Bank Reconciliation Statement
Bank reconciliation is a process that explains the difference between pass book
and cash book. This Statement prepared by the customer only. It is prepared to
find out exact bank balance.
Bank reconciliation Process:-
Step 1: Adjusting the balance as per bank.
Step 2: Adjusting the balance as per book
Step 3: Comparing the adjusted balances
Step 4: Preparing journal entries.
Reasons:-
Cheques issued by the firm but not yet presented for payment.
Cheques deposited into bank but not yet collected.
Cheques sent to collections but dishonored.
Payment directly made by the bank on behalf of the business.
Cheques/cash directly deposited in the bank by the customers.
Dividend or interest collected or credited by the bank.
Journal entries for BRS: -
What is the journal entry for cheque issued to customer?
Customer A/c Dr Xxxx
To Bank A/c xxxx
What is the journal entry for cheque dishonored?
Bank A/c Dr Xxxx
To Customer A/c xxxx
Q. Depreciation
Original cost-Residual value
Formula =
Economic value
Prepaid Expenses:-
Prepaid expenses are expenses. But we are paying advance. It is a current
asset of the company.
→ When we paid in advance, entry will come like
Prepaid expenses A/c Dr
To Cash A/c
→ When prepaid Recognized as a expenses, entry will come like
Expenses A/c Dr
To Prepaid Expenses
Accumulated depreciation is the sum total of the depreciation recorded for certain
assets.
For example, ABC International buys a machine for $100,000, which it records in the Machinery fixed asset
account. ABC estimates that the machine has a useful life of 10 years and will have no salvage value, so it
charges $10,000 to depreciation expense per year for 10 years. The annual entry, showing the credit to the
accumulated depreciation account, is:
Debit Credit
Depreciation expense 10,000
Accumulated depreciation 10,000
After 10 years, ABC retires the machine, and records the following entry to purge both the asset and its
associated accumulated depreciation from its accounting records:
Debit Credit
Accumulated depreciation 100,000
Assets – Machinery 100,000
HOW IT WORKS (EXAMPLE):
Let's assume Company XYZ bought a MegaWidget for $100,000 three years ago. The
MegaWidget depreciates by $10,000 a year. Thus, the accumulated depreciation recorded
for the MegaWidget is:
Accumulated depreciation = $10,000 (year 1 depreciation) + $10,000 (year 2 depreciation)
+ $10,000 (year 3 depreciation) = $30,000.
Company XYZ will then record the net book value of the MegaWidget like this:
Net book value = $100,000 purchase price - $30,000 accumulated depreciation = $70,000
WHY IT MATTERS:-
Accumulated depreciation is a key component of the balance sheet and it is a key
component of net book value. Net book value is the value at which a company carries
an asset on its balance sheet. It is equal to the cost of the asset minus accumulated
depreciation.
When a company's accumulated depreciation is high, its net book value may be below the
actual market value of the company, meaning the company might be overvalued. Likewise,
if the company's accumulated depreciation is low, its net book value may be above the
actual market value, and the company might be undervalued.
The disparity highlights one very important aspect of accumulated depreciation: it does
not reflect true losses in the market value of an asset (or company).
Disposal of Fixed Assets:-
Disposal of fixed assets is accounted for by removing the cost of the asset and the related
accumulated depreciation from balance sheet, recording receipt or cash proceeds and
recognizing any resulting gain or loss.
A company may need to derecognize a fixed asset either upon the sale of the asset to
another party or when the asset is no longer operational and is disposed off.
Whether a de-recognition results in a gain or loss or no gain and loss depends on whether
the cash proceeds (if any) from the sale are higher than the carrying amount of the asset
at the time of disposal or not.
Disposal of an Asset with no Salvage Value:-
Where an asset’s salvage value is zero i.e. it does not generate any cash flows at the end
of its useful life, there is no gain or loss.
Example 1
Company A purchased a software for $100,000 on 1 January 2009. The software license
was valid for four years. At the time of expiry, i.e. 31 December 2012, Company A shall
record the derecognition/disposal as follows:
Accumulated 100,000
amortization-software
Cost-software 100,000
Gain on Disposal:-
When a fixed asset is sold for an amount higher than its carrying amount at the date of
disposal, the excess of sale proceeds over the carrying amount is recognized as gain on
disposal.
