 Let's look at this example. The bank statement balance is 42,625, and the unadjusted cash account balance, which we get from the unadjusted trial balance, is 37,725. Because of timing differences, these balances will be different. Looking at the two, can you tell which one is correct? No, actually you can't. And in fact, that was a trick question, because it's likely that our actual cash balance is something different than either of those numbers. The focus of this video will be how to reconcile the bank statement balance. To determine if something reconciles the bank side, I often think of it in these terms. It's stuff the book knows about, but the bank does not. The three most common items are deposits and transit, outstanding checks, and bank errors. So let's start, let's enter the bank statement balance into our bank side reconciliation form. Now let's figure out if we have any deposits in transit. This slide shows the total cash receipts recorded by the company include a $36,500 deposit recorded on November 30th. However, the bank statement balance does not show this deposit. Therefore, that amount becomes a reconciling item on the bank balance called deposits and transit. And it adds to the bank balance, because it will increase the balance once the deposit clears. Another example of something the book knows about that the bank does not are checks written, but not yet cleared the bank. This slide shows an example of that. The total cash payments recorded by the company include two checks, number 207 and 208 that haven't cleared the bank. The total of these two, which is $32,000, becomes a reconciling item for the bank balance called outstanding checks. And it deducts from the bank statement balance, because it will decrease the balance once they clear. The final item that reconciles the bank statement balance are bank errors. Bank errors can either add or subtract from the bank statement balance, depending on the nature of the error. This slide shows an example of an error. Let's assume that the book amount is correct. So this is a bank error. The bank should have deducted $8,000 from our account, but instead only deducted $800. To determine the amount of error, we take the difference between the two, the amount $7,200. Then we have to think, if the bank deducted too little, we need to deduct the rest. So on the bank side, we would deduct $7,200 as a bank error, and then call the bank to inform them about this mistake. To recap how to reconcile the bank side, we take the bank statement balance, plus the deposits in transit, minus the outstanding checks, plus or minus any bank errors to arrive at the adjusted cash balance. When we compare the bank side adjusted cash balance to the book side adjusted cash balance, they should be the same. To learn how we arrived at the adjusted cash balance for the book side, I would encourage you to watch that video example.