Hey! I'm Jonathan Wild and in this video we cover how to prepare a bank reconciliation. When preparing a bank reconciliation, we start by entering the bank balance taken from our bank statement. In this case, we are preparing a bank reconciliation as of August 31, and our bank balance is $10,250 on that date. Next, we add any deposits in transit. We had deposited $725 in the bank's night depository on August 31. Because we had already recorded the cash received in our books, but the bank hasn't updated our balance, we add it to the bank balance here. Next, we subtract any outstanding checks. A check for $1,750 was written and recorded in the books but hasn't been turned in for payment to the bank. Therefore, we subtract outstanding checks from the bank balance. After doing these bank balance adjustments, we compute an adjusted bank balance of $9,225. Now let's turn to the book balance side. Our accounting records show a book balance of $7,025 as of August 31. Next, we add any interest and unearned cash receipts. The bank statement shows we earned $40 of interest and that the bank collected a $2,425 note receivable for us. These cash increases have not been added to our books, so we add them here. Next, we subtract any bank fees and NSF checks. We had a bank service charge of $115 and an NSF check of $150. Neither of these subtractions have been recorded in our books, so we subtract them here. After doing these book balance adjustments, we compute an adjusted book balance of $9,225. If we prepared our bank reconciliation correctly, the adjusted bank balance should equal the adjusted book balance. In our example, both equal $9,225. After preparing a bank reconciliation, we usually find items that need to be recorded in our books. Looking back at our book balance side of our reconciliation, we see four items that need to be updated with journal entries. First, we need to record the interest earned on our balance with the bank. We will debit Cash for 40 and credit Interest Revenue for 40. Next, we need to record the collection of the note receivable by the bank. We will debit Cash for 2,425 and credit Notes Receivable for 2,425. After that, we must record the expense for the bank service charge. We will debit Miscellaneous Expenses for 115 and credit Cash for 115. Last, we will record the NSF check that is returned as uncollectible. Originally, we recorded the cash as received from the customer in payment of their accounts receivable. The $150 NSF check is removed from our books as the payment was never actually collected. The entry to reverse the effects of the original payment includes a debit to Accounts Receivable for 150 and a credit to Cash for 150. This reinstates the accounts receivable. Now as a final reminder, only items affecting the book balance need journal entries. Also, each entry will affect the Cash account.