# Bank Reconciliation - Example

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All right. So here we are with chapter

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five's

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bank reconciliation example, so as you

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can see the problem is to our left

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we're dealing with hotel company here

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and it gives us these things that they

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would find

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during their bank reconciliation whether

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it be from their books or

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from their bank statement and pretty

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much what it's asking us to do is to

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complete a bank reconciliation so we

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know in order to do a bank

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reconciliation it's going to take two

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sides we need to put the bank side and

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we need to put the book side that's our

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starting point,

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so there's our starting point. Now each

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of those has the same starting

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point under them relative to where they

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come from so let's look at the first one

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it says

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the march 31st balance on the bank

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statement is 6874.92,

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now that's from the bank statement so

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that would be called our unadjusted bank

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balance so I'm going to put that on the

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bank side so unadjusted bank balance

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of 68 74 92 and then continuing on with

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part one it says

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and the cash balance on the general

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ledger on that date is six thousand

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twenty six dollars and one cent,

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that is from our books so that would be

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our unadjusted book balance I'm gonna

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put that under the book side,

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so it is important that's where we start

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every time we do a bank reconciliation

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balances for the appropriate side,

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so we're done with one now let's go to

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part two. It says as of march 31st

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bank statement check numbers 16 5 1605

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for 623.47 and

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for 794.82

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uh written in march, so written this

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month and check number

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1575 for 476.34

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which was written in may so it was

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written in last month were not listed

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among the

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marches cancelled checks. So

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one thing here is you need to understand

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canceled from a bank's perspective means

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that they've gone through it's not like

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where we cancel check and and

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you know it's voided it's the banks

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voiding

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they've gone through the bank it's it's

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a it's made it through the bank it's

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affected our bank

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statements affected our balances and

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stuff like that but these are three

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checks that have

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not been affected in our our balances

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they have not gone through so they're

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not canceled yet, so that means that

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we wrote them they're still outstanding

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so this is just an example of

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outstanding checks.

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And typically when you do outstanding

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checks you itemize these

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because you want to keep up with a list

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of what has cancelled what hasn't

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canceled so that way you can look at it

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month over month

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so we know let's go through our steps so

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let's take one step back real quick

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what are outstanding checks, those are

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the checks that we wrote send them off

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to somebody but they haven't hit the

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bank yet. Okay. So let's go through our

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questions that we do all the time

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has it hit our books yet yes it's hit

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our books because

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the moment we wrote those checks we

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wrote it in our books as well,

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has it affected the bank yet no because

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they're still outstanding,

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so how did it affect our book side when

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we wrote them down well we made our cash

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go down,

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so how do we need to force it on the

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bank side to make it match the book side

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so we're going to make it go down as

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well. So I'm going to say less

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outstanding checks

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and again I'm going to itemize these I'm

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you know the one chronologically I'm

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going to be

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uh check number 15

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75 for 4 76 32.

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The next one is going to be check number

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1605 for 623.47

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and finally check number 1658 for 794.82,

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if I add those up that's going to give

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me a total outstanding checks

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for dollars and 1894.63 cent

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that takes care of part two, now let's go

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to part three.

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Part three says while comparing canceled

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checks with accounting records

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it was determined that a check actually

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written for two hundred and thirty seven

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dollars

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cent for supplies was erroneously

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recorded in the records

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for 273 and 3 cent

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so what happened is we wrote a check for

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some some supplies

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and the check that we wrote was actually

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correct we wrote it for 237.03

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but when the bookkeeper uh wrote it in

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our books

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they just transposed two numbers they

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273.03, and so it's just just a

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bookkeeping error

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but with errors you have to especially

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on the book side you have to be careful

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you have to there's a little bit more to

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it so I'm going to kind of take you

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through the steps of this when you're

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dealing with a bookkeeping error because

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this is like I said a bookkeeping error.

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There's two sides to a bookkeeping area

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the first side is is this dealing with

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cash that's supposed to be going out

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or is this cash that's going in now each

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of those has its own

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areas because if it's dealing with cash

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going out

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then you're asking yourself the question

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in the error

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did I take too much out or did I not

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take enough out

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if I took too much out then the way to

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correct it would be to add back the

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difference

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I took too much out so I'd add it back,

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if I didn't take enough out then I would

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uh continue to subtract the difference

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make it make sure I I took enough out,

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on the other side if you're dealing with

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an error regarding cash coming in

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then you have to ask yourself the

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question did I put too much in

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or did I not put enough in, if you put

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too much in then you need to subtract

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the difference up

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if you didn't put enough in then you

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the difference back, so in this situation

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let's let's go through this we first

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know that this is a bookkeeping error.

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Okay. This is dealing with a check that

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we wrote

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uh which means that this is cash coming

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out of our account, so now we're going to

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the leg that says cash going out,

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we wrote the check for 237 that is the

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actual amount that was supposed to come

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out of our bank

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but we wrote it in our books our cash

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balance we wrote it in our books

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for 273, so we took too much out

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so if we took too much out what do we

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need to do we need to add back the

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difference

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and because the bank got it correct

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because they got the right check we need

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to do this to the book side,

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so we will say add booking error and if

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you subtract the two numbers

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23703 minus 27303

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you'll get 36 dollars and that's how you

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do

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a bookkeeping errors. All right. Let's

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look at part four,

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it says that a bank is the bank assessed

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a service charge of 25

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for the month of march. All right. That's

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something that the bank does we don't

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know about it until we get the bank

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statement so has it affected our books

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no has it affected our bank yes because

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they just took it out of our account

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how did it affect our bank bill it made

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our cash go down

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so what do we need to do to the book

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side to make it match the bank side we

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need to

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also make our cash go down, so we will

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say less

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bank service charge of that 25.

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All right. Bank statement shows the

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nsf check

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from someone let's make up a name but uh

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was deposited in the amount of

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763-26 so whoever this person is

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they wrote us a check

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and we when they gave us this check we

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wrote it in our books as our cash went

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up

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and our revenues went up or you know

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whatever it may be

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because that's what we assumed it was we

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thought the check was good but then when

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we took the check to the bank they said

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you know what that that check's not

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worth the papers written on so

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we need to correct it. So has it affected

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our books

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yeah correctly no. has it affected the

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bank

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yes correctly yes because it's worth

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zero and it affected the bank

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zero, so what do we need to do to our

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books

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to correct this mistake, so we originally

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when we got the check

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added it to our books so in order to

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correct it we need to take it back out

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so we'll say less nsf check or

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non-sufficient funds

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check of that amount 763-26.

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All right. Part six during the month of

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march the bank collected three thousand

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dollars

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cash on a non-interest bearing note from

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again make up a name the bank imposed a

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50

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collection fee and credited the

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remaining amount to our account,

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so in this situation somebody owed us

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some money we loaned out three thousand

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dollars

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they owed us that three thousand dollars

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it had no interest so we didn't have to

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0:08:12.160,0:08:15.759

and now it was time to pay and rather

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than them sending me a check for three

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thousand dollars they just went ahead

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and directly wired it to my bank

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my bank received it for me, now I didn't

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know that until I got my bank statement

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and in order to do that the bank also

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takes out 50

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for their you know their work their hard

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work in it,

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so we need to figure this out so

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there's two parts here. Okay.

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Let's just focus in on the three

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thousand dollar

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uh notes receivable that they received,

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okay, has it affected our books no

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0:08:43.680,0:08:45.839

until we got the bank statement they

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said hey we

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received this from so and so that they

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owed you so it hasn't affected our books

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yet, has it affected our bank

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yes because they received it how did it

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affect our bank,

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well it made our cash go up so what do

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we need to do to the book to make it

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match our bank we need to make our cash

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go up for the notes receivables

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collected so we're just looking at the

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three thousand,

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so I'm going to say add notes

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receivables collected of 3 000.

