FABM II - BANK RECONCILIATION

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WHY
RECONCILE?
 Planning and controlling of cash.
 Safeguard cash:
 Internal audits should be in place
 Same person reconciling the accounts should
not be the same person who writes
checks/makes deposits
 Always have the supervisor of the person doing
the reconcilement review and sign it
 For example, in a small unit this might be the
Superintendent
 In a larger unit, the CFO or Business Manager 2
INTERNAL
CONTROLS

 When internal jobs cannot be segregated:

 Have internal controls set up to verify
accuracy of reconciliation.
 Board Financials prepared by someone other
than the reconciler.
 Accountability to someone that reconciliation
has been completed.

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 RECONCILIATION
DEFINED
 A bank reconciliation is the process
whereby the balance in the bank’s records
and the balance in the depositor’s records
are brought into agreement.

 You will compare your journal (ledger)

entries to the bank statement and
reconcile any discrepancies.

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 ITEMS TO GATHER
 Bank Statement
 Canceled Checks (both check number
and amount)
 Deposit Slips
 Calculator & Pencil
 Many banks no longer provide canceled
checks or deposit slips, you will just use the
bank statement
 Software program 5
BEGINNING
STEPS

•  Compare cleared checks (from bank side) with outstanding

checks appearing on last month’s report and with newly recorded
checks (from book side).
•  Clear all paid checks (on book side) for period and verify total
cleared matches with total cleared from bank.
•  Deduct checks outstanding that have not been paid by the bank
from the balance (from bank side) according to the bank
statement.

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Balance According to Bank P 7,892,743.22

Less: Outstanding Checks P 2,653.19

Adjusted Bank Balance P 7,890,090.03

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BEGINNING STEPS
CONTINUED…..

 Compare each deposit listed on the bank

statement (bank side) with unrecorded
deposits appearing on last month’s
reconciliation and with deposit receipts
(book side).
 Add deposits not recorded by the bank
(deposits-in-transit) to the balance
according to the bank statement (bank
side). 8
Balance According to Bank P 7,892,743.22

Less: Outstanding Checks P 2,653.19

Adjusted Bank Balance P 7,890,090.03

Add: Outstanding Deposits P 74,396.55

Adjusted Bank Balance P 7,964,486.58

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BEGINNING STEPS
CONTINUED……
 Compare bank debit memorandums (bank
side) to entries recording cash payments
(book side).
 ACH-Automated Clearing House.

 Deduct debit memorandums that have not

been recorded from the balance according
to the depositor’s records (book side).
 This will be an adjusting entry in your journal.
 Make sure to reference what the debit
memorandum was for (i.e.-bank fees for the
month of April 2010).
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Balance According to School Corporation P 7,963,245.61

Less: Bank Debit Memorandums P

268.23

Adjusted School Corporation Balance P 7,962,977.38

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BEGINNING STEPS
CONTINUED……….
 Compare bank credit memorandums (bank
side) to entries in the journal (book side).
 EFT-Electronic Funds Transfer.

 Add credit memorandums that have not been

recorded to the balance according to the
depositor’s records (book side).
 This will be an adjusting entry in your journal.
 Make sure to reference what the memorandum was
for (i.e.-deposit #2354 in credit error of Php 63.25).

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Balance According to School Corporation P 7,963,245.61

Less: Bank Debit Memorandums P 268.23

Adjusted School Corporation Balance P 7,962,977.38

Add: Bank Credit memorandums P 1,509.20

Adjusted School Corporation Balance P 7,964,486.58

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ADJUSTMENT
HINTS:
 If an item appears on the bank statement but
not on the School Corporation's books, the
item is probably going to be an adjustment to
the Cash Balance on the School Corporation's
books. A journal entry must be prepared
(book side).
 If an item is already in the School
Corporation's Cash Account, but has not yet
appeared on the bank statement, the item is
probably an adjustment to the balance per
the bank statement (bank side).
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WHERE TO
ADJUST?
Deduct From
Add to BOOK BOOK Add to BANK Deduct From BANK
Balance Balance Balance Balance

Outstanding Checks 

Bank Service Charge

Interest Credited to Bank Account 

Interest Charged to Bank Account 
Deposit in Transit 
Fee charged by bank for returned check
(NSF)

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JOURNAL
ENTRIES?
 Which of the following will require a
journal entry to the School Corporation’s
books?

 Bank Service Charge

 Deposits-in-Transit
 Bank Error

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JOURNAL
ENTRIES?
 Which of the following will NOT require a
journal entry to the School Corporation’s
books?

 Check Printing Charge

 Outstanding Checks
 Fee for NSF Check

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 Balanced

Balance According Balance According to

to Bank P 7,892,743.22 School Corporation P 7,963,245.61
Less:
Outstanding Less: Bank Debit
P 2,653.19 Memorandums P 268.23
Checks
Adjusted Bank Adjusted School
Balance P 7,890,090.03 Corporation Balance P 7,962,977.38
Add:
Add: Bank Credit
Outstanding
memorandums P 1,509.20
Deposits P 74,396.55
Adjusted Bank Adjusted School 18
Balance P 7,964,486.58 Corporation Balance P
OUT OF BALANCE
SOLUTIONS
 What if your ending balances do
not match?
 Common Mistakes:
 Beginning Balance (bank/book) is Incorrect
 Outstanding Checks
 Deposits in Transit
 Deposit Total Incorrect
 Service Charges
 Non-Sufficient Funds Checks (NSF)
 Errors

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 OUT OF BALANCE
SOLUTIONS
 Figure the amount of the
difference (subtract Book balance
from Bank balance).

