[Veena1]

Hi

As of 12/31/2008 my Trail balance amount is not matching with 12/31/08 bank statement. I know that this is because of Outstanding checks we issued in 2008.

Is there any way that I can solve the problem?

Thanks
Veena.

[hamzashakaa]

If this difference is only because of outstanding checks that are still not drawn from the bank. Then this is not a problem and the balance in the trial balance will appear in the financial statements even if there is a difference. But you should follow these checks in the subsequent periods to make sure they are drawn by the customers and that there are no returned checks.

[Veena1]

Hi

Thanks much for quick response. Is there any way that can check whether my bank clsoing balance and Outstanding checks equals trail balance,the reason why am asking is we have still Outstanding checks not cleared so far

[hamzashakaa]

Yes you should deduct all the outstanding checks from the bank balance as if they were drawn from the bank. Then the balance should match the trial balance. This should be performed by performing a bank reconciliation on an excel sheet. Some times there maybe outstanding checks from the previous year.

Kindly note that it is very normal to have outstanding checks. But if some checks are outstanding for a very long period then you should check why these checks were not drawn by suppliers or others.

Please see the attached excel sheet it will help on this.

[Veena1]

Hi

Thank you so much it really helps. 2 more questions if you don't mind
1. what's is this Deposits in Transit (as of 12/31/08 I don't see any Outstanding deposits)
2. Do I have to deduct Outstanding checks not cleared so far also

[Veena1]

Deposits in Trnasit means any Outstanding deposits and also include Outstanding checks?

When you say Subtract Outstanding checks(that means checks not cleared so far). Let me know

[hamzashakaa]

Regarding question number 1 deposits in transit means cash (currency, coins, checks, electronic transfers) that a company has received and is rightfully reported as Cash on its trial balance, but does not appear on the bank statement until a later date.

Regarding question number 2. Yes you should deduct outstanding checks from the bank balance (on the bank reconciliation excel sheet not on the trial balance) the purpose of the bank reconciliation is to know all the reconciling items between the book balance and the bank balance and that there are no unjustified differences.
Please if there is bank charges recorded by the bank and not recorded by you. You should record them by debiting bank charges expense and crediting the bank account. After that there will be a dffirence between the trial balance and the bank statement by the amount of outstanding checks only and when an outstanding check is drawn from the bank in the subsequent period you should delete the amount of this check from the bank reconciliation.

[hamzashakaa]

Yes outstanding checks means check that are not cleared so far.

[Veena1]

Hi

Thank you so much for the reply. I really appreciate your help.

Thanks once again :-)

[Veena1]

Hi

I have one more question when you say Cash is it include Advances we gave to Employees but not deducted from the payroll in 2008?

Let me know.

[hamzashakaa]

No. I meant cash received from customers and you send it to the bank but the bank still did not record the deposit.


For example, a retailer might receive $5,000 on Saturday (June 29) and $3,000 on Sunday (June 30). The money is deposited each evening in the bank's night depository. The store's Cash should be debited on each of those days for the respective amounts. However, the bank statement will report the $8,000 as a deposit on Monday, July 1, when the bank processes the items from the night depository.

When reconciling the bank statement dated June 30, the store will have to increase the balance on the bank statement by $8,000 for the deposits in transit. (Recall that the $8,000 is rightfully reported on the company's books as of June 30, but the $8,000 is not recorded on the bank statement as of June 30.)

[Veena1]

Hi

I did whatever you said but still difference is coming. Is there any other way that I can solve. Please help

[hamzashakaa]

Do you mean that there is a difference in the reconciliation?

[Veena1]

When I take Bank balance as of 12/31/2008 add Deposits in Transit(Outstanding checks got cleared in 2009) subtract Outstanding checks(checks not cleared so far) it not matching with the balance showing in the trail balance as of 12/31/08

[hamzashakaa]

You should not add outstanding checks that were cleared in 2009 these are not deposits in transit. Just take the bank balance from the bank statement as of 31-12-2008 then you should subtract outstanding checks not cleared so far.

[Veena1]

So We just have to take bank balance as of Dec31st and subtract Outstanding checks not cleared so far right?

Then in the excelsheet why it says add Deposits in Transit what is that mean?

[hamzashakaa]

Outstanding checks that were withdrawn by customers from the bank are not deposits in transit. Deposits in transit is cash or checks that you received from customers and you debited tha bank in your trial balance however the bank did not credit your account in the bank statement because the deposit is still not received by the bank.

[Veena1]

We don't have any Deposits in Transit .Sorry to bother you but let me explain what I understand through one example.

You asked me to take bank bal as of 12/31/08 assume bank bank as of 12/31/08 is $50000 and Outstanding checks not cleared so far are $35000 so diff is $15000 so this has to match with trial balance right(i.e Trail balance also has to show the same balance as of 12/31/08) is that what you are telling?

Please help

[hamzashakaa]

Yes that's right.

But please don't for get to see the bank statement if there is any charges or fees that were debited in the bank statement and not recorded in your books

[Veena1]

Yes I did checked but there are no bank service charges.

OK Now my Trail balance is showing $1400000.82as of 12/31/2008.
Bank balance as of 12/31/2008 is $367341.39 and Outstanding checks not cleared so far $362866.73 if I subtract 367341.39-362866.73 =$4474.66 but according to you it has to match with Trail balance right

I'm little confused as am doing it for the first time. Bare with me.