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Now let's look at the 50 collection fee,

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has it affected our books

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no because again we didn't know about it

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until we got the bank statement has it

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affected our bank

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yes because they just went ahead and

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took it out so what did it do to our

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bank balance it made it go down so what

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do we need to do to the bank

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excuse me the book side in order to

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correct it we also need to make it go

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down,

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so we will say less collection fee of

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fifty 50.

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Now is it possible for you to create a

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single line item for this to just say

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add in our collected of 29.50

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you could absolutely and it's not going

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to do anything it's

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but I like to keep them itemized because

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it lets me know hey I've got to do

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a transaction or an adjusting entry for

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each one of those not just

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single one and so you'll see what I'm

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talking about here in a minute.

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All right. Let's look at part seven says

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the bank erroneously deducted a 450

0:10:04.640,0:10:10.560

check written to motel company uh for

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our from our account, so what's happening

0:10:10.560,0:10:16.079

here?

0:10:11.760,0:10:18.240

Well the bank took out 450

0:10:16.079,0:10:19.920

out of our account but the check was

0:10:18.240,0:10:20.800

written by motel company we're hotel

0:10:19.920,0:10:22.880

company

0:10:20.800,0:10:23.920

so it was just a simple bank mistake it

0:10:22.880,0:10:26.320

was a simple bank

0:10:23.920,0:10:27.600

uh error they took out money from the

0:10:26.320,0:10:29.200

wrong account they should have taken it

0:10:27.600,0:10:31.040

out of motel companies account but they

0:10:29.200,0:10:32.640

took it out of hotel companies account

0:10:31.040,0:10:33.920

and so it's just a banking error and we

0:10:32.640,0:10:35.200

would call and let them know hey you

0:10:33.920,0:10:36.720

made a mistake here you took it out of

0:10:35.200,0:10:38.399

ours and they would correct it

0:10:36.720,0:10:39.760

you know given their due diligence they

0:10:38.399,0:10:42.000

would correct it over time

0:10:39.760,0:10:43.200

but here we just need to make sure these

0:10:42.000,0:10:44.560

things are going to match so we need to

0:10:43.200,0:10:45.680

force the correction here

0:10:44.560,0:10:47.279

with the expectation it would be

0:10:45.680,0:10:48.560

corrected you know in the in the very

0:10:47.279,0:10:51.760

near future.

