Bank

Reconciliation
TOPIC OUTLINE
1. Concept of Bank Reconciliation
2. Forms of Bank Reconciliation
3. Reconciling items
4. Performing bank reconciliation statements
BANK RECONCILIATION
• It is schedule prepared that accounts for the differences between:
a. Cash balances per book (Company’s record)
b. Cash balances per bank (Bank statement)

• It is prepared only for checking account/demand deposit and is

prepared monthly because the bank provides the depositor with bank
statement at the beginning of the following month
FORMS OF BANK RECONCILIATION
1. Adjusted Balance Method (commonly used)
2. Book to Bank Method
3. Bank to Book Method
RECONCILING ITEMS

BOOK RECONCILING ITEMS BANK RECONCILING ITEMS

1. CREDIT MEMOS (+) 1. DEPOSIT IN TRANSIT (+)
2. DEBIT MEMOS (-) 2. OUTSTANDING CHECKS (-)
3. BOOK ERRORS (+/-) 3. BANK ERRORS (+/-)
BANK RECONCILING ITEMS

DEPOSIT IN TRANSIT
These are deposit already
recorded in the cash books in
one period but were taken up by
the bank only in the next period
EXAMPLE 1:
Collections already forwarded to
the bank for deposits but too late
to appear in the bank statements
EXAMPLE 2
Undeposited collections awaiting
delivery to the bank for deposit
 BANK RECONCILING ITEMS

OUTSTANDING CHECKS

These are checks written and released to payees and are already
recorded in the cash books but are not yet presented for encashment or
deposit to bank.
 BOOK RECONCILING ITEMS
DEBIT MEMO
These are charges and deductions made by the bank to the account of the entity but not yet recorded by
the entity.
FINAL WITHHOLDING
BANK SERVICE NSF/DAIF/DAUD
PAYMENT OF LOAN TAX ON INTEREST
CHARGE CHECKS
INCOME
These include bank These are checks This pertains to amount
charges for interest, deposited and already deducted from the
collection, checkbook recorded by the bank but current account of the
and penalty. subsequently returned depositor in payment for
by the bank to the entity loan which the depositor
because of insufficiency owes to the bank and
of fund. which has already
matured
 BOOK RECONCILING ITEMS
CREDIT MEMO
These are collections or deposits made by the bank to the account of the company but not yet recorded
by the entity.
Collections made by the Proceeds of bank loan Matured time deposits Interest Income credited
bank on behalf of the credited to the account transferred by the bank to the account
entity of the entity. to the current account of
the depositor.
BANK OR BOOK (DEPOSITOR) ERRORS
Errors made by the company or the bank that must be corrected for the reconciliation to
balance

The following are the rules for errors assuming the company is using the adjusted balance
method of presenting bank reconciliations

NO. EFFECT OF THE ERRORS TREATMENT

ADD on the adjusted cash in

1. Understatement of Cash Receipts
bank balance

DEDUCT from the unadjusted

2. Overstatement of Cash Receipts
cash in bank balance
DEDUCT from the unadjusted
3. Understatement of Cash Disbursements
cash in bank balance
ADD on the adjusted cash in
4. Overstatement of Cash Disbursements
bank balance
 FORMULA FOR ADJUSTED BALANCE
METHOD
BOOK BALANCE Pxx
Add: Credit Memos xx
Total xx
Less: Debit Memos (XX)
ADJUSTED BOOK BALANCE Pxx

BANK BALANCE Pxx

Add: Deposits in Transit xx
Total xx
Less: Outstanding Checks (XX)
ADJUSTED BANK BALANCE Pxx
FORMULA FOR BOOK TO BANK METHOD
BOOK BALANCE Pxx
Add: Credit Memos xx
Outstanding Checks xx
Total xx
Less: Debit Memos (XX)
Deposits in Transit (XX)
BANK BALANCE Pxx
FORMULA FOR BANK TO BOOK METHOD
BANK BALANCE Pxx
Add: Deposits in Transit xx
Debit Memos Xx
Total xx
Less: Outstanding Checks (xx)
Credit Memos (XX)
BOOK BALANCE Pxx