CHAPTER 10

PROOF OF CASH

Ninia C. Pauig-Lumauan, MBA, CPA

1st Semester 2020-2021
Lyceum of Aparri

Intermediate Accounting Part 1

 TWO DATE BANK RECONCILIATION
• The bank reconciliation is so called “two
date” because it literally involves two dates.
• The procedures followed for a one-date
reconciliation are the same for a two-date
reconciliation.
• A two date reconciliation becomes
complicated only when certain facts or data
are omitted, hence, the necessity for
computing them.
Intermediate Accounting Part 1
 TWO DATE BANK RECONCILIATION
• But if all the facts are available, then
reconciliation statements will simply be
prepared as of the two dates required.
• Among others, the omitted information
may be any one or a combination of the
following:
a. Book Balance Beginning and Ending
b. Bank Balance Beginning and Ending
c. Deposits in Transit Beginning and Ending
d. Outstanding Checks Beginning and Ending

Intermediate Accounting Part 1

 TWO DATE BANK RECONCILIATION
• If the ending balances are not given, the
following formulas may help.
• If beginning balances are omitted, the
formulas should simply be reversed or just
work back.
COMPUTATION OF BOOK BALANCE
Balance Per Book, Beginning of the month xxx
Add: Book debits during the month xxx
Total xxx
Less: Book credits during the month xxx
Balance Per Book, End of Month xxx

Intermediate Accounting Part 1

 TWO DATE BANK RECONCILIATION
• Book debits refer to cash receipts or all
items debited to the cash in bank
account.
• Book credits refer to cash disbursements
or all items credited to the cash in bank
account.
• In a T-Account Form, the cash in bank may
CASH IN BANK
appear as
Balance – beginning
follows:xxx Book Credits xxx
Book debits xxx Balance - Ending xxx

Intermediate Accounting Part 1

 TWO DATE BANK RECONCILIATION
COMPUTATION OF BANK BALANCE
Balance Per Bank, Beginning of the month xxx
Add: Bank credits during the month xxx
Total xxx
Less: Bank debits during the month xxx
Balance Per Bank, End of Month xxx

• Bank credits refer to all items credited to the

account of the depositor which include deposits
acknowledged by the bank and credit memos.
In the absence of any statement to the
contrary, bank credits are assumed to be
deposits acknowledged by the bank.
Intermediate Accounting Part 1
 TWO DATE BANK RECONCILIATION
• Bank debits refer to all items debited to the
account of the depositor which include checks
paid by the bank and debit memos.
In the absence of any statement to the
contrary, bank debits are assumed to be
checks paid by the bank.
• In a T-Account Form, the cash in bank may
appear as follows:
COMPANY X
Bank debits xxx Balance – Beginning xxx
Balance, ending xxx Bank Credits xxx

Intermediate Accounting Part 1

 TWO DATE BANK RECONCILIATION
COMPUTATION OF DEPOSITS IN TRANSIT
Deposits in Transit-beginning of month xxx
Add: Cash receipts deposited during the month xxx
Total deposits acknowledged by the bank xxx
Less: Deposits acknowledged by bank during month xxx
Deposits in Transit-End of Month xxx

COMPUTATION OF OUTSTANDING CHECKS

Outstanding Checks – Beginning of month xxx
Add: Checks drawn by depositor during the month xxx
Total Checks paid by bank xxx
Less: Checks paid by bank during the month xxx
Outstanding Checks – End of Month xxx

Intermediate Accounting Part 1

 ILLUSTRATIVE EXAMPLE
CASH IN BANK PER LEDGER
Balance, January 31 50,000
Book debits for February, including January CM for note
collected of P 15,000. 200,000
Book credits for February, including NSF check of P 5,000 and
service charge of P 1,000 for January 180,000

BANK STATEMENT FOR FEBRUARY

Balance, January 31 84,000
Bank credits for February, including CM for note collected of
P 20,000 and January deposit in transit of P 40,000 170,000
Bank debits for February, including NSF check of P 10,000 and
January outstanding check of P 65,000 130,000

Intermediate Accounting Part 1

 ILLUSTRATIVE EXAMPLE
• The bank reconciliation for the month of January
can easily be prepared because all the necessary
data are available:
Balance Per Book, January 31 50,000
Add: Note collected by bank in January 15,000
Total 65,000
Less: NSF Check for January -5,000
Service Charge for January -1,000 -6,000
Adjusted Book Balance 59,000
vvvvvvv
Balance Per Bank, January 31 84,000
Add: Deposit in Transit for January 40,000
Total 124,000
Less: Outstanding Checks for January -65,000
Adjusted Bank Balance 59,000
vvvvvvv

Intermediate Accounting Part 1

 ILLUSTRATIVE EXAMPLE
• The bank reconciliation for the month of
February requires computation of balance
per book, balance per bank, deposits in
transit and outstanding checks.
COMPUTATION OF BOOK BALANCE
Balance per book, January 31 50,000
Add: Book debits during February 200,000
Total 250,000
Less: Book credits during February 180,000
Balance Per Book, February 28 70,000
vvvvvv

