ACCT101 Bank Reconciliation & Bad Debts

Bank Balance

Cr
+DIT
-Outstanding cheques
+-Bank errors

Cash Balance

Dr
+EFT receipts
+Notes received by bank
+Interest & dividends received
-NSF cheques
-Unrecorded debit card payments
-Unrecorded EFT/GIRO payments
-Interest paid
-Bank fees
+-Company errors

What to do for NSF cheques?

reverse AR receipt transaction → Dr AR, Cr Cash

Steps for Bank Reconciliation?

1) Reconcile company’s cash balance
2) Reconcile bank’s balance & compare
3) Prepare adjusting journal & post to GL

How to prepare adjusting journal & post to GL?

Update balance in CASH account to record items that increased/decreased cash.
Cash is the total (Dr-Cr) balancing figure

Company normal balance?

Dr

Bank normal balance?

Cr

2/10 n/30 meaning?

2% discount if paid within 10 days, if not pay full amount in 30 days

Order to record discounts?

Trade discount
Refund
Allowance
Sales discount
Sales Transactions

What accounting element are TRAS (no ST) under?

contra revenue

How does Uncollectible AR work?

Estimate future uncollectible AR & record in current year
Reduce AR by increasing Allowance for Uncollectible AR
Increase Bad Debt Expense

What accounting element is Allowance for Uncollectible AR?

contra asset

When to do Bad Debt Expense?

only Dr at EOY, Cr Allowance for Uncollectible AR

Steps to estimate uncollectible AR

1) Apply Allowance Schedule to Aged Debtors Report
2) Prepare journal for adjusting allowance account to make e/bal = total expected AR write-off next year as bad debts

How to write off a company’s unpayable debt?

Dr Allowance for uncollectible AR
Cr AR

What to do at the end of the next year?

Re-calculate allowance stated by management, add to leftover allowance from previous year

How to re-instate debt?

Step 1:
Dr AR
Cr Allowance for uncollectible AR
To re-instate debt up to amount received from partial payment
Step 2:
Dr Cash
Cr AR
To record receipt of cash from company

Crossing over Zero

If bad debt expense goes over allowance for uncollectible AR

How to adjust Bad Debt Expense?

Required Allowance - Existing Allowance = Adjustment

Bad Debt Expense Adjustment meanings?

+ve → increase allowance → Bad Debt Expense
Zero → no adjustment
-ve → decrease allowance → Bad Debt Recovery

[Dr/Cr] If a customer returns goods to you

Dr Returns
Cr Accounts Receivable

[Dr/Cr] If you return goods to a supplier

Dr Accounts Payable
Cr Inventory