The collection of notes receivable 1 may be made by a bank on behalf of the company. These collections are often unknown to the company until they appear as an addition on the bank statement. They cause the general ledger Cash account to be understated. As a result, the collection of a notes receivable is added to the unreconciled general ledger Cash balance on the bank reconciliation.
Cheques returned to the bank because there were not sufficient funds (NSF) to cover them appear on the bank statement as a reduction of cash. The company must then request that the customer pay the amount again. As a result, the general ledger Cash account is overstated by the amount of the NSF cheque. NSF cheques must therefore be subtracted from the unreconciled general ledger Cash balance of cash on the bank reconciliation.
Cheques received by a company and deposited into its bank account may be returned by the customer’s bank for a number of reasons (for example, the cheque was “stale-dated” – issued too long ago; or was unsigned or illegible; or shows the wrong account number). Returned cheques cause the general ledger Cash account to be overstated compared to the bank statement. These cheques are therefore subtracted on the bank statement, and must be deducted from the unreconciled general ledger Cash balance the bank reconciliation.
Bank service charges are deducted from the customer’s bank account. Since the service charges have not yet been recorded by the company, the general ledger Cash account is overstated. Therefore, service charges are subtracted from the unreconciled general ledger Cash balance on the bank reconciliation.
A business may incorrectly record journal entries involving cash. For instance, a deposit or cheque may be recorded for the wrong amount in the company records. These errors are often detected when amounts recorded by the company are compared to the bank statement. Depending on the nature of the error, it will be either added to or subtracted from the unreconciled general ledger Cash balance on the bank reconciliation. For example, if the company issued a cheque for $250 but recorded it in the records as $520, the $270 difference would be added to the unreconciled general ledger Cash balance of Cash on the bank reconciliation to correct the error, because the general ledger Cash balance is too low. As another example, if the company recorded a deposit as $520 when the correct amount of the deposit was $250, the $270 difference would be subtracted from the unreconciled general ledger Cash balance on the bank reconciliation to correct the error because the general ledger Cash balance is too high. Each error must be analyzed to determine whether it will be added to or subtracted from the unreconciled general ledger Cash balance on the bank reconciliation.
- 1431 reads
