B.
Debit Memos – decrease bank balance but
CHAPTER 8:
BANK DEPOSITS
1. Demand deposit – current/checking
account where funds are withdrawable on
demand; NONINTEREST BEARING
2. Saving deposit – depositor is given a
passbook used to make deposits and
withdrawals; INTEREST BEARING
3. Time deposit – similar to saving deposit but
evidenced by a formal agreement called
certificate of deposit.
 Bank recon only necessary for a demand
deposit/checking account
 There is a debtor-creditor relationship
b/w bank and depositor, respectively
Reciprocal accounts – when one account is
debited, the other is credited
Example: Cash in Bank (depositor) and
Demand Deposit Account (bank)
BANK RECONCILIATION – statement
which brings into agreement the cash balance
per book and cash balance per bank
Bank statement – monthly report of bank to
depositor; exact copy of depositor’s ledger in a
bank’s records containing:
 Canceled checks – issued and paid;
stamped to show they are paid
 Debit/credit memo
RECONCILING ITEMS
1. BOOK RECONCILING ITEMS
Only adjusting entries required on the book of
depositor
A. Credit Memos - increase bank balance but
not yet recorded by depositor as cash receipts.
 Notes receivable in favor of depositor
 Proceeds of bank loan
 Matured time deposits transferred to
depositor’s current account
not yet recorded by depositor as cash
disbursements.
 No Sufficient Fund (NSF) checks – drawn
against insufficient fund
 Technically defective checks – returned
because of technical defects (e.g.
absence of counter/signature)
 Bank service charges – charges for
interest, checkbook, and penalty
 Reduction of loan – payment for
matured loan
C. Errors
2. BANK RECONCILING ITEMS
A. Deposits in Transit – increase book
balance; recorded by depositor as cash receipts
but not yet on the bank statement.
 Collections already forwarded to bank
but too late
 Cash on hand awaiting delivery for
deposit
B. Outstanding Checks – decrease book
balance; recorded by depositor as cash
disbursements but not yet on the bank
statement.
 Drawn and given to payees but not yet
presented
 Certified checks – stamped
“accepted/certified”
*Account of depositor immediately debited
C. Errors
FORMS OF BANK
RECONCILIATION
1. Adjusted Balance Method – PREFFERED;
book and bank balances brought to a correct
cash balance on balance sheet
2. Book to Bank Method – book balance
adjusted to equal bank balance; LESS: Deposits
in Transit ADD: Outstanding
3. Bank to Book Method – bank balance
adjusted to equal book balance; LESS: Credit
Memos ADD: Debit Memos