0:10:48.560,0:10:52.720

So this 450 dollars has it affected our

0:10:51.760,0:10:55.920

books

0:10:52.720,0:10:57.519

no, is it going to affect our books no

0:10:55.920,0:10:59.760

because this is not coming from our

0:10:57.519,0:11:02.800

books remember this is coming from motel,

0:10:59.760,0:11:04.480

has it affected our bank yes,

0:11:02.800,0:11:06.000

correctly no because they took it out of

0:11:04.480,0:11:07.519

the wrong account, so

0:11:06.000,0:11:09.440

what do we do what do we need to do in

0:11:07.519,0:11:11.519

order to correct this mistake,

0:11:09.440,0:11:12.880

well they took it out so for us to

0:11:11.519,0:11:14.240

correct it just for the purpose of

0:11:12.880,0:11:16.800

making sure our bank

0:11:14.240,0:11:17.360

reconciles is we need to add that amount

0:11:16.800,0:11:19.839

back,

0:11:17.360,0:11:22.320

so we would say add banking error of

0:11:19.839,0:11:23.680

450,

0:11:22.320,0:11:25.200

and again like I said we would call them

0:11:23.680,0:11:26.320

and let them know hey you made a mistake

0:11:25.200,0:11:27.680

and they would they would fix it but

0:11:26.320,0:11:28.079

remember we want our true cash balances

0:11:27.680,0:11:32.320

to match

0:11:28.079,0:11:34.959

here. And finally part 8, hotel company

0:11:32.320,0:11:35.360

hotel companies monthly cash receipts

0:11:34.959,0:11:39.839

show

0:11:35.360,0:11:42.959

a 2793.46 were deposited

0:11:39.839,0:11:44.720

but not appeared on the did not appear

0:11:42.959,0:11:47.680

on the march 31st

0:11:44.720,0:11:49.440

bank statement. So we had some checks

0:11:47.680,0:11:50.800

that we deposited we received we

0:11:49.440,0:11:52.079

deposited but they just haven't cleared

0:11:50.800,0:11:54.880

the bank yet,

0:11:52.079,0:11:56.000

so these are deposits in transit and so

0:11:54.880,0:11:57.360

when we get the checks from our

0:11:56.000,0:11:58.320

customers we put them in our books but

0:11:57.360,0:11:59.120

they just haven't gone through the bank

0:11:58.320,0:12:02.000

yet, so

0:11:59.120,0:12:03.360

have they affected our books yes, have

0:12:02.000,0:12:05.680

they affected our bank

0:12:03.360,0:12:07.600

no because they're still in transit, how

0:12:05.680,0:12:10.000

did it affect our books

0:12:07.600,0:12:11.680

it made our balance go up, so what do we

0:12:10.000,0:12:13.519

need to do to the bank side in order to

0:12:11.680,0:12:14.079

match that we need to make it go up as

0:12:13.519,0:12:16.800

well

0:12:14.079,0:12:18.160

so we would say add deposits in transit

0:12:16.800,0:12:19.760

of that amount

0:12:18.160,0:12:21.200

and there we go, so there we have

0:12:19.760,0:12:23.680

finished all nine

0:12:21.200,0:12:25.440

or excuse me all eight parts of the bank

0:12:23.680,0:12:27.360

reconciliation information.

0:12:25.440,0:12:28.560

The last thing we need to do for this is

0:12:27.360,0:12:30.160

to total them

0:12:28.560,0:12:31.920

total each side up and figure out our

0:12:30.160,0:12:36.000

true cash balance and pray that they

0:12:31.920,0:12:37.920

match up and so by doing this

0:12:36.000,0:12:39.760

you would have true cash balance of

0:12:37.920,0:12:41.839

eight thousand two twenty three seventy

0:12:39.760,0:12:43.279

five on the bank side and on the book

0:12:41.839,0:12:44.000

side you would have the true cash

0:12:43.279,0:12:46.240

balance of

0:12:44.000,0:12:48.160

yay the same thing eight thousand two

0:12:46.240,0:12:49.920

twenty three seventy five,

0:12:48.160,0:12:51.440

that is the first part of a bank

0:12:49.920,0:12:52.079

reconciliation but we also know that we

0:12:51.440,0:12:53.839

have another

0:12:52.079,0:12:56.480

part that we have to keep up with which

0:12:53.839,0:12:59.519

is the adjusting entries for the correct

0:12:56.480,0:13:00.720

side. Now the entries remember when we do

0:12:59.519,0:13:02.079

entries they only co

0:13:00.720,0:13:03.680

they only we're only doing this for one

0:13:02.079,0:13:05.200

side we don't care about the bank side

0:13:03.680,0:13:06.480

because the bank side what we put on the

0:13:05.200,0:13:08.160

bank side

0:13:06.480,0:13:09.360

is already in our books that's why we

0:13:08.160,0:13:10.720

put it in the bank side what we're

0:13:09.360,0:13:11.360

looking for is the thing that we put on

0:13:10.720,0:13:13.360

the book side

0:13:11.360,0:13:14.720

because of the things those that have

0:13:13.360,0:13:16.079

not been put in the books or we need to

0:13:14.720,0:13:17.839

correct on the books.

0:13:16.079,0:13:20.320

So really what I'm looking for are those

0:13:17.839,0:13:23.839

what six or five excuse me

0:13:20.320,0:13:26.399

five entries uh

0:13:23.839,0:13:27.920

we're going to have five journal entries

0:13:26.399,0:13:29.680

we had five line items five journal

0:13:27.920,0:13:31.279

issues that's why I like to keep up with

0:13:29.680,0:13:32.800

the nr collected and the collections

0:13:31.279,0:13:34.160

fees that's why I like to do them

0:13:32.800,0:13:34.800

separate because I know I've got five

0:13:34.160,0:13:37.519

and five

0:13:34.800,0:13:38.320

five line items five entries. So let's

0:13:37.519,0:13:40.959

just start at the top

0:13:38.320,0:13:42.320

the bookkeeping error, so again this

0:13:40.959,0:13:46.160

is the last date of the month so

0:13:42.320,0:13:49.040

331 it says add bookkeeping error.

