• Identify common reconciling items

 

Let’s take a look at NeatNiks’s GL for the month of October:

Date		Item	Post. Ref.	Debit	Credit	Balance
						Debit	Credit
20–
Oct	1	Balance	a			0.00
Oct	1		GJ1	20,000.00		20,000.00
Oct	4		GJ1		12,000.00	8,000.00
Oct	15		GJ1	1,500.00		9,500.00
Oct	25		GJ1		2,600.00	6,900.00
Oct	26		GJ1		1,000.00	5,900.00
Oct	30		GJ2	1,600.00		7,500.00
Oct	31		GJ2		4,000.00	3,500.00

And now the bank statement:

First World Bank: NeatNiks

Statement 10/1/20XX – 10/31/20XX
Balance at 10/3/20XX			$0.00
Deposits			$21,500.00
Transfers in			$0.00
Checks and debits			($15,600.00)
Balance at 10/31/20XX			Single Line$5,900.00Double Line
Deposits and other Credits
10/1/20XX			$20,000.00
10/15/20XX			$1,500.00
			Single Line$21,500Double Line
Checks and other debits
10/4/20XX	Market Street Truck Rental	#1000	$12,000.00
10/25/20XX	Hugh’s Auto Insurance	#1001	$1,500.00
10/25/20XX	Carol Caine	#1002	$1,100.00
10/26/20XX	Cleaning Supplies, Inc.	#1003	$1,000.00
			Single Line$15,600Double Line

Theoretically, since they both show the same information, the bank statement and the GL should match, but notice that NeatNiks’s GL shows an ending balance of $3,500 but the bank shows $5,900.We need to reconcile the two. In accounting, we don’t think of reconciling as making the records agree. It’s more about explaining the differences. The process is fairly straightforward if we are systematic about it. First, cross off everything that agrees between the two. What’s left is the differences that need to be explained.

Date		Item	Post. Ref.	Debit	Credit	Balance
						Debit	Credit
20–
Oct	1	Balance	a			0.00
Oct	1		GJ1	20,000.00		20,000.00
Oct	4		GJ1		12,000.00	8,000.00
Oct	15		GJ1	1,500.00		9,500.00
Oct	25		GJ1		2,600.00	6,900.00
Oct	26		GJ1		1,000.00	5,900.00
Oct	30		GJ2	1,600.00		7,500.00
Oct	31		GJ2		4,000.00	3,500.00

Going through the same process on the bank statement shows that everything on the bank statement is in the general ledger:

First World Bank: NeatNiks

Statement 10/1/20XX – 10/31/20XX
Balance at 10/3/20XX			$0.00
Deposits			$21,500.00
Transfers in			$0.00
Checks and debits			$15,600.00
Balance at 10/31/20XX			Single Line$5,900.00Double Line
Deposits and other Credits
10/1/20XX			$20,000.00
10/15/20XX			$1,500.00
			Single Line$21,500Double Line
Checks and other debits
10/4/20XX	Market Street Truck Rental	#1000	$12,000.00
10/25/20XX	Hugh’s Auto Insurance	#1001	$1,500.00
10/25/20XX	Carol Caine	#1002	$1,100.00
10/26/20XX	Cleaning Supplies, Inc.	#1003	$1,000.00
			Single Line$15,600Double Line

We have narrowed down the difference between the general ledger GL and the bank statement to two items:

• A deposit Nick made at the end of October in the amount of $1,600 and recorded in the GL is not showing on the bank statement.
• A withdrawal Nick made at the end of October and recorded in the GL is not showing on the bank statement.

The next thing the accountant would do is check the bank balance and transactions at the beginning of November:

First World Bank: NeatNiks

Statement 11/1/20XX-
Balance at 11/1/20XX			$5,900.00
Deposits			$4,100.00
Transfers in			$0.00
Checks and debits			($6,000.00)
Balance at —			Single Line$4,000.00Double Line
Deposits and other Credits
11/1/20XX			$1,600.00
11/5/20XX			$2,500.00
			Single Line$4,100Double Line
Checks and other debits
11/1/20XX	Nick Frank	#1004	$4,000.00
11/4/20XX	Deborah Hill	#1005	$500.00
11/5/20XX	Office Supplies, Inc.	#1006	$1,500.00
			Single Line$6,000Double Line

The bank statement reconciles to the GL. The difference can be explained by the timing of the deposit and the timing of the check, both recorded in October in NeatNiks’s GL, but not on the bank statement for a few days while they were being processed and approved. These two reconciling items are common. They are called deposits in transit and outstanding checks.