BANK RECONCILIATION

FINANCIAL ACCOUNTING & REPORTING 1

 TYPES OF BANK DEPOSITS

DEMAND DEPOSITS – it is the current account or checking

account or commercial deposit where deposits are covered by
deposit slips and where funds are withdrawable on demand by
drawing against the bank. (non-interest bearing)
SAVINGS DEPOSITS – the depositors is given passbook upon
the initial deposit. The passbook is required when making a
deposit and withdrawals. (interest bearing)
TIME DEPOSITS – similar to savings deposit in the sense that it
is interest bearing. It is evidence by a certificate of deposit.
 BANK RECONCILIATION

 It is a statement which brings into agreement the cash balance per

book and cash balance per bank.
 The reconciliation is usually prepared monthly because the bank
provides the depositor with the bank statement at the end of every
month.
A bank statement is a monthly report of the bank to the depositor
showing:
 The cash balance per bank at the beginning
 The deposits made by the depositor and acknowledged by the bank
 The checks drawn by the depositor and paid by the bank

 BANK STATEMENT

 Itis an exact copy of the depositor’s ledger in the records

of the bank
 When the bank statement is received, attached thereto are
the depositor’s cancelled checks and any debit or credit
memoranda that have affected the depositor’s account.
 The cancelled checks are the check issued by the depositor
and paid by the bank during the month. They are literally
cancelled by stamping or punching to show that they have
been paid.
RECONCILING ITEMS

 BOOK RECONCILING ITEMS:

 Credit memos
 Debit memos
 Errors

 BANK RECONCILING ITEMS:

 Deposits in transit
 Outstanding check
 Errors
CREDIT MEMOS

 It refers to the items not representing deposits reflected by the

bank to the account of the depositor but not yet recorded by the
depositor as cash receipts.
 The credit memos have the effect of increasing the bank balance.
EXAMPLES:
 Notes receivable collected by the bank in favor of the depositor
and credited to the account of the depositor.
 Proceeds of the bank loan credited to the account of the depositor
 Matured time deposits transferred by the bank to the current
account of the depositor.
DEBIT MEMOS

 These are items not representing checks paid by bank which

are charged or debited by the bank to the account of the
depositor but not yet recorded by the depositor as cash
disbursement. The debit memos have the effect of decreasing
the bank balance.
 Examples:
 NSF or no sufficient fund check – these are checks
deposited but returned by the bank because of the insufficiency
of fund. It is also called as “drawn against insufficient fund”.
DEBIT MEMOS

 Technically defective checks – these are checks deposited

but returned by the bank because of technical defects such as
absence of signature, erasures, multilated checks, conflict in
amount in words and in figures.
 Bank service charges – includes bank charges for interest,
collection, checkbook, and penalty.
 Reduction of loan – pertains to amount deducted from the
current account of the depositor in payment for loan which the
depositor owes to the bank and which has already matured.
 DEPOSIT IN TRANSIT

 These are collections already recorded by the depositor as

cash receipts but not yet reflected on the bank statement.
 Itincludes collections already forwarded to the bank for
deposit but too late to appear in the bank statement.
 Undeposited collections or those still in the hands of
depositor. In effect, these are cash on hand awaiting
delivery to the bank for deposits.
 OUTSTANDING CHECKS

 Itis checks already recorded by the depositor as

cash disbursements but not yet reflected on the
bank statement.
 These include:
 Checks drawn and already given to payee but not
yet presented for payment.
 Certified check – it is one where the bank has
stamped on its face the word “accepted” or
“certified” indicating sufficiency of fund.
 FORMS OF BANK
RECONCILIATION
 Adjusted balance method – under this method, the book
balance and the bank balance are brought to a correct cash
balance that must appear on the balance sheet. It is the
most preferred method.
 Book to bank method – the book balance is reconciled
with the bank balance or the book balance is adjusted to
equal the bank balance.
 Bank to book method – the bank balance is reconciled
with the book balance or the bank balance is adjusted to
equal the book balance.
ADJUSTED BALANCE METHOD

Book balance xx
Add: Credit memos xx
Total: xx
Less: Debit memos xx
Adjusted Book Balance xx
ADJUSTED BALANCE METHOD

Bank balance xx
Add: Deposit in transit xx
Total xx
Less: Outstanding check xx
Adjusted bank balance xx
 BOOK TO BANK METHOD

BOOK BALANCE XX
Add: Credit memos XX
Outstanding check XX XX
Total XX
Less: Debit memos XX
Deposit in transit XX XX
Bank balance XX
 BANK TO BOOK BALANCE

BANK BALANCE XX
Add: Deposits in transit XX
Debit memos XX XX
Total XX
Less: Outstanding check XX
Credit memos XX XX
Book balance XX
EXAMPLE: BALANCE PER BANK

 Inpreparing its August 31, 2018 bank reconciliation, Apex

Company has available information:
Balance per bank statement P1,805,000
Deposit in transit 325,000
Return of customer’s NSF check 60,000
Outstanding check 275,000
Bank service charge for August 10,000
What is the correct cash in bank balance as of August 31,
2018?
SOLUTION:

Balance per bank P1,805,000

Add: Deposit in Transit 325,000
Total P2,130,000
Less: Outstanding checks (275,000)
Adjusted bank balance P1,855,000
 BANK RECONCILIATION

 Core Company provided the following data for the purpose of reconciling the cash
balance per book with the balance statement on December 31, 2018.
Balance per bank statement P2,000,000
Balance per book 850,000
Outstanding checks(including P100,000 certified check) 500,000
Deposit in transit 200,000
December NSF checks(P50,000 had been redeposited and cleared) 150,000
Erroneous credit to Core’s account 300,000
Proceeds of note collected by bank for Core,
net of service charge of 20,000
750,000
What is the adjusted bank and book balance as of December 31, 2018?
 BANK RECONCILIATION:
BALANCE PER BANK

Balance per bank P2,000,000

Add: Deposit in Transit 200,000
Total P2,200,000
Less: Outstanding checks(500,000-100,000) (400,000)
Erroneous bank credit (300,000)
Adjusted bank balance P1,500,000
BANK RECONCILIATION:
BALANCE PER BOOK

Balance per book P 850,000

Add: Proceeds of note collected 750,000
Total P1,600,000
Less: NSF checks (150,000-50,000) (100,000)
Adjusted book balance P1,500,000