& APPENDIX Four Column Bank Reconciliation ‘A bank reconciliation is sometimes expanded to incorporate a proof of both receipts and disbursements as.separate steps in the reconciliation process. This is often referred to as a four-column bank reconciliation or a proof of cash. In a four-column reconciliation, columns are provided for the beginnings féconcilia- tion, deposits or receipts, withdrawals or disbursements, and the ending reconciliation. ‘Thus, the four-column approach is really two reconciliations in one, The fixst column con- cains a reconciliation as of the end of the preceding period. ‘The deposits per bens state- ment or receipts per books for the period are added to the beginning balsnees, and the withdrawals per bank statement or disbursements per books are subtracted to arrive at the ending balances. Deposits/receipts are reconcited in the second column and with drawals/disbursemests in the third column. The amounts must reconcile both vertically and horizontally for the ending bank and book balances to agree. In crter to complete this type of reconciliation, each adjustment must be carefully ana- lyzed. Note that two columns are always affected for each adjustment. For example, a deposit of $425.40 on October 31, 1996, was recorded by the bank in November and is included in the total bank deposits of $21 312.40 for November. However, the deposit was properly recorded on the books as a zeceipt in October; thus the $425.40 is not included in the book receipts of $21,457 for November, but is included in the beginning book balance ‘of $5,406.22. The reconciliation uccounts for this by deducting the in-transit deposit from the total bank deposits for Novernber and by adding the deposit to the beginaing October 31 bank statement balance. Tais is the same type of analysis that would have been made ‘on October 31 fer a regular ban reconeifiation on that date, SimBarly, the $658.50 deposit in transit at the end of November is already recorded in the book receipts and ending cash balance as of November 30, but musi be added to the bank deposits and ending balance to reconcile to the correct balances as of Noven 30. ‘A similar analysis is needed for reconciting the timing differences for outstanding checks. Checks totaling $810.50 were outstanding (had not cleared the bank} on October 31 and therefore should be decueted from the October 31 bark balance. The bank records include those checks as withdrawals for November (that is, the $810.50 is included in the total bank withdrawals of $24,228.10), and so the $810.50 must be subtracted from the November wi to reconcile with the corrected balances. On the other hand, the outstanding checks at the end of November are valid withdrawals for November, and so the $703.23 must be added :o the bank withdrawals for November and subtracted from the bank cash Ralance as of November 30, The adjusts and bank seconding, record the deposits ay ! as thar a poe on how the company s 'y deposit its checks cipts and additions to the cash balce ‘The bank wii similarly .e> in cash for the company. However, when the bank deter- 's not collectible from the miaker (ar!318 Feit 2 Components of cial Statements ‘will show the check as @ withdrawal and thus a reduction in the company’s cash balance, 4 after checking with the customer, the company determines the check is nov good, it may merely redeposit the check without making any entries on the books for the benk’s return of the check or the redeposit, The bank, however, will again show the check as @ «eposit and an increase in the cash balance. After the redeposit, the bani will show the cor- rect cash balance, However, the bank deposits included the check twice, once when orig- inally deposited and a second time upon redeposit, and the bani withdrawals included the check once, when it became an NSF check. Therefore, io reconcile the bank and book depositsiteceipts ané withdrawals/disbursements, the NSF check ($100 in the example} is subwacted from both the bank deposits and withdrawals. (Alternatively, the $100 NSF cheek could be added to the book receipts and disbursements to make the books reconcile ‘with the bank records.) The preceding discussion is illustrated iz: Exhibit 8—9 using (+) and (—) designations to reinforce this point. ‘Svendsen, inc. ' Procf af Cash November 30, 1996 ——____________Mowemboor'30,9996 0 Beginning Ending Reconciliation Ceposits/ Withdrawal/ — Reconeliation October $2 _ Recents isbursemonts Movember 30 Balance per bank statement, Deposits in transi October 34 . November $0 nn. Outstanding checks: October 34 November 30. NSF check redepesited uring November; no ‘entry made cn books for FEL OF FEdEPOSIE nee (4100.00) —_;400.00) Charge for interest made by bank in error i (22.50), 12.50 Corrected bank balance... $5,510.32 $21,445.50 $24,008.93 $2,946.80 Balence per books $5,406.22 $21,487.00 $25,910.73 $2,962.49 Bank sence chargest OCOBEF sean November... Customer's check deposited Now. ‘ember 25 foune to ke uncollectible (NSF).. 4118.94 (418.04) Intorest eamed: $5,895.42 $21,312.40 $24,225.20 $9,979.72 425.40 (425.40) 658.50 658.50 (703.83) (5.90) (5.90) 3.16 (2.16) 110,00 (210.00) 98.50 98.50 NOWEMVET seen Check No. 1318 for $48 recorded by degositar as 864 in errorcnaser® cash ane Recobies a hibit S—3 Balance Deposits/ Withdrawais/ Balance aiTresimentin Sank {GetS8) Reoslpta Diabrsomrts (S29) bale Nes 4 Orginal denon.” * . 