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1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

6. Internal Controls and Reporting Cash

Journal Entries for Bank Reconciliation

6. Internal Controls and Reporting Cash

Journal Entries for Bank Reconciliation: Videos & Practice Problems

Video Lessons Practice Worksheet

Topic summary

After completing a bank reconciliation, journal entries must be made for items in the book column. For bank collections and electronic funds transfers (EFT), debit cash and credit accounts receivable. For EFT payments, debit accounts payable and credit cash. Service charges require debiting an expense account and crediting cash. Interest revenue involves debiting cash and crediting interest revenue. Nonsufficient funds (NSF) checks necessitate debiting accounts receivable and crediting cash. Lastly, correct book errors by adjusting the original entry to the correct one.

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

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Bank Reconciliation Journal Entries

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Bank Reconciliation Journal Entries Video Summary

After completing a bank reconciliation, it is essential to make journal entries for all items identified in the book column. This process ensures that the cash account accurately reflects all transactions that have occurred but were not previously recorded.

When a bank collects money on behalf of a business, typically from a customer, the journal entry involves debiting cash to reflect the increase in cash received and crediting accounts receivable (AR) to decrease the amount owed by the customer. This entry can be summarized as:

Debit: Cash (amount)
Credit: Accounts Receivable (amount)

Similarly, for electronic funds transfers (EFT), if cash is received from a customer, the entry remains the same as for bank collections. However, if the EFT involves a payment made to a vendor, the entry would debit accounts payable to reduce the liability and credit cash to reflect the outflow of cash:

Debit: Accounts Payable (amount)
Credit: Cash (amount)

In cases where the bank charges a service fee, the business must recognize this as an expense. The journal entry would debit a bank fee expense account to increase the expense and credit cash to account for the reduction in cash due to the fee:

Debit: Bank Fee Expense (amount)
Credit: Cash (amount)

When the bank pays interest on the business's balance, the entry involves debiting cash for the amount received and crediting interest revenue, reflecting the income earned during the period:

Debit: Cash (amount)
Credit: Interest Revenue (amount)

Handling not sufficient funds (NSF) checks requires reversing the initial entry made when the check was received. If a check bounces, the business must debit accounts receivable to reinstate the amount owed by the customer and credit cash to reflect the decrease in cash that was previously recorded:

Debit: Accounts Receivable (amount)
Credit: Cash (amount)

Lastly, for book errors, the business must identify the incorrect entry and make the necessary adjustments to correct it. This involves determining the original entry and the correct entry, then adjusting the accounts accordingly to remove the effects of the error.

By accurately recording these journal entries, businesses can maintain precise financial records that reflect their true cash position and outstanding receivables.

Problem

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

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What are the journal entries for bank collections in bank reconciliation?

For bank collections, the journal entry involves debiting cash and crediting accounts receivable. This is because the bank collects money on your behalf, typically from a customer who owes you. The entry would look like this:

$Debit Cash$

$Credit Accounts Receivable$

This increases your cash balance and decreases the accounts receivable balance, reflecting the payment received from the customer.

How do you record electronic funds transfers (EFT) in journal entries for bank reconciliation?

For electronic funds transfers (EFT), if you receive an EFT, the journal entry is similar to bank collections: debit cash and credit accounts receivable. If you make an EFT payment, the entry would be:

$Debit Accounts Payable$

$Credit Cash$

This reduces your accounts payable (a liability) and decreases your cash balance, reflecting the payment made.

What is the journal entry for service charges in bank reconciliation?

For service charges, the journal entry involves debiting an expense account and crediting cash. This reflects the fee charged by the bank. The entry would look like this:

$Debit Bank Fee Expense$

$Credit Cash$

This increases your expenses and decreases your cash balance, reflecting the service charge deducted by the bank.

How do you handle nonsufficient funds (NSF) checks in journal entries for bank reconciliation?

For nonsufficient funds (NSF) checks, you need to reverse the original entry made when you thought you received the cash. The journal entry would be:

$Debit Accounts Receivable$

$Credit Cash$

This increases your accounts receivable (since the customer still owes you) and decreases your cash balance, reflecting the bounced check.

What are the journal entries for correcting book errors in bank reconciliation?

To correct book errors, you need to adjust the original incorrect entry to the correct one. This involves determining the incorrect entry made and the correct entry needed. For example, if you mistakenly debited cash instead of accounts receivable, you would reverse the incorrect entry and then make the correct one:

$Debit Accounts Receivable$

$Credit Cash$

This ensures your books accurately reflect the correct transactions.