Adjusted Bank Adjusted School

Balance P 7,964,486.58 Corporation Balance P 7,964,754.81

 P 7,964,486.58 - P7,964,754.81 = P268.23

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EXACT AMOUNT
SOLUTION
 Difference is exact amount of April’s bank
fees.

 Double check that entry was omitted or not

put onto a May date.

 If truly omitted, record your journal entry

as shown earlier.

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 OUT OF BALANCE
SOLUTIONS

Adjusted Bank Adjusted School

Balance P 7,964,486.58 Corporation Balance P 7,964,468.58

 7,964,486.58 – P 7,964,468.58 = P 18.00

 P 18 is not an exact amount for any
transaction.

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THE “9” SOLUTION

 Is the difference evenly divisible by 9?

 Transposition of a number is most likely
your problem.
 Difference = P18.00
 P18 divided by 9 = 2
 Transposed P 268.23 to P 286.23

 Short cut
example:
 Off by P567.00
 5+6+7=18 18 divided by 9 = 2
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JOURNAL
ENTRY
 A correcting journal entry should always
be done-Do not just correct original
error.

 Provides audit trail of what happened.

 Never know when you might need to
provide information months/years later.
 Protects you from being accused of deleting
transactions/fraud.
 Remember others might have print outs already
in hand with original error in place.
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JOURNAL
ENTRY
 A journal entry will need to be completed for
a credit of P18 or a debit of -P18.

To record a transposition of numbers for -P18.00

bank fees (P268.23 vs. P286.23
recorded earlier).

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 OUT OF BALANCE
SOLUTIONS

Adjusted Bank Adjusted School

Balance P 7,964,486.58 Corporation Balance P 7,964,186.58

 P7,964,486.58 - P7964,186.58 =
P300.00
 P300 is not an exact amount of a
transaction
 3+0+0 = 3 and is not divisible by 9 26
THE “3” SOLUTION

 Is the difference P3, P30, P300, etc…?

 The 10 digit key error is most likely your
problem.

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“3” SOLUTION CONTINUED

 Entered P568.23 instead of

P268.23 (difference of P300)

 Key above the 2 is a 5

 Difference between each key

above/below is 3

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JOURNAL
ENTRY
 A journal entry will need to be completed for
a credit of P300 or a debit of -P300.

To record a ten-digit key error for bank -P300.00

fees (P268.23 vs. P568.23 recorded
earlier).

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 OUT OF BALANCE
SOLUTIONS

Adjusted Bank Adjusted School

Balance P 7,964,486.58 Corporation Balance P 7,965,023.04

 P7,964,486.58 - P7965,023.04 =
P536.46
Our Exact, 9 & 3 Solutions do not
work
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OUT OF BALANCE
SOLUTIONS
 Reversal of Journal Entry

 Divide difference by 2
 P536.46 divided by 2 = P268.23

 Our bank debit memorandum was entered as

a credit

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JOURNAL
ENTRY

•  A double journal entry will need to be

completed for a credit of -P268.23 and a debit
of P268.23.
To record & correct a reversed journal -P268.23
entry for bank fees (P268.23 recorded as
credit instead of debit).

To record April’s Bank Fees P268.23

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OUT OF BALANCE
SOLUTIONS
 Summary of Debits & Credits or Proof of
Cash

Run a report (book side) for total debits &


credits for the month.
 Compare to the total debits & credits on the
bank statement.
 This will help decipher which side the error is on.

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SUMMARY
SOLUTION
 Begin with bank summary credit amount:
 Subtract deposits-in-transit from previous month
 Add deposits-in-transit from this month
 Subtract deposit adjustments not included on
book side
 If total = 0, issue is on debit side.
 If total = amount you are off, total issue is
on credit side.
 If total = any amount different, then your
issue could be on both sides.
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SUMMARY
SOLUTION
 Move to bank debit summary
 Add all book decreases (checks, bank charges, etc…)
 Subtract last months outstanding checks
 Add this months outstanding checks
 Add/Subtract bank deductions not included on
book side debits
 If total = 0, issue is on credit side
 If total = amount you are off, total issue is on debit
side
 If total = any amount different, add this total with
credit amount that is off
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OUT OF BALANCE
HINTS

•  Double check that your beginning balance = last month’s ending

balance (both bank and book sides).

• Verify outstanding checks have all been cleared.

•  Stop, put it away, come back to it tomorrow!

M any times your error will be found quickly when you take the time to
rest.

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QUESTIONS
?

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CASH MANAGEMENT AND
ISSUES
 Keep enough cash on hand to pay all of
the bills
 But note that a Deposit Fee is charged by
banks for an FDIC fee. So the more cash
you keep on hand, the more in bank fees
you will pay.
 Goal is to balance enough cash for cash flow
with the least amount on hand to minimize
fees
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HOW TO MINIMIZE BANK
FEES
 Take excess cash in the bank and put into
a CD. Use a tiered structure for cash flow
 Vary maturity dates from 1 month to 1 year
 Do a Bank RFP to get market competition
to see if bank fees can be lowered
 Talk to others and see what kind of fees
other districts are paying so you can tell if
your fees are high are low in comparison

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MINIMIZING
FEES
 Manage cash flow
 Look at fee statements for NOC charges.
These are charges due to a coding error on
payroll direct deposit. Some banks charge
these, but don’t always tell you about it– it
just shows up on the statement and you just
need to get the correct routing or account
number to fix
 Open up a Hoosierfund.com account for
cash flow and transfer between this fund 40
THANK YOU!! 41