Bank Reconciliations and Journalizing - Hi. Today we're going to learn how to do a bank reconciliation. Remember that a bank reconciliation is done at the end of every month. And what we're trying to do is figure out how much actual cash we have. When we get our bank statement in the mail the bank statement says we have a certain amount of money, but our general ledger account says that we have another amount of money. Rarely do those two match. The purpose of the bank reconciliation then is to reconcile those two numbers and find out exactly how much cash we have. What we're going to do is we're going to draw an outline to help us facilitate that bank reconciliation. So the first thing we do is we're going to write a cash balance per bank statement, and then we're going to add some things to that. And we're going to subtract some things to get an adjusted balance. OK, adjusted balance per bank. Down below that we're going to continue, but we're going to do it for our books. So we have cash balance per our books. This is for our general ledger. Then we're going to add some things. We're going to subtract some things to get an adjusted balance per books. Well, we're looking at our bank statement. And our bank statement shows that we have $1,000. OK. If we look at our general ledger account, our general ledger is showing that we don't have $1,000. It says that we have $900. We need to reconcile these two numbers. If we're looking at our general ledger cash account then-- so this is our general ledger-- it's showing that we have 900. The other thing that's on our bank statement-- we're going back to our bank statement and we're looking at it. And our bank statement shows that we have a note that the bank collected for us. So the bank collected a note from one of our customers. Instead of the customer sending us a check in the mail, it sent it directly to our bank and the bank then deposited it into our account. And the note that was collected, the amount was $150. We're going to add that to our balance in our bank statement. Or excuse me-- to our general ledger account. The bank has already added to this number. We want to add it to our general ledger cash account. The other thing that was on our bank statement were two charges that they charged that reduced our account. The first thing the bank charges for was for monthly bank charges. And those monthly bank charges were $25. We're going to subtract those out. The other thing that was on the bank statement that we looked at was a check that one of our customers wrote us that bounced. The bank then reduced our account for that bounced check. This is called an NSF check. This is from one of our customers. Let's say it was from Jay Little. And the check amount was $175, so quite a bit of money that bounced. So we're going to reduce our general ledger book account by those two charges, and then also by-- we're going to increase it for the note that was collected from our customer. If we add-- from the $900 add $150, and we subtract these two charges. That gives us an adjusted balance in our books of $850. So let's go back up to the top here and look at some things that might have affected our bank statement balance. Well, one of the things is checks that we wrote that have not cleared the bank yet. We know we wrote them. We've already taken them out of this number. But they haven't cleared the bank. We want to subtract those out of that bank statement balance. So there's $200. The other thing that we know happened but is not included on the bank statement balance yet is a deposit we made. And that deposit may have been made after 3 o'clock on a business day. That deposit will not show up until the following business day. So as of the date of this bank statement, the bank is not showing it included in this number. That was for $50. We're going to add that to that bank statement balance. This will give us an adjusted balance per the bank of $850. So $1,000 plus the deposit transit less those outstanding checks gives us $850. Now notice that both of these numbers match. And they have to match in order for us to show we've reconciled our account. We really have $850. But right now the cash in our general ledger account is still showing $900. We need to make some adjustments, then. And we're going to make adjustments for this note that was collected. We're going to make an adjustment for the bank charges. And we're going to make an adjustment for that NSF check written by one of our customers. So we go to our general journal. And we make up a general journal page, here on the board anyway. And let's say that this was made as of the date of the reconciliation. Let's say it was October 31. And the first one was for this note that was collected. So cash went up, and cash went up $150. So we're going to debit cash $150, and we're going to reduce or credit our note receivable account for that $150. So this was for a note collected. So we've recorded that $150. And when we post that as a debit to our cash account, it's increasing our general ledger account. The next adjustment we might need to make is for these two subtractions. So we skip a line. The first one was for the bank charges. So we're going to go ahead and call it bank charges or bank charges expense or bank service charges. Since I don't have a lot of space, I'm going to call it bank charges. And our bank charges were a hundred-- or they were $25. We also had an NSF check. We do not have an account called NSF check. This was really a customer's check that bounced. That customer still owes us money. So we're going to debit our accounts receivable for Jay Little. And I'm going to abbreviate. I don't like to do that, but I'm going to do that here because I'm running out of room. So that was for $175 bad check. He still owes us the money. We want to make sure we debit his accounts receivable, and then we're going to reduce our cash account by those two numbers. So that's a total of $200. So we're going to go ahead and post this journal entry. And that reduces our general ledger account by $200. After posting then, we should show a correct adjusted balance of $850. And we are done with our bank reconciliation.