Example 2
On 1 January 2006, Company B purchased equipment at a cost of $2 million. The
company estimated its salvage value to be $0.2 million at the end of useful life of 5 years.
The company depreciated the asset on a straight-line basis i.e. $360,000 per year
((2,000,000 − 200,000) ÷ 5) resulting in the carrying amount as at 31 December 2010 of
$0.2 million.
Actual proceeds from sale of the used asset turned out to be $0.5 million. Since the sale
proceeds exceed the carrying amount by $0.3 million ($0.5 million − $0.2 million) so a gain
is to be recognized using the following journal entry:
Accumulated 1,800,000
depreciation-equipm
ent
Cash 500,000
Cost-equipmen 2,000,000
t
Gain of 300,000
disposal
The equipment cost and the related accumulated depreciation are removed from balance
sheet in the process of disposal and the gain is reported in income statement.
Loss on Disposal:-
If a fixed asset is sold at a price lower than its carrying amount at the date of disposal, a
loss is recognized equal to the excess of carrying amount over the sale proceeds.
Example 3
Company A purchased a specialized trading terminal for $4 million on 1 January 2006.
The company expected the system to last 5 years and generate a residual value of $0.5
million.
However, due to rapid changes in technology, the company was forced to abandon the
system only after 2 years for $1.5 million and invest in new infrastructure.
In the two years, the depreciation expense charged i.e. the accumulated depreciation on
the terminal = ($4 million – $0.5 million) ÷ 5 × 2 = $1.4 million
Carrying amount at the time of disposal = $4 million – $1.4 million = $2.6 million
Since the cash proceeds ($1.5 million) are less than the carrying amount (i.e. $2.6 million),
the disposal has resulted in a loss of $1.1 million ($2.6 million - $1.5 million).
Company C shall recognize the loss as follows:
Accumulated 1,400,000
Depreciation-terminal
Cash 1,500,000
Loss of Disposal 1,100,000
Cost-terminal 4,000,000
The accounting transaction results in removal of the trading terminal from balance sheet
and recognition of the loss in income statement. Net effect on total assets is a decrease
of $1.1 million (-$4,000,000 + $1,400,000 + $1,500,000) which is also reflected by
equivalent decrease in shareholders’ equity.
No Gain or Loss on Disposal:-
If the carrying amount of a fixed asset at the date of disposal is equal to the sale proceeds
from disposal, there is neither rain nor loss.
Example 4
Company D sold an asset to Company Z for $ 2 million. Company Z depreciated the asset
on straight-line basis for 4 years. Company D offered to buy-back the asset at $0.4 million
at the end of useful life of the asset. Hence, Company Z estimated salvage value to be
$0.5 million
Accumulated depreciation at the end of 4 years = ($2 million – $0.4 million) ÷ 4 × 4 = $1.6
million
Carrying amount at the end of 4 years = $4 million - $1.6 million = $0.4 million
Accumulated 1,600,000
depreciation
Cash 400,000
Cost 2,000,000
Unrealized Gain
Definition: An unrealized gain is an increase in the value of an asset that has not been sold. It is, in essence,
a "paper profit." When an asset is sold, it becomes a realized gain. The presence of an unrealized gain may
reflect a decision to hold an asset in expectation of further gains, rather than converting it to cash now. The
holding decision may also involve an expectation that a longer holding period will result in a lower tax rate,
as is the case with the longer holding period required for the capital gains tax.
For example, ABC Company owns an investment that cost $100,000, but which now has a market value of
$120,000. ABC therefore has an unrealized gain of $20,000.
Later, ABC needs cash and therefore elects to sell the investment for $120,000. ABC now has a realized gain
of $20,000, on which it must now pay taxes.
A common example of an unrealized gain is an increase in the price of shares designated as
available-for-sale by the holder of the shares. The accounting for this type of unrealized gain is to debit the
asset account Available-for-Sale Securities and credit the Accumulated Other Comprehensive Income
account in the general ledger.
