Bank Reconciliation : clarification of some weird doubts ...!~

As I proceed through number of questions , some entires become increasingly chanlleging - one of them is 'bank errors' ! these entries are not difficult but getting it right is fundamental part of reconciling otherwise our bank or cash statement balance will never match . Here's an example of bank error entry . Credits to http://www.accountingcoach.com/ , here you will find many more answers to questions - primarily asked by students .

The best feature ? the questions are divided by individual topics .


Bank errors involve amounts that were recorded incorrectly by the bank. For example, if a company wrote a check for $89 but the bank coded the check as $98, the bank statement balance will be too low. (The bank deducted $9 too much from the account, and therefore, the bank owes the customer $9.) When the bank makes the correction, the bank balance will increase by $9.00. This adjustment should appear on the bank reconciliation as an addition to the balance per bank.
If a company deposits $97 and the bank records the deposit as $79, the bank added $18 too little into the account…the bank owes the company $18. When the bank makes the correction, the the bank statement balance will increase by $18.00. The company’s general ledger has the correct amount recorded, but the bank has the incorrect balance on the bank statement. Hence the balance per bank needs to be increased by $18.

Tip: For determining whether a bank error will be an addition or a deduction on the bank reconciliation, be sure to think in terms of the change in the balance of the bank account. Both of the bank errors described above caused the bank balance to be too low. The correction of each of these errors will result in an increase to the balance per bank.

Here's another question

Can you help me to understand credit memo and debit memo in the bank reconciliation?

A bank credit memo is an item on a company’s bank statement that increases a company’s checking account balance. A bank debit memo is an item on the bank statement that reduces the company’s checking account balance. Since these items are already on the bank statement, the only adjustment that could be required is in the company’s accounting records. The old rule for the bank reconciliation “Put it where it isn’t” means that the bank’s credit memo amount must be added to the company’s accounting records, if it is not yet in the company’s accounts. Since the bank credit memo increased the checking account balance, the company’s Cash account will have to be debited and another account will need to be credited. For example, if the bank statement shows a credit memo for $100 for interest earned, the company will need to have a debit of $100 in its Cash account and will need a credit of $100 in Interest Revenue or Interest Income.
If the bank statement shows a debit memo of $25 for a service fee, the bank statement balance was decreased by $25. As part of the bank reconciliation process the following entry must be made if the item has not yet been recorded in the company’s records: debit Bank Fee Expense or Miscellaneous Expense $25 and credit Cash $25. The company’s Cash account needs to be credited because this company’s asset account decreased.
The reason the bank used “debit” to decrease the company’s checking account is that its customers’ checking account balances are liabilities for the bank. (The bank’s cash was debited when customers deposited money and the bank’s liability account Demand Deposits or Checking Account Deposits was credited.) When the bank pays a customer’s check, the bank’s cash is reduced and the bank’s liabilities are reduced. The bank records this with a credit to Cash and a debit to Demand Deposits.

This will by the my last entry of BR ....in some days I will post a new topic , if you have any doubts in mind regarding BR questions or anything - do ask away , I'll try my best to answer them .

Any queries , suggestions , critisism , are genuinely welcome :)~