ACA: 326 Updates on Financial Accounting Bank Reconciliation and Proof of Cash

Schedule: MTh 1:30 – 3:00

BANK RECONCILIATION AND PROOF OF CASH

A bank reconciliation 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:

a) Cash balance per bank

b) Deposits made and acknowledged by the bank
c) Checks drawn and paid by the bank
d) The daily cash balance per bank during the month

Attached to the bank statement are:

a) Depositor’s canceled checks

b) Any debit or credit memoranda that have affected the depositor’s account.

Canceled checks are checks issued by the depositor and paid by the bank.

Book Reconciling Items:

Credit memos – items not representing deposits and credited by the bank but unrecorded by the
depositor as cash receipts (collections from notes receivable, proceeds of bank loan, matured time deposits,
etc.)
Debit memos – items not representing checks paid by bank and charged by the bank but unrecorded by
the depositor as cash disbursements (NSF Checks, defective checks, service charges, loan reductions, etc.)
Errors

Bank Reconciling Items:

Deposits in transit – collections already recorded by the depositor as cash receipts but not yet reflected
in the bank statement
Outstanding checks – checks already recorded by the depositor as cash disbursements but not yet
reflected in the bank statement
Errors

See table below for sample format of Bank Reconciliation using Adjusted Balance Method.

Per BOOK Per BANK

Unadjusted Balance xx Unadjusted Balance xx
Credit memos (CM) ++ Deposits in Transit (DIT) ++
Debit memos (DM) -- Outstanding Checks (OC) --
Errors +/- Errors +/-
Adjusted Balance xx Adjusted Balance xx
ACA: 326 Updates on Financial Accounting Bank Reconciliation and Proof of Cash
Schedule: MTh 1:30 – 3:00

Proof of Cash is an expanded reconciliation in that it includes proof of receipts and disbursements and is
particularly useful in discovering possible discrepancies in handling cash particularly when cash receipts have
been recorded but not yet deposited.

Per BOOK
Particulars Beginning Book Debits Book Credits Ending
Balance (Receipts) (Disbursements) Balance
Unadjusted Balances
CM (+)
Beginning xx (xx)
Ending xx xx
DM (-)
Beginning (xx) (xx)
Ending xx (xx)
Errors (+/-)
Beginning
Ending
Adjusted Balances xx xx
Beginning Book Balance + Book Debits – Book Credits = Ending Book Balance

Per BANK
Particulars Beginning Bank Credits Bank Debits Ending
Balance (Receipts) (Disbursements) Balance
Unadjusted Balances
DIT (+)
Beginning xx (xx)
Ending xx xx
OC (-)
Beginning (xx) (xx)
Ending xx (xx)
Errors (+/-)
Beginning
Ending
Adjusted Balances xx xx
Beginning Bank Balance + Bank Credits – Bank Debits = Ending Bank Balance

Computation of Deposits in Transit

Beginning DITs xx
Cash receipts deposited during the month xx
Total Deposits to be acknowledged by the bank xx
Deposits acknowledged by bank during the month (xx)
Ending DITs xx

Computation of Outstanding Checks

Beginning OCs xx
Checks drawn by depositor during the month xx
Total checks to be paid by the bank xx
Checks paid by bank during the month (xx)
Ending OCs xx