Page 557 - Introduction to Business

CHAPTER 15 Personal Financial Planning 531

EXHIBIT 15.7
Jacob Lawrence
Bank Reconciliation Statement

Balance per the bank statement, July 31, 2005 $2000
Add: Deposit in transit 900
Bank error, check drawn by Jean Deaux charged
to the account of Jacob Lawrence 110
Less: Outstanding checks
Number 96, $35
Number 102, $25
Number 108, $40
Number 110, $20 (120)
“True” cash balance, July 31, 2005 $2890
Balance per the books, July 31, 2005 $2500
Add: Note collected by the bank 395
Error made in recording check number 103 55
Interest earned 15
Less: Bank charges (20)
NSF check (55)
“True” cash balance, July 31, 2005 $2890

File all receipts for bills paid by check. The receipt and check may be needed
for future use, such as to document a tax deduction. A file system should
be established for storing these records; such a system ensures that you
have the necessary information for resolving any discrepancy that might
arise regarding a past payment and for preparing your tax returns. The file
system also helps you to track your expenditures over time, to make any
corrections necessary to your cash flow budget, and to gain better control
over your cash flows.
The bank statement sent to you periodically, usually once a month, shows the bank statement A statement of the
bank’s record of disbursements and receipts concerning your checking account. bank’s record of disbursements from
and receipts to a checking account
You should reconcile the statement with your records (your checkbook) in order to
verify the accuracy of your records and to discover if any errors have been made by
the bank. The bank’s record of your checking account and your record of your
checking account will differ because of erroneous entries made either by you or by
the bank, and because of differences in timing when transactions are recorded by
you and by the bank. Timing differences may occur, for example, if you write a
check and deduct it from your balance, but the bank does not process the check
and subtract it from your account balance before preparing your statement. Exhibit
15.7 provides an example of a bank reconciliation. The goal of the bank reconcili- bank reconciliation A bank
ation is to find the “true” cash balance in your checking account and to enable you reconciliation is an analysis that
resolves differences between your
to discover any errors made either by you or by the bank.
checkbook’s cash balance and the bank
Start with the bank’s record of your checking account balance. Add any deposits statement’s cash balance. The result is
and subtract any checks written that are recorded in your checkbook but that are the “true” cash balance in your
checking account
not shown on the bank statement. Second, adjust the bank’s balance for any errors
made by the bank. Bank errors are much less likely than your errors. The resulting
number is the true cash balance in your checking account.

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