3 Kinds of Bank deposits:

1. Demand Deposit this 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 checks against the
bank.
A demand deposit is noninterest bearing.
2. Saving Deposit the depositor is given a passbook upon the initial deposit. The passbook is required
when making deposits and withdrawals.
Withdrawals are made anytime but the bank sometimes may require notice of withdrawal. A saving
deposit is interest bearing.
3. Time Deposit this is similar to saving deposit in the sense that it is interest bearing. A time deposit is
evidenced, however, by a formal agreement embodied in an instrument called Certificate of deposit.
Time deposit may be pre-terminated or withdrawn on demand or after a certain period of time agreed
upon.
BANK RECONCILIATION
Prepared monthly to reconcile balance per book and per bank.
Necessary only for demand deposit or checking account.
Reconciling items
1. Book Reconciling Items already recorded by the bank but not yet recorded by the book.
a. Credit Memos
i. Notes Receivable collected by bank,
ii. proceeds of bank loans
iii. Matured time deposits
b. Debit Memos
i. NSF/DAIF,
ii. Technically Defective checks,
iii. Bank Service Charges, &
iv. Reduction of loans.
c. Errors
2. Bank Reconciling Items already recorded by the book but not yet recorded by the bank.
a. Deposits in Transit Cash on Hand
i. Undeposited collections
ii. Collections already forwarded but too late to appear in the bank statement
b. Outstanding checks
i. Checks drawn and already given to the payee but not yet presented for payment.
ii. Certified checks
Forms of Reconciliation
a. Adjusted balance method the book and bank balance are brought to a correct cash balance that must
appear on the balance sheet.
b. Book to bank method the book balance is reconciled with the bank balance or the book balance is
adjusted to equal the bank balance.
c. 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

Bank Balance xx
Add: Deposits in transit xx
Total xx
Less: Outstanding Checks xx
Adjusted bank balance xx

Book to Bank method

Book Balance xx
Add: Credit Memos xx
Outstanding Checks xx xx
Total xx
Less: Debit Memos xx
Deposits in transit xx xx
Bank Balance xx

Bank to Book method

Bank Balance xx
Add: Deposits in transit xx
Debit Memos xx xx
Total xx
Less: Outstanding checks xx
Credit memos xx xx
Book Balance xx

Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature,
about economic entities that is intended to be useful in making economic decisions.

Forms of Business Organizations:

a. Sole Proprietorship Business organization has a single owner called the proprietor.
b. Partnership Business owned and operated by 2 or more persons who bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves.
c. Corporation an artificial being created by operation of law, having the rights of succession and the
powers, attributes, and properties expressly authorized by law or incident to its existence.
Accounting Cycle
1. Identification of events to be recorded
2. Transactions are recorded in the Journal
3. Journal entries are posted to the Ledger
4. Preparation of Trial Balance
5. Preparation of the Worksheet including Adjusting entries
6. Preparation of the Financial Statements
7. Adjusting Journal Entries are Journalized and Posted
8. Closing Journal Entries are Journalized and Posted
9. Preparation of a Post-Closing Trial Balance
10. Reversing Journal Entries are Journalized and Posted.
Deferrals is the postponement of the recognition of an expense already paid but not yet incurred or of
revenue already collected but not yet earned.
Deferrals would be needed in two cases:
1. Allocating assets to expense to reflect expenses incurred during the accounting period (Prepaid insurance,
supplies and depreciation)
2. Allocating revenues received in advance to revenue to reflect revenues earned during the accounting
period (Subscriptions)
Accrual is the recognition of an expense already incurred but unpaid or revenue earned but uncollected.
Accruals would be required in two cases:
1. Accruing expenses to reflect expenses incurred during the accounting period that are unpaid and
unrecorded.
2. Accruing revenues to reflect revenues earned during the accounting period that are uncollected and
unrecorded.