0:13:46.160,0:13:49.920

So add lets you know right away that our

0:13:49.040,0:13:51.680

cash is going

0:13:49.920,0:13:53.920

up which means that we need to debit

0:13:51.680,0:13:56.639

cash for that amount so we'll say cash

0:13:53.920,0:13:58.959

36 dollars and then for the credit

0:13:56.639,0:14:01.279

remember this was if you go back to

0:13:58.959,0:14:02.720

uh part three it says that we wrote a

0:14:01.279,0:14:05.440

check for supplies

0:14:02.720,0:14:06.079

well when it was written in our account

0:14:05.440,0:14:08.560

we

0:14:06.079,0:14:09.279

originally when it was uh the error was

0:14:08.560,0:14:11.360

0:14:09.279,0:14:13.440

we said that not only did our cash go

0:14:11.360,0:14:17.199

down too much but our supplies went up

0:14:13.440,0:14:18.240

too much it we said it went uh up by 273

0:14:17.199,0:14:20.320

it really didn't it only should have

0:14:18.240,0:14:22.480

gone up by 237,

0:14:20.320,0:14:24.000

so not only are we increasing our cash

0:14:22.480,0:14:24.959

back because of the mistake but we need

0:14:24.000,0:14:27.519

to bring down

0:14:24.959,0:14:29.040

our supplies by that same amount so

0:14:27.519,0:14:29.839

we're going to credit our supplies

0:14:29.040,0:14:33.279

account by

0:14:29.839,0:14:36.320

36 dollars. All right. The next one which

0:14:33.279,0:14:38.399

is the bank service charge so again 331

0:14:36.320,0:14:40.000

uh it says less so that lets me know

0:14:38.399,0:14:41.279

that my cash is going down,

0:14:40.000,0:14:42.800

so first thing I'm going to do is I'm

0:14:41.279,0:14:44.800

going to credit cash because I know my

0:14:42.800,0:14:45.839

cash is going down it tells me exactly

0:14:44.800,0:14:47.440

where cash goes

0:14:45.839,0:14:49.440

if it says add it goes on the debit if

0:14:47.440,0:14:50.880

it says unless it goes in the credit and

0:14:49.440,0:14:51.600

every one of these will have cash

0:14:50.880,0:14:53.360

involved

0:14:51.600,0:14:54.639

because that's what we're dealing with.

0:14:53.360,0:14:56.079

Bank service charge

0:14:54.639,0:14:58.079

this is just what we have to pay in

0:14:56.079,0:14:59.519

order to use their their services

0:14:58.079,0:15:01.519

so we're going to expense it because

0:14:59.519,0:15:02.000

we've used them and so we're going to

0:15:01.519,0:15:06.000

debit

0:15:02.000,0:15:08.800

banking expense for that 25.

