How To Do A Bank Reconciliation (EASY WAY)

Summary

In this Accounting Stuff video, James guides viewers through the process of bank reconciliation in seven straightforward steps. He explains the purpose of reconciling a bank statement with a cash book, highlighting common discrepancies such as omissions, timing differences, and errors. James uses the example of Chudley Cannons Inc. to demonstrate how to adjust and reconcile the accounts, ensuring an accurate 'True Cash Balance.' The video is designed to make bank reconciliation accessible and straightforward for accounting and bookkeeping professionals.

Takeaways

• 📚 The video provides a comprehensive guide on performing a Bank Reconciliation, a crucial accounting process for ensuring the accuracy of financial records.
• 🏦 A Bank Statement is a record of all cash transactions as perceived by the bank, while a Cash Book is the business's own record of cash inflows and outflows.
• 🔍 Bank Reconciliation is necessary due to potential discrepancies between the Bank Statement and Cash Book, often caused by omissions, timing differences, or errors.
• 🕒 Businesses typically perform Bank Reconciliations monthly, but the frequency can vary based on the volume of transactions and business size.
• 📋 The video outlines a seven-step process for Bank Reconciliation, starting with gathering necessary documents and ending with preparing journal entries.
• 📝 It's important to tick off matching transactions between the Bank Statement and Cash Book to streamline the reconciliation process.
• 🧾 The adjusted Bank Statement balance is calculated by accounting for deposits in transit and outstanding cheques, which are timing differences.
• 💼 The adjusted Cash Book balance is determined by identifying omissions such as missing receipts, interest received, bank fees, and bounced cheques.
• 🔄 The purpose of the Bank Reconciliation is to identify and correct errors, update the Cash Book, and calculate the true cash balance of the business.
• 📈 The 'True Cash Balance' is a key metric that reflects the actual cash position of a business after accounting for all outstanding transactions.

Q & A

What is the main topic of the video?

The main topic of the video is how to perform a Bank Reconciliation, which is demonstrated through seven simple steps.

Who is the presenter of the video?

The presenter of the video is James, who hosts the channel Accounting Stuff.

What are the two primary documents involved in a Bank Reconciliation?

The two primary documents involved in a Bank Reconciliation are the Bank Statement and the Cash Book.

Why might the Bank Statement and Cash Book not agree with each other?

The Bank Statement and Cash Book might not agree due to omissions, timing differences, and errors.

What is a 'Deposit in Transit' and how does it affect the Bank Reconciliation?

A 'Deposit in Transit' refers to cash received and recorded in the Cash Book during one period but not appearing in the Bank Statement until the following period. It affects the Bank Reconciliation by being an addition to the Bank Statement to adjust the balance.

What is an 'Outstanding Cheque' and how is it treated in the Bank Reconciliation?

An 'Outstanding Cheque' is a cheque issued by the business that has not yet been cashed and will be deducted from the Bank Statement side during the Bank Reconciliation.

Why is it important to identify errors in the Cash Book during the reconciliation process?

Identifying errors in the Cash Book during the reconciliation process is important to correct the 'True Cash Balance' and ensure the accuracy of the financial records.

How often should a Bank Reconciliation be performed according to the video?

The video suggests that most businesses perform Bank Reconciliations on a monthly basis, but the frequency can vary depending on the size and transaction volume of the company.

What is the purpose of preparing journal entries at the end of the Bank Reconciliation process?

The purpose of preparing journal entries at the end of the Bank Reconciliation process is to update the General Ledger with the adjusted Cash Book balance, reflecting the 'True Cash Balance' of the business.

What is the 'True Cash Balance' and why is it significant?

The 'True Cash Balance' is the accurate cash balance of the business after accounting for all outstanding cheques and deposits. It is significant because it provides a true picture of the business's cash position.

How does the video help viewers understand the Bank Reconciliation process?

The video helps viewers understand the Bank Reconciliation process by breaking it down into seven clear steps, providing definitions, examples, and a step-by-step guide through an example company's reconciliation.