Lesson: Bank Reconciliation

Instructor: Nick Palazzolo

In this lesson, Nick Palazzolo explains the process of bank reconciliation— an important concept to understand for both FAR and Audit. He provides an example of how to match the balances for the bank and books to ensure that they equal each other, using different reconciling items such as interest earned, bank fees, and deposits in transit. Nick guides through each step, clarifying that the reconciliation is part of the financial reports and emphasizing the importance of understanding what each party may not know. By the end of the lesson, viewers will have a better understanding of what a bank reconciliation entails and how to accurately account for any discrepancies between the bank and book balances.

Updated: June 22, 2023 Create an account

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Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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As promised, here is our bank reconciliation. This is something you may be familiar with in FAR as well because guess what? We see it there. You can see a bank reconciliation sim on FAR as well as on Audit. I would definitely be aware of this. Now, what are we going to do here? What is this? What the heck's going on? You might be freaking out. Don't freak out. Don't panic. I'll walk you through it. Kind of like how we have debits and credits that match up, the balance for the bank and balance for the books, well, adjusted balance should equal each other. We should have, let's say, $1,000 and $1,000. How do we get there? Because the original unadjusted balance, so if you log into their bank account or send a confirmation, the balance might be $1,200. So you see it's a little bit more. It's $1,200. And let's say you know that it should be $1,000 at the end, or maybe you don't. You're trying to reconcile these. And then maybe for the books, it actually only lists $900. And you think, okay, damn, this is supposed to equal each other. And in reality, they don't equal each other. And that's the process of this is you're trying to account for anything that what I'll say, this party doesn't know about or this party doesn't know about. And what does that mean? These are going to be different reconciling items. Now, let's say the books, right? The books obviously need to be constantly updated because the bank knows everything. Well, I'll say is the bank's always right. So the bank because the bank is the one is the entity receiving the money, right? This is just the general ledger. This is your accounting software.

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