0:15:06.000,0:15:09.120

Next one the nsf check it says less,

0:15:08.800,0:15:11.279

so

0:15:09.120,0:15:13.760

again we're going to credit cash for

0:15:11.279,0:15:16.959

that amount 763

0:15:13.760,0:15:18.000

uh 26 and then what are we going to put

0:15:16.959,0:15:20.880

in the

0:15:18.000,0:15:21.199

debit, well when we put this in a debit

0:15:20.880,0:15:22.720

well

0:15:21.199,0:15:24.320

let's take a step back when we first got

0:15:22.720,0:15:25.839

it we said cash and service revenue

0:15:24.320,0:15:27.760

because we gave them the product or the

0:15:25.839,0:15:29.680

service whatever it may be

0:15:27.760,0:15:31.120

and we put it in as cash but it's not

0:15:29.680,0:15:34.079

worth cash so what's

0:15:31.120,0:15:35.360

now happening, well they still owe us we

0:15:34.079,0:15:36.880

they still have the product of their

0:15:35.360,0:15:38.959

service but we don't have any the cash

0:15:36.880,0:15:40.959

so they now owe us that cash so we're

0:15:38.959,0:15:42.480

0:15:40.959,0:15:44.560

so because of that we're going to put it

0:15:42.480,0:15:45.279

into our receivables account or accounts

0:15:44.560,0:15:47.120

receivable,

0:15:45.279,0:15:49.199

so when you're dealing with nsf checks

0:15:47.120,0:15:50.720

your debit is going to be

0:15:49.199,0:15:53.440

accounts receivables because they still

0:15:50.720,0:15:54.399

owe you. All right. The next one is the nr

0:15:53.440,0:15:56.399

collected

0:15:54.399,0:15:57.920

that says add next to it so we know our

0:15:56.399,0:15:59.759

cash is going to be

0:15:57.920,0:16:02.639

debited so we're going to say cash of

0:15:59.759,0:16:06.000

that amount 3 000

0:16:02.639,0:16:07.519

and then the credit is going to be

0:16:06.000,0:16:08.959

in our because our notes receivables

0:16:07.519,0:16:10.959

because we're getting rid of somebody's

0:16:08.959,0:16:13.759

balance that they owe us

0:16:10.959,0:16:15.680

so 3 000 and then finally the

0:16:13.759,0:16:19.680

collections fee

0:16:15.680,0:16:20.720

so 331 it says less so cash goes down

0:16:19.680,0:16:22.800

so again we're going to put on the

0:16:20.720,0:16:24.959

credit side of 50

0:16:22.800,0:16:26.639

and that is going to be another expense

0:16:24.959,0:16:28.320

because this is what we have to pay in

0:16:26.639,0:16:30.399

order to use the banking services

0:16:28.320,0:16:31.839

so we're going to put that in again as

0:16:30.399,0:16:33.759

banking expense that's just another

0:16:31.839,0:16:35.600

banking expense.

0:16:33.759,0:16:37.279

Could you lump the two banking expenses

0:16:35.600,0:16:38.959

together you could absolutely,

0:16:37.279,0:16:41.600

could you also lump the notes

0:16:38.959,0:16:42.959

receivables and the banking expense into

0:16:41.600,0:16:44.959

one journal entry to where

0:16:42.959,0:16:46.720

it looks like this where you would have

0:16:44.959,0:16:50.399

331

0:16:46.720,0:16:53.120

cash of the net amount which is 29.50

0:16:50.399,0:16:54.320

banking expense of 50, and then you have

0:16:53.120,0:16:57.600

the final nr

0:16:54.320,0:16:59.920

of uh 3000 you can do that as well,

0:16:57.600,0:17:01.440

uh either one of those would work it's

0:16:59.920,0:17:02.800

not changing anything it's just as long

0:17:01.440,0:17:04.559

as your t tables are lining up

0:17:02.800,0:17:07.360

it works perfect it's just a matter of

0:17:04.559,0:17:10.400

to what degree do you want to be

0:17:07.360,0:17:12.240

detailed in so. But that's how you do a

0:17:10.400,0:17:14.160

bank reconciliation problem from start

0:17:12.240,0:17:16.880

0:17:14.160,0:17:18.000

a lot of sense to you tends to see, I

0:17:16.880,0:17:19.120

tend to see a lot of students

0:17:18.000,0:17:20.319

either love this or they hate this

0:17:19.120,0:17:21.280

because they get it right away or it

0:17:20.319,0:17:22.480

takes some time,

0:17:21.280,0:17:24.319

so hopefully this made it a little bit

0:17:22.480,0:17:28.640

easier for you to get so but other than

0:17:24.319,0:17:28.640

that you'll have a great one.