There may be transfers to or from other bank accounts that appear on the bank statement that are not yet recorded in the general ledger.

Example

ABC Clothing has a general ledger cash balance of 1,000,000 RWF. The bank statement reflects a balance of 1,500,000 RWF.

Upon comparison of the general ledger and the bank statement, the accountant notices that ABC Clothing transferred $600 USD from the company’s USD bank account to the RWF bank account.  The $600 USD converts to 500,000 RWF.  This transfer must be recorded in the general ledger.

Qs: What is a bank transfer? When do they happen?

Go bullet and go through example

Qs: Thinking back to our accounting equation, what is the equation? What impact does a bank transfer have on the equation?

Is this the only adjustment?

Walk through example.

The key question here is why do we adjust the ledger?

Let’s go back to our definition of a transaction

1.Probable

2.Reliably measure

We are 100% sure it will happen (It has happened) and we know with certainty the amount.

Qs: What would happen if we did not adjust?

– The balance of the RWF account would be less than the bank statement balance (i.e. understated)

Since the transfer also impacts the USD bank account, we would also need to adjust the bank reconciliation for the USD account.

Do we need to record a journal entry?

Qs: What would the adjustment be for the USD account?

Qs: What would happen if we did not adjust?

– The balance of the USD account would be greater than the bank statement balance (i.e. overstated)

Qs: What are the journal entries required?

Debit – Bank account RWF  500,000

  Credit – Bank account USD  500,000