 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 is correct? No, actually you can't. In fact, it's a trick question because it's likely our cash, our actual cash balance is something different than either of those numbers. The focus of this video will be how to reconcile the book balance. The book balance is our cash ledger balance, which comes from our unadjusted trial balance. To determine if something reconciles the bookside, I often think of it in these terms. It is stuff the bank knows about, but the book does not. There are many items that can reconcile the bookside. Some of the more common items include bank collections, interest revenue, bank fees and service charges, EFT payments, NSF checks and book errors. So to start, let's enter the book balance into our bookside reconciliation form. Let's assume the bank statement shows a collection of $18,250 that hasn't been recorded in the books. It is common that customers could send money to the bank directly on our behalf. Let's also assume it is a collection of an oath receivable. So we would add $18,250 to the book balance because it was added to the bank balance. Let's also assume that the bank statement shows interest earned of $150. We would add $150 to the book balance because it was added to the bank balance. Continuing let's assume that the bank statement shows a surface charge and fees of $200. We would deduct $200 from the book balance because it was deducted by the bank. Let's assume the bank statement shows an EFT payment of $12,500 that hasn't been recorded by the books. It's common that a company may have automatic payment set up. Let's assume this is for rent expense for a warehouse. We would deduct $12,500 from the book balance because it was deducted by the bank. Let's assume the bank statement shows an NSF checks or NSF checks totaling $4,000. These are bad checks our customers wrote us and we originally deposited. Now we're finding out that the checks aren't good. We would deduct $4,000 from the book balance because it was deducted by the bank. The final item that reconciles the book balance are book errors. Book errors can either add or subtract from the book balance depending on the nature of the error. Let's assume the check 202 was incorrectly recorded by the accountant. The amount deducted from the cash account was $1,500. The bank statement shows it cleared for $1,000. This slide shows an example of that error. The accountant should have deducted $1,000 from our account but instead deducted $1,500. To determine the amount of the error, we take the difference between the two amounts, which is $500. Then we have to think if the accountant deducted too much, we need to add back the difference. So on the book side, we would add $500 as a book error and make a note that it is regarding a payment of an account. To recap how we reconcile the book side, we take our cash balance plus bank collections plus interest revenue minus service charges minus EFT payments minus NSF checks and plus or minus any book errors to arrive at the adjusted cash balance. When we compare the book side adjusted cash balance to the bank side adjusted cash balance, they should be the same. To learn how we arrived at the adjusted cash balance for the bank side, I would encourage you to watch that video example.