liability. Right? So that would reduce our liability by debuting it. And we would credit cash to reduce our cash. Okay? So this is us paying for something in that case. So we're reducing the accounts payable with a debit. Next is a service charge. So this is where the bank charges us a fee. So what happens when the bank charges a fee? We take an expense, right? We had some sort of expense and it would be something like you know bank it could be anything it could say something like bank fee expense, right? Whatever it might be could be bank fee expense. You know, service charges whatever you wanna call the expense account, you would debit that right to increase the expense. And we would credit cash because it came out of our cash, right? The bank took it out of our bank account so we have to reduce cash interest revenue. In this case we're receiving cash right? The bank is paying us cash for our balance. So we debit cash because we receive cash and we're going to credit. What do we credit in this case? We're gonna credit interest revenue right? We earned interest, we earned it during this period. We earned revenue. So we're going to credit interest revenue revenues. Go up with the credit. So that's good. We received cash from interest revenue. How about not sufficient funds checks. So NSF checks. This one's a little tricky. You have to think about what we did in the past in the past. So I'm actually gonna draw it here. So I'll do it in parentheses. In the past, we might have made a journal entry that looked like this. Oh, we received a check from a customer. Great, let's make a journal entry. Because we received this check, we would say, okay, we received cash from this customer and he no longer owes us this money. Right? So we would have made this entry sometime in the past when we received the check and now we're looking at the bank statement and they said, hey, that check bounced. That's not fair. We didn't get that money from the customer. And we were supposed to, well that customer still owes us that money in this case. So we have to do is reverse this entry. We're going to debit accounts receivable. So now what we do is we debit accounts receivable for whatever that amount was. And we credit cash right? Because what happened is before we thought we received this cash, Sorry, let me get out of the way. So before we thought we had received this cash. So we had increased our cash balance. But now we're realizing that we actually never received this cash so we have to take it back out. Okay, whoops wrong button there. Here we are. All right. So the last thing here is book errors. Okay. Book errors. It's gonna be really tough for me to tell you. So you just have to remove the effects there. Okay? You have to remove the effects of the air and it generally has to do with something like thinking how we did with the NSF checks. We have to think about the entry we would have originally made and then the correct entry and then we have to make it correct. Right. We have to take it from the incorrect air entry to the correct entry and find out what would get us there. Okay? So that is how we make the journal entries. Let's go ahead and pause and we'll make the journal entries from are practicing bank. Right, Alright, let's do it now.

Create the journal entries from the information in the bank reconciliation:

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