2. Cheek bers NSF + : 3. Chesk edenostes ‘ : 4 jason rear Pees eeeeee HES Correct balance Books : 1. Original deposit + + 2. Check retumed by bank (0 book entry) 2, Check redeposited (no book enty) Correct balance If accompany finds that an NSF check cannot be collected immediately, then instead of 7 tedepositing the check, it must reécrd the check amount in accounts receivable on the ‘books.’Such is the case for the $118.94 check for Svendsen; inc., in the illustration.'Since 7 the bank will bave already shown the check a8 a withdrawal and a reduction in the cash’ balance, a similar adjustment must be made to the. company records? Another common type of adjustment may be required for errors made either on the ‘bank or book records. These have to be corrected as illustrated for Svendsen, Inc. Gnce ail, adjustments are made, the total corrected balances wiil be the same for both the bank and ‘book records for all four columns. ‘The illustrations for Svendsen, Inc., assume adjustments of the book amounts are made in the month subsequent to their discovery. If the adjustments were made in the same ‘month, as might be true at year-end, there would be no adjustments in the first column for ‘the book amounts. For example, the $5.90 October bani service charge ia the illustration is recognized on the bocks in November. if the adjustment had been made at the end of October, the beginning beok balance would have already shown $5,400.32 ($5,406.22 - $5.90), and the total book disbursements for November would have been $5.90 less. A similar rationale exists for the $110 interest recorded by the bank for Svendsen in October. ‘The expanded proof of cash or four-column reconciliation procedure ncrmally reduces the time and effort required to find extors made by either the bank or-the depositor. In developing comparisons of both receipts and disbursements, the areas is, which errors have, ‘been made, as well as the amounts of the discrepancies within each area, are immediately identified. This procedure is frequently used by auditors when there is any question of pos- sible discrepancies in the handling of cash.‘chapter 8 Cash and Receivables 329 wetelee B—28 (Asoounling for notes receivable Giecounted) ‘Tandy Company accepted 2 $20,000, 90-day, 12% inrerest-bearing note dated September 1, 1996, from a customer for the sale of a piece of machinery, The machinery cost $25,000 and ‘was 50% depreciated. Cn October 15, 1995, Tandy discounted the ncte, with recourse, at Fizst National Bank at a 15% discount rate, The customer paid the note at mavurity, Make the entries, necessary to record the above transactions on Tandy Company's books. Assume the transfer of the note to the bank does not meet FASB criteria for recording as a sale. (Round amounts :0 the nearest dollar.) arcise 2-39 (Accounting for notes racalvable discounted) S. Atwater received from K. Rogers, on account, a 90-day, 12% note for $8,000, dated June 6, 1996, On July 6, Atwater discounted the note, with recourse, at 15% and recorded the dis- ‘counting as a sale in accordance with FASB Statement No. 77. The note was not paid at matu- rity, and the bank charged Atwater protest fees of $25 in addition to the maturity value of the note. On September 28; 1996, the note was collected by Atwater with interest at 15% from the maturity date to the date of collection, What ens would appear on Arwaters gos a8 resalt of the foregoing? (Round amounts to the nearest dollar.) werclse $49 (Discounting a mots receivable) On fune 1, 1996, Flint Company received a $5,200, 96-day, 11% interest-bearing note from a customer on an overdue account recetvable. Flint discounted the note, with recourse, immodi- ately at State Bank at « discount rate of 15%, The discounting transaction did not meet FASB criteria for recording as a sale. At the date of matarity, the bank notified Flint that the note had not been paid end stat the amount of the note pius a $25 protest fee kad been charged to its account, Flint is unabie to collect from the customer. (Round emcunts tc the nearest dollar.) 1. Klow much money will Flint receive upon discounting the note? 2. What is the effective rate of interest the bank will earn on the note? 3. Prepare the journal entries 10 record the events described above. wernize 2—81* (Four-coluann bank reconciliation) d ‘Tyler Corporation began doing business with Security Bank on October 1. On that date the cor- cash balance was $4,000, All cash transactions are cleared through the danke account. ‘Subsequent transactions during Octeber and November refating to the records of Tyler and Security are summarized below. yor security Somoration Bank Books Books Osioter depesits. $7360 $7,110 October checks. : 6290 6,120 October service charge... i 19 October 31 balance 5070 4,970 3.220 8.280 9410 9,220 — 15 = 1,025 November deposits Novernber checks. November service change. Note collected dy bank in November (Included $46 interest) October service charge recorded in November... Novemer 20 balance... 3872 5,030 (On the basis of the foregoing deta: (1) prepare a folr-coluna reconciliation for the month ended Noveraber 30, reconciling both benk and book balances 20 # correcied balance, and (2) sive entries that would be required on Tyler's books to adjust the casi account as of November 30 *felaes to Aepend