Hi

We issued one check to Vendor for $6770.42.When they deposit in the bank ,the bank withdrawn only $4770.42 from our accounts in Feb09 by mistake and other $2000 in Mar09.

Now how to reconcile in the books? Let me know.

You don't need to reconcile your books. Your books were recorded correctly. You just won't match what the bank has. That will be part of the bank reconciliation, but you won't change anything in your books.

When adjusting the bank balance in the reconciliation, you need to subtract that extra $2000 off so that the statement balance will reconcile with yours. In a way, it's like an outstanding check, except it's only a portion of a check. In March you won't have to do anything cause it'll work itself out.

Hi

Thanks for the reply.

When you say adjust statement balance do I need to adjust closing balance ex: if Feb09 account closing balance is $200,000 reduce $2000 and show is as $198,000? Can you explain clearly.

I don't think Morgaine300's in the house right at the moment, so I'll put my head in the door for a sec if it's OK...

MG300 is saying that you won't do anything to your books (GL, cash account). By originally recording the check for its proper amount, your closing balance is correct just as it stands.

The Feb 28 balance that the bank is showing on the February bank statement, on the other hand, is incorrect.

In doing your Feb 28 bank reconciliation, reduce the bank's number by $2,000--not yours.

Thank you so much for helping me in this ,so if I understand correctly

In bank statement closing balance is showing as 298080.49 so when I reconcile feb 2009 while entering closing balance reduce $2000 and enter 296080.49. Is that correct? Please clarify

That is correct. Pretend that the bank had actually deducted the correct amount of the check in February, in which case the bank statement's closing balance would indeed be 296,080.49.

Use that number as your "bank statement closing balance" in your reconciliation, and I'm betting your rec will come out fine.

Thank you so much Arcsine.

Arc Sine

I have one more question for you. In the month of Feb09 bank had withdrawn $1900 towards small Business line of credit.Can you please tell me under which account I have to put this amount and how it works?

You'll either be Debiting "Credit Line Payable" (a liability account), or "Interest Expense" (an Income Statement expense account), or some combination of the two. It depends on how this 1,900 credit line payable is being applied.

If you're unsure as to how the bank is applying this payment (principal, or interest, or a combo of the two), and if your loan papers don't give you the answer, a quick phone call to your banker will probably suffice. They can tell you whether the 1,900 is for loan paydown, or for interest expense. You can then make your Debits accordingly.

Thank you so much it really helps :-)

What's that fly buzzing around my doorway there..

WHAP!

Oh... oops. Arc, was that you? So sorry.

ArcSine

I checked small business Credit Line Feb statement for this $1900 to see whether it includes premium and interest or only premium.

But they didn't say anthign they just mentioned payments and credits for $1900 in this case what do u want me to do enter them as credit line payable under current liability or..

The short-n-sweet answer is to call your banker and ask if that 1,900 payment was for principal, or for interest.

While you've got the banker on the phone, get him or her to explain exactly how the bank reports to you the interest that's charged periodically on this credit line. If the statement you looked at didn't explain it, then surely they send you some other report, which shows the loan's transactions, payments, draws, and interest.

In other words, the banker needs to explain to you exactly where you need to look--on what document or report--to see the principal / interest breakdown of these bank debits. (If the banker needs a little motivation to help you out, remind him that the alternative is for you to call him every time there's a drafted credit line payment. If you also happen to know his personal cell phone number, this would be an excellent time to remind him of that little tidbit as well.)

Good luck with it, and have a terrific weekend!

If you can at least find out the interest rate and the basic way the payments are being applied, we can help you to estimate the interest. On a monthly basis, an estimate is fine. At the end of the year you should get a statement with total interest paid and you can do an adjusting entry to catch it up to the correct figure. We do this all the time.

What you would need first is the annual rate. Second, you need to know if this is like the common way to do it, which is that a portion of your payment is the interest accrued from your last payment to this payment, and the rest of it is principal. There are times, however, when only interest or only principal might be paid.

If the rate is changing I would hope that would be on a statement somewhere. Otherwise you can just estimate that too based on what it typically runs. The fact that it's a credit line complicates it because you can be borrowing on it at the same time. But someone could give you a formula to just plug in and figure it out. Well, the more transactions you have, the more difficult it becomes to turn it into just a simple formula. (It's SO much easier when I'm just doing the work.)

Arcsine

Finally I get hold of bank people regarding the amount they had withdrawn towards small business line of credit for $1937.81. They said they only charge interest to us not principle so now I just have to enter that amount under Interest expense under P&L a/c right? Let me know.

Yep, that's correct. Charge it all to "Interest Expense" on the P&L.

Arcsine

Thank you so much for the reply. Now We haven't created Creditline account in the books. How to enter this transaction in the bank register.

Arcsine

Can you help me out in recording this particular transaction in the books. Can I create one bank a/c for small business credit line and enter or how?

You'll need to create an account for the creditline liability. It will be a balance sheet account, and you'll place somewhere within the liabilities section.

Whenever money is advanced (borrowed) from the credit line, you'll debit Cash and credit this creditline liability account. Since the bank's already drafting your checking account for interest expense, then clearly some advance(s) from the credit line have already occurred.

These previous cash advances need to be recorded, as soon as you set up this new creditline liability account.