Adjusting Entries #1 - Cash Increases
Always Remember...
With every bank reconciliation you prepare, you will probably have to make adjusting entries to update your records going in to the end of the period. You want to make sure that you record all of the expenses or deductions that you were unaware of before receiving your bank statement before you prepare other financial statements. Remember all adjusting entries are made in your records, so you want to update your records with the transactions that you did not know about until you received you bank statement.
Finding Items that Require Adjustments
Since you want to record all transactions you hadn't previously recorded, you need to look at the Balance Per Records section in the bank reconciliation statement to see what you have not yet recorded. It is easy to divide the adjusting entries from a bank reconciliation into two transactions: those that increased your cash, and those that decreased your cash. This section will deal with those items that increased your cash. If we look through the Balance Per Records section below, we can highlight the three items that we have not recorded on our books:
Item #1 - Interest
The interest earned on this account has not yet been recorded in our books. This interest is revenue that increased our cash; therefore we know to make a debit to Cash for $5.00 and a credit to Interest Revenue for $5.00.
| DR | Cash | $5.00 | |||
| CR | Interest Revenue | $5.00 | |||
Item #2 - Error In Cheque 185
We had recorded Cheque 185 for the wrong amount in our accounts. We figured out previously that we had overstated the amount by $4.50. When we originally recorded this payment, we would have debited A/P and credited Cash for $4.50 more than we actually paid out; therefore, to reverse this error, we must debit Cash and credit A/P.
| DR | Cash | $4.50 | |||
| CR | Accounts Payable | $4.50 | |||
Recording Adjusting Entries in the T-Accounts
You can record each of these three items above separately or you can combine them into one larger entry because all of the debits are to Cash. Here is what your t-accounts should look like once you've recorded these adjusting entries.