Intermediate Accounting Part 1

 ILLUSTRATIVE EXAMPLE
COMPUTATION OF BANK BALANCE
Balance per bank, January 31 84,000
Add: Bank credits during February 170,000
Total 254,000
Less: Bank debits during February 130,000
Balance Per Bank, February 28 124,000
vvvvvvv

Intermediate Accounting Part 1

 ILLUSTRATIVE EXAMPLE
COMPUTATION OF DEPOSITS IN TRANSIT
Deposits in transit, January 31 40,000
Add: Cash receipts deposited during February:
Book debits 200,000
Less: January CM for note collected 15,000 185,000
Total 225,000
Less: Deposits acknowledge by Bank in February:
Bank Credits 170,000
Less: February CM for note collected 20,000 150,000
Deposits in transit, February 28 75,000
vvvvvv

•The January CM of P 15,000 is deducted from the

book debits of P 200,000 because this item is a
cash receipt not representing deposit for the
month of February. Intermediate Accounting Part 1
 ILLUSTRATIVE EXAMPLE
• All items debited to the cash in bank account
which do not represent deposits should be
deducted from the book debits total to arrive
at the cash receipts deposited.
• In the absence of any statement to the
contrary, book debits are assumed to be cash
receipts deposited.
• The February CM of P 20,000 for note
collected is deducted from the bank credits
because this is not a deposit.
Intermediate Accounting Part 1
 ILLUSTRATIVE EXAMPLE

• All items credited to the depositor’s

account which do not represent deposits
should be deducted from the bank credits
to determine the deposits acknowledged
by bank.
• Bank credits are assumed to be deposits
acknowledged by bank in the absence of
any statement to the contrary.

Intermediate Accounting Part 1

 ILLUSTRATIVE EXAMPLE
COMPUTATION OF OUTSTANDING CHECKS
Outstanding Checks, January 31 65,000
Add: Checks drawn by depositor during February:
Book credits 180,000
Less: January DMs 6,000 174,000
Total 239,000
Less: Checks paid by Bank during February:
Bank Debits 130,000
Less: February NSF 10,000 120,000
Outstanding Checks, February 28 119,000
vvvvvvv

•The January DMs of P 6,000 is deducted from the

book credits, because they are cash disbursements
not representing checks.
Intermediate Accounting Part 1
 ILLUSTRATIVE EXAMPLE
• All items not representing checks credited to the
cash in bank account which do not represent
deposits should be deducted from the book
credits total to arrive at the checks drawn by the
depositor.
• But as a rule, all book credits in the absence of
any statement to the contrary are assumed to be
checks issued.
• The February DM for NSF of P 10,000 is deducted
from the bank debits because this is not a bank
disbursement representing a check paid.
Intermediate Accounting Part 1
 ILLUSTRATIVE EXAMPLE
• All items debited to the account of the
depositor not representing checks paid
should be deducted from the bank debits
total to arrive at the checks paid by the
bank.
• But as a rule, all bank debits in the
absence of any statement to the contrary
are assumed to be checks paid by the
bank.
Intermediate Accounting Part 1
 ILLUSTRATIVE EXAMPLE
COMPANY X
BANK RECONCILIATION
February 28
Balance Per Book 70,000
Add: Note Collected by bank in February 20,000
Total 90,000
Less: NSF Check for February -10,000
Adjusted Book Balance 80,000
vvvvvv
Balance Per Bank 124,000
Add: Deposits in transit for February 75,000
Total 199,000
Less: Outstanding Checks for February -119,000
Adjusted Bank Balance 80,000
vvvvvv

Intermediate Accounting Part 1

 PROOF OF CASH
• A proof of cash is an expanded
reconciliation in that it includes proof of
receipts and disbursements.
• This approach may be useful in
discovering possible discrepancies in
handling cash particularly when cash
receipts have been recorded but have
not been deposited.

Intermediate Accounting Part 1

 PROOF OF CASH
• There are three forms of proof of cash,
namely:
a. Adjusted balance method
b. Book to bank method
c. Bank to book method
• In all the three forms, a 4 - column
worksheet is necessary, although under
the adjusted balance method, an 8 -
column worksheet maybe required.
Intermediate Accounting Part 1
 ILLUSTRATIVE EXAMPLE
• For our illustration, let us summarize the
dataSUMMARY
used in the two-date reconciliation.
January 31 February 28
Balance per book 50,000 70,000
Balance per bank 84,000 124,000
Book debits 200,000
Book credits 180,000
Bank debits 130,000
Bank credits 170,000
Deposits in Transit 40,000 75,000
Outstanding Checks 65,000 119,000
NSF Check 5,000 10,000
Service Charge 1,000 -
Note collected by bank 15,000 20,000
Intermediate Accounting Part 1
 GENERAL COMMENTS
• The book debits and credits and the bank
debits and credits for January are not
listed anymore because they are not
necessary. The proof of cash pertains to
the receipts and disbursements for the
current month of February.
a. The January 31 and February 28
columns require further explanation.
They represent the usual reconciliations
discussed earlier.

