A bank reconciliation aligns a company’s cash records with the bank statement to confirm accuracy and detect issues. For Parkview Company (July 31, 2021), the bank statement shows $5,000.17, while records show $4,262.83. Steps (Exhibit 7-4):
Add deposits in transit ($410.90) to the bank balance.
Subtract outstanding checks ($717.75 total) from the bank balance.
Add unrecorded bank credits (e.g., $500 note collection, $24.74 interest) to the book balance.
Subtract unrecorded bank debits (e.g., $12 service charge, $50.25 NSF check, $5 fee) from the book balance.
Correct errors (e.g., $27 overstatement on check 893) in the book balance.
Verify adjusted balances match ($4,693.32).
Record journal entries (e.g., Cash $524.74 for credits, expenses/receivables $94.25 for debits). Purpose: Ensures accurate cash reporting, identifies unrecorded items (e.g., NSF checks as receivables), detects errors or fraud, and updates records, enhancing financial reliability and control.