Similar Terms
An unrealized gain is also known as a paper gain or paper profit, since the gain or loss has not yet been
translated into money.
Unrealized Loss
Definition: An unrealized loss is a decline in the value of an asset that has not yet been sold. One might
continue to hold such an asset in the expectation that it will gain in value, perhaps offsetting the amount of
the current unrealized loss.
When an asset is sold, it becomes a realized loss. Only a realized loss can be used to offset a taxable gain
for the purpose of reducing one's income tax liability.
For example, ABC Company owns an investment that cost $100,000, but which now has a market value of
$80,000. ABC therefore has an unrealized loss of $20,000.
Similar Terms
An unrealized loss is also known as a paper loss
1. Preparing a voucher?
Voucher is a supporting document cash receipts and cash payment
*How many types of voucher?
-cash voucher
-bank voucher
Cash voucher : - The cash voucher which is ud\sed for cash transaction(Actual receipts
and actual payments)
Bank voucher
The bank voucher which is used only for bank transaction is called bank voucher
*when u will prepare the voucher?
At the time of petty cash transaction will prepare the voucher
-what is petty cash book?
Some amount we are kept aside for daily transactions this is called petty cash
2.Prepare the invoice?
Invoice is a supporting document for purchase or sale
*what is invoice and bill?
Invoice is nothing but bill. Both are same bill is nothing but invoice
Invoice is 2 types:
Purchase invoice
Sale invoice
-invoice properly know as bill
-generally we prepare invoice after the receiving order from customer.
-invoice is prepare by the supplier
Concepts of invoice:
It must contain date, invoice number, invoice date, purchase order, number, purchase date,
party address, serial number, description of items, number of units, unit price, amount
clearing taxes, amount in word, terms and conditions, vat number, central sales tax(CST),
pin number,
Authorized signature.
→PO is raised for goods and services - No impact on accounting
records
Goods and received and in good order etc etc - DR to P&L expense, CR
to accruals in the balance sheet
Invoice comes in from supplier - DR the accrual above, CR
Supplier/Purchase ledger.
Final Accounts
Assets =Liabilities +Owner’s Equity
Final accounts means financial statements prepared consequent to the drawing
of trial balance. Financial statement includes:
1. Trading and profit and loss account or Income Statement
2. Balance Sheet
An Income Statement has two parts namely,
1 Trading Account – Trading account is the first stage in the process of
preparing final accounts. Trading accounts shows the gross profit or gross
loss during an accounting year. The balance of this account is transferred
to the profit and loss account.
2.Profit and loss account – It is a summarization of income and expenditure.
Net Profit or net loss:
The balance in the profit and loss account represents the net profit or net loss. If
the credit side is more than the debit side, it shows Net profit. If the debit side is
more than the credit side, it shows net loss. Both (net profit and net loss) are
transferred to the capital account.
Gross profit = Net Sales – Cost of goods sold
Where
Net Sales = Total Sales – Sales returns
Cost of goods sold = Opening stock + net purchases + direct expenses – Closing
stock
Net Purchases = Total Purchases – Purchase returns
Balance Sheet :- Balance sheet is a summarization of assets and liabilities.
