In the above problem, the credit interest exceeds the debit by $35.80. This amount is therefore brought as an additional credit into the account. The account as now adjusted will be sent to B. I. Perkins for his verification. When formally approved, or if no objection is made to it after a reasonable length of time, the account is balanced and it becomes now what is termed an adjusted account. This periodic adjustment makes possible the localization of disagreements and their settlement while the facts are still fresh in mind. Its effect, however, is to produce a slight compounding of interest unless the balance is immediately settled.
Another method of making the interest calculation is on the basis of the balance of the account after each transaction and the length of time it remains unchanged, i.e., until the next transaction changes the balance. This method follows somewhat the method illustrated in [Chapter XXXIII] for division of partners’ profits on the basis of the amount of the investment and the length of time invested; but under this method it is not possible to make so condensed and apparent a statement of account as by the method illustrated in full above.
It sometimes happens that the “date of value” may fall beyond the settlement date, as where the term of credit throws the time of payment far enough ahead that payment cannot be demanded till after a periodic settlement time. The effect of such a condition is to reverse the interest charge for the period beyond the settlement date to an interest credit, or vice versa. The method of averaging accounts or equation of payments, as it is sometimes called, may be used to advantage here. Explanation and illustration of this method are given in [Chapter LII].
The Bank Account an Account Current.—The bank’s account with a depositor is a good example of the account current. Except by special agreement, the allowance of interest is not customary. Periodically, the depositor’s pass-book is balanced or a statement of his account is rendered by the bank. When the balanced pass-book, with canceled checks, is returned to the depositor, or when the statement of account is rendered by the bank, the record kept by the depositor—as shown by his check book stubs or by the bank column in his cash book—will not usually show the same balance as that indicated by the bank’s statement, and adjustment or reconciliation is necessary to check the accuracy of the statement. In [Chapter XLI], regarding the handling of cash, the policy was recommended of depositing all receipts and paying only by check. A cash book kept under that plan, making use of a net cash column on both sides, does not need an additional column for the bank record because everything shown in the net cash columns has either been deposited in the bank or paid out by check. The cash book balance, therefore, should be the same as the bank’s balance. If the record of the bank account is kept only on the check book stubs or interleaves, this balance should be the same as the bank’s. But however kept, there will almost invariably be a few outstanding checks which the depositor’s cash book or check book shows as having been issued, but which have not been presented to the bank for payment at the time the statement of account is rendered and which therefore are not included in the statement. This brings about a difference which must be reconciled.
Reconciliation of Bank Balance.—Two methods of reconciliation are used. The one brings the bank’s balance into agreement with that of the depositor; the other starts with the depositor’s balance and brings it into agreement with that of the bank. The first step in the reconciliation is to discover which of the checks issued by the depositor have not been paid by the bank. This is done by arranging the returned checks in numerical sequence and comparing these with the depositor’s record of checks issued. Usually the total of these few unpaid checks will be equal to the discrepancy between the two records, and so will reconcile them.
The following problem is given to illustrate the above discussion:
Problem. On March 20, at the close of the day, the bank’s statement showed a balance of $1,525.14. The depositor’s record on the same date showed $604.19. The following checks were outstanding: No. 529B, $214.50; 542B, $379.60; 557B, $119.40; 581B, $75.20; and 992A, $132.25.
Reconciliation statement, as on March 20, 19—:
| Bank balance as per bank’s statement | $1,525.14 | |
| Outstanding checks: | ||
| No. 992A | $132.25 | |
| 529B | 214.50 | |
| 542B | 379.60 | |
| 557B | 119.40 | |
| 581B | 75.20 | 920.95 |
| True balance as per cash (or check) book | $ 604.19 | |
Other method: