 Hello, in this lecture, we'll discuss a bank reconciliation. At the end of this, we will be able to describe what a bank reconciliation is, perform a bank reconciliation, make a needed adjustments to our books in the reconciliation process, as well as record those adjustments. So this is going to start off the bank reconciliation process. We'll start off with, of course, the bank statement. So the bank statement is going to come from the bank. Generally, it happens at the end of the month. Although we could get it electronically at any timeframe, but typically it's still good to get it as of the end of the month so that we can have a set timeframe as to when we're going to reconcile our accounts and deal with the timing differences at that time. So this bank statement coming from the bank is going to be as of the end of February into this case. And we'll have the typical information on a bank statement, which will be that we will have the beginning balance. And then we're going to have the additions to it, generally our deposits. And then we're going to have the subtractions to it, generally the checks, but also going to include things like bank fees and withdrawals in this case. And then we'll come up to our ending balance. So that's what the bank says we have as of the date, the cutoff date being February 28. Then we're going to sum up this information. So the total deposits here are going to consist of these deposits by date in this case. And that adds up to this number, which of course is up here in our summary. We also have the checks, we have the date, we have the check number, we have the amount, as well as the other information that is coming out of our bank account, withdrawals such as an ATM withdrawal in this case, and a bank service charge of a couple dollars that comes up with the amount that is going to come out. And that will give us the ending balance. We're going to compare the bank statement to our books. So notice what the bank statement is doing. It's recording all of our transactions. This is exactly what we record in our books. The bank is doing it again for us. And the bank usually does a very good job of doing that. So the purpose of a bank statement is really to tie out the bank's records to our records, thereby giving us a second check on assurance that we have recorded everything correctly. Now this is the second, hugest type of check that we have other than the diplomatic accounting system itself in order to guard against making errors on our transactions. And that's because there's so many transactions that go through the cash account. So many of the transactions that we're going to make, of course, will either be a deposit to the cash account or coming out of the cash account. Therefore, if we can verify cash in some other ways, such as this, then that's going to be a huge check for us to catch any errors that we may make. So the bank reconciliation, therefore, is really needed to be done for any type of organization, whether you're large, whether you're small, even a personal account. The reconciliation process is really something that should be done in any type of business and probably is applicable for personal finances as well. It will help to catch any errors that are happening. So if we go back to Lincoln at our books now, here's our bank statement on this side. And our books, if we look at the trial balance, we've got our cash account over here. We can see that we are in balance because the debit's equal to credits. We're showing revenue in this case of the 50,000 down here, revenue less expenses, there are no expenses. And we also see that we're in balance by the green accounts being assets, equaling the liabilities, which are the orange accounts and the owner's equity being the capital and all of the income statements. So we are in balance in this way. We, of course, are concentrating on the cash account. So we're going to take a look at the T account or the general ledger in terms of cash. So if we go over here, we can take a look at the GL, we have the GL by date and it started on January 20th and going down to the end of the month, the end of February. And we're going to see our list of activities. So the debits are increasing the cash account as we could see. So the 1543 is going up by the 680 to the 15723. Then it's a debit balance account. It's going down with the credit down to 15473. Then it's going down with the credit to 14373. And then it got a debit. So it went up. So this is our running total over here. Of course, the end of this account as of the end of the month ties out to our balance on the trial balance. Notice what it does not tie out to however is the balance on the bank statement as of the end of the month. And that's typically going to be the case. That's almost always going to be the case. And that doesn't necessarily mean we made an error. Even if we recorded everything perfectly, there still would be a timing difference because it is a timing difference. Meaning if we write a check, then that check is going to come out of our books right away. So for example, this check here, this 250 that was written is going to come out of our account as soon as we wrote it, which was on January 23. But it needs to go through the mail. It needs to be picked up by the recipient of the check who then needs to take it to the bank. The bank needs to then contact our bank. So it's not going to clear until a later date. So we recorded it correctly. We want it on our books as soon as we write the check, we want to record that. But we can't verify that it's been cleared until it clears the bank, which in this case happened here on February 2. So that's going to be the idea. And that's what's going to make the difference that will always be there. So we expect there to be a timing difference. Also note that the beginning balance here, this 1543 does not equal the beginning balance or the ending balance as of January, which would be the beginning balance as of February, which is 14273 on our books. And that's because of the timing difference of the last month. So notice that if we took out these three transactions, and we were up here, which on our books was before January 20, then we tie out. So we see that we tie out here. And that's when we reconcile last month, we had these three transactions outstanding. So when we then reconcile this month, we expect that these three transactions have cleared. And then we're going to go through the our current transactions and see what has cleared and see if there's anything then that is outstanding. So that's the process that we're going to take a look at now. So let's go ahead and do that. If this is a computer system, we generally do the same thing. If we had something like QuickBooks, it would basically give our beginning balance. And then we would take our bank statement. And we're just going to tick and tie everything off. And so anything I see over here, I'm going to say, there it is. It cleared the bank at 21. Here it is over here. It cleared our books. It was still outstanding as of the January. Now it has cleared. That's good. Then we got the 500. I'm going to see if I can find it over here. 500 on this side. I see the 500 deposit on this side. Therefore, it has cleared. I'm going to check that off. So here's the 420. Here's the 420. Once again, we wrote it on February 20th. It cleared on February 21st. These are deposits. We would expect them to clear within three days. Realistically, at this point, probably sooner than that, probably like a day, they should be in there if they're a deposit. Checks, on the other hand, typical to have them be longer than that. Here's the 510. Here's the 510. So we've checked all those off. Let's take a look at the other side of it. And we have the check. In this case, it cleared on 22. Check number 5005 or 1005. And in this case, we wrote it on January 23rd. Notice we have a longer timeframe between when we wrote it and when it clears. That's going to be typical with checks. If checks are outstanding for a longer timeframe, not a problem. Usually, that's usually normal. So then we're going to have the 1002 here. We wrote it on the 31st. It was outstanding as of the end of last month. It now has cleared in this month in February. And then we have a check that we wrote for 75 on February 10th. It has now cleared on February 13th. Here's a check for 250. And we wrote it on February 12th. It's cleared on February 15. So we've tied everything out now. Now we've found everything on the bank that we could on our book.