Intermediate Accounting Part 1

 GENERAL COMMENTS
b. The receipts and disbursements columns
pertain to the current month of February.
Actually, the proof of cash is a reconciliation
of the receipts and disbursements for the
current period.
c. The proof of cash, following the adjusted
balance method, means that the book receipts
and disbursements, and the bank receipts and
disbursements for the current month are
adjusted to equal the correct receipts and
disbursements for the current month.
Intermediate Accounting Part 1
 ADJUSTED BALANCE METHOD
COMPANY X
PROOF OF CASH
For the month of February
January 31 Receipts Disbursements February 28
Balance Per Book 50,000 200,000 180,000 70,000
Note Collected:
January 15,000 -15,000
February 20,000 20,000
NSF Check:
January -5,000 -5,000
February 10,000 -10,000
Service Charge:
January -1,000 -1,000
Adjusted Book Balance 59,000 205,000 184,000 80,000
vvvvvv vvvvvvv vvvvvvv vvvvvv

Intermediate Accounting Part 1

 ADJUSTED BALANCE METHOD
COMPANY X
PROOF OF CASH
For the month of February
January 31 Receipts Disbursements February
28
Balance Per Bank 84,000 170,000 130,000 124,000
Deposits in Transit:
January 40,000 -40,000
February 75,000 75,000
Outstanding Checks:
January -65,000 -65,000
February 119,000 -119,000
Adjusted Book 59,000 205,000 184,000 80,000
Balance vvvvvv vvvvvvv vvvvvvv vvvvvv

Intermediate Accounting Part 1

 COMMENTS ON THE BOOK ITEMS
a. Credit memos of the previous month do not affect
the bank receipts for the current month but
increased the book receipts for the current month,
because the credit memos for the previous month
are recorded only by the depositor during the
current month.
Consequently, the book receipts for the current
month are overstated in relation to the correct
receipts for the current month. Hence, the credit
memos of the previous month are deducted from
the book receipts for the current month. Thus, the
January note collected amounting to P 15,000 is
deducted from theIntermediate
February book receipts.
Accounting Part 1
 COMMENTS ON THE BOOK ITEMS
b. Credit memos of the current month already
increased the bank receipts for the current month
but have no effect on the book receipts for the
current month because the credit memos of the
current month are not yet recorded by the depositor
during the current month.
Consequently, the book receipts for the current
month are understated in relation to the correct
receipts for the current month. Hence, credit memos
of the current month are added to the book receipts
for the current month. Thus, the February note
collected, amounting to P 20,000 is added to the
February book receipts.
Intermediate Accounting Part 1
 COMMENTS ON THE BOOK ITEMS
c. Debit memos of the previous month do not affect the
bank disbursements for the current month but increased
the book disbursements for the current month, because
the debit memos for the previous month are recorded
only by the depositor during the current month.
Consequently, the book disbursements for the current
month are overstated in relation to the correct
disbursements for the current month. Hence, the debit
memos of the previous month are deducted from the
book disbursements for the current month. Thus, the
January NSF of P 5,000 and January service charge of P
1,000 are deducted from the February book
disbursements.
Intermediate Accounting Part 1
 COMMENTS ON THE BOOK ITEMS
d. Debit memos of the current month already increased
bank disbursements for the current month but have
no effect on the book disbursements for the current
month because the debit memos of the current
month are not yet recorded by the depositor.
Consequently, the book disbursements for the
current month are understated in relation to the
correct disbursements for the current month. Hence,
debit memos of the current month are added to the
book disbursements for the current month. Thus,
the February NSF of P 10,000 is added to the
February book disbursements.
Intermediate Accounting Part 1
 COMMENTS ON THE BANK ITEMS
a. Deposits in transit of previous month do not
affect book receipts for the current month but
increased bank receipts for the current month
because the deposits are recorded only by the
bank during the current month.
Consequently, bank deposits for the current
month are overstated in relation to the correct
receipts for the current month. Hence, deposits
in transit of the previous month are deducted
from the bank receipts for the current month.
Thus, January deposit in transit of P 40,000 is
deducted from the February bank receipts.
Intermediate Accounting Part 1
 COMMENTS ON THE BANK ITEMS
b. Deposits in transit of the current month already
increased book receipts but have no effect on the
bank receipts for the current month because the
deposits are not yet recorded by the bank during
the current month.
Consequently, the bank receipts for the current
month are understated in relation to the correct
receipts for the current month. Hence, deposits
in transit of the current month are added to the
bank receipts of the current month. Thus, the
February deposit in transit of P 75,000 is added to
the February bank receipts.
Intermediate Accounting Part 1
 COMMENTS ON THE BANK ITEMS
c. Outstanding checks of the previous month do not
affect book disbursements but increased the bank
disbursements for the current month because the
outstanding checks of the previous month are paid
only by the bank during the current month.
Consequently, bank disbursements for the current
month are overstated in relation to the correct
disbursements for the current month. Hence,
outstanding checks of the previous month are
deducted from the bank disbursements for the
current month. Thus, January outstanding check of
P 65,000 is deducted from the February bank
disbursements.
Intermediate Accounting Part 1
 COMMENTS ON THE BANK ITEMS
d. Outstanding checks of the current month increased
book disbursements for the current month but
have no effect on the bank disbursements for the
current month because the