Balance Sheet Performa:-
Liabilities Amount Assets Amount
Current Assets:
Share capital xxxx Cash in Hand
Add: net profit xxxx Cash at bank
Less : net loss xxxx Sundry debtors
Less : Drawings xxxx xxxx Short term investment
Current liabilities :- Stock in trade(O.P Stock)
Sundry creditors Bills receivable
Bills Payable Prepaid expenses
Bank Over Draft Accrued incomes
Outstanding expenses Fixed Assets :-
Long term liabilities :- Plant & Machinery
Loans from bank Furniture & fixtures
Loans from mortgage Buildings
Debentures Loose tools
Reserves & surplus :- Motor car & vehicles
General reserve Intangible assets :-
Reserve for contingency Good will
Provisions :- Patents
For Taxation Copy rights
For dividend Trade marks
Factious assets :-
Preliminary expenses
Advertisement
Misc Expenses
Adjustment entries for Balance Sheet :-
For Closing stock Depreciation on fixed assets
Closing stock A/c Dr Depreciation A/c Dr
To Trading A/c To fixed Asset A/c
Outstanding expenses Interest on Capital
Expenses A/c Dr Capital A/c Dr
To Out Standing expenses Interest on Capital A/c
Prepaid expenses Interest on Drawings
Prepaid expenses A/c Dr Capital A/c Dr
To Expenses A/c Interest on drawings A/c
Accrued income Bad Debts
Accrued income A/c Dr Bad debts A/c Dr
To Income A/c To Debtors A/c
Income Received in advance Provision for doubtful debts
Income A/c Dr Profit & loss A/c Dr
To income received in adva To Provision for doubtful de
A/c A/c
Self Introduction :-
My name is xxxxxxx. I am coming from xxxxxxxx.
Coming to my roles and responsibilities
My roles and responsibilities start from Day 1. Day 1 nothing but First working day
of the Month.
On that day we work on Bank reconciliation. On day 2 we close our set of books.
From Day3 on wards we start reconciliation
Here reconciliation mainly divided into two types.
1) Key reconciliation
2) Non Key reconciliation
Key reconciliations means High Priority, Non key reconciliation means low
priority
Once we complete the reconciliations wo work on open items and month end JE’s.
Month end JE’s like Model JE’s Corporate bill and P card and Bank charges etc…
Coming to my educational details
I have completed my MBA from PYDAH college of P.G courses Visakhapatnam. I
Have completed My Graduate B.Com(Comp) from G.C&Y.P.N degree college
Kanigiri.
Coming to My Family details: -
My father name is xxxx. He is a xxxx
My mother name is a xxxx. She is a Home maker.
I have two brothers both r working in xxxx
Basic Important Journal entry’s:-
1. Cash brought in by proprietor as capital Rs. 30000
Cash Account Debit 30, 000
Proprietor’s capital Account Credit 30,000
2. Goods purchased on credit from Mahesh Rs. 5,000
Purchase account debit 5000
Mahesh account credit 5000
3. Furniture purchased for cash Rs. 10000
Furniture Account Debit 10,000
Cash Account Credit 10,000
4. Goods sold on credit to Dev Raj Rs. 1600
Dev Raj Account Debit 1600
Sale Account Credit 1600
5. Goods purchased for cash Rs. 4500
Purchase account debit 4500
Cash account credit 4500
6. Goods sold for cash Rs. 2100
Cash account debit 2100
Sale account credit 2100
7. Rent paid for shop to landlord 3000
Rent Account Debit 3000
Cash Account Credit 3000
8. Commission received in cash 2000
Cash Account Debit 2000
Commission Account Credit 2000
9. Cash deposited into bank 5000
Bank Account Debit 5000
Cash Account Credit 5000
10. Cash withdrawn from bank for office use Rs. 2000
Cash Account Debit 2000
Bank Account Credit 2000
11. Cash drawn by proprietor from business for personal use Rs. 3000
Drawing Account Debit 3000
Cash Account Credit 3000
12. Goods given as charity Rs. 1000
Charity Account Debit 1000
Purchase Account Credit 1000
13. Bad Debts written off Rs. 500
Bad Debt Account Debit 500
Debtor Account Credit 500
14. Bad debts recovered in cash Rs. 300
Cash Account Debit 300
Bad Debts Recovered Account Credit 300
15. Carriage paid on machinery ( expenses on purchase of asset ) Rs.
1000
Machinery Account Debit 1000
Cash Account Credit 1000
16. Depreciation on fixed assets Rs. 500
Depreciation Account Debit 500
Fixed Asset Account Credit 500
17. Carriage paid on the behalf of buyer Rs. 1000
Debtor account Debit 1000
Cash Account Credit 1000
18. Goods given as free samples Rs. 1500
Advertising Account Debit 1500
Purchase Account Credit 1500
19. Interest allowed on capital Rs. 600
Interest on capital Account Debit 600
Capital Account Credit 600
20 . Interest charged on drawings Rs. 500
Drawing Account Debit 500
Interest on drawing account Credit 500
21. Bank charges or interest charged by bank Rs. 200
Bank charge Account Debit 200
Bank account Credit 200
22. Goods lost by fire Rs. 800
Loss by Fire Account Debit 800
Purchase Account Credit 800
23. Goods insured and a claim is admitted by insurance company in full
or in part.
Insurance company Account Debit XXXX
Loss by Fire Account Credit XXXX
24. Loan taken Rs.1,00,000
Cash Account Debit 1,00,000
Lender’s loan Account Credit 1,00,000
25. Interest paid on loan. Rs. 1000
Interest on loan Account Debit 1000
Cash Account Credit 1000
26. Interest on loan due but not paid in cash. Rs. 500
Interest on loan Account Debit 500
Loan or Creditor Account 500
27. Investment purchased Rs. 50,000
Investment Account Debit 50000
Cash Account Credit 50000
28. Cash stolen from office. Rs. 6000
Loss by Theft Account Debit 6000
Cash Account Credit 6000
29. Cash paid to a creditor in full settlement ( When cash discount is
received) Amount due to Madan Lal Rs. 5000 paid him Rs. 4950 in full
settlement.
Madan Lal Account Debit 5000
Cash Account Credit 4950
Discount Received Account Credit 50
30. Cash received from a debtor in full settlement (When cash discount
is allowed). Amount receivable from Dev Raj Rs. 1600, received from him
Rs. 1570.
Cash Account Debit 1570
Discount Allowed Account Debit 30
31.Cash received in Advance?
Cash a/c Dr
To Unearned sales revenue a/c
32. Paid cash to Mohan Rs. 9700 and discount allowed Rs. 400
Mohan Account Dr. 10100
Cash Account Cr. 9700
Discount Received Account Cr.400
33. Received Cash from Arjun Rs. 5000 and Discount allowed to him Rs.
100
Cash account Dr. 5000
Discount Allowed Account Dr. 100
Arjun Account Cr. 5100
34. Goods Sold to Hari Rs. 31000
Hari Account Dr. 31000
Sales Account Cr. 31000
35 Hari Returned Goods Rs. 1000
Sales Return Account Dr. 1000
Hari Account Cr. 1000
What is accrual: expenses and income should be recorded in the same month
ex: sale on credit i.e. sale is recorded when invoice is generated.
Q.What is journal?
It is also called as “Daily record “or “day book”. All the transactions like purchase,
returns, sales, cash receipts, and payments, loans and advances, assets
acquired and deposited etc.. first recorded in journal.
How to do Reconciliation:
Download dump from bank statement and put it in recon file and take dump
from G.L and find matching items and rest of them will be open items
Month end JE’s:
P –Card: It is also called procurement card or purchase card. It will be given to
hotel G.M or A.G.M to purpose of purchase hotel needs.
11128001: This account shows whether the cheque cleared or not in the bank.
Q. what is Accounts reconciliation?
Reconciliation is a financial tool. It is a documented explanation and analysis
of the ending of G.L Account. It is used for to support business decisions and
to avoid surprises.
Q. what is accruals?
Expenses and income should be recorded in same month. Ex: salary (or) in simple
way income earned but not received.
Q. What is corporate bill?
i) Corporate will provide varied services to all hotels.
ii) Hotels would be billed for the services provided by the corporate.
iii) Based on this invoices post the journal debit to expenses and credit to
inter-company A/c. once the payment is made by the hotel to corporate
post a journal debit to inter-company and credit to Bank.
Q. what is Mgt fee & Incentive fee?
The calculation of mgt fee and incentive fee is totally based on agreement.
i) Mgt fee calculated on as a percentage of Revenue. And incentive fee
calculated on as a “AGOP”(Adjusted gross operating profit)
Q. when invoice is processed (First step)
Expenses A/c Dr
To Liability A/c
ii) When cheque is issued
Liability A/c Dr
To clearing A/c
iii) When cheque is cleared
Clearing A/c Dr
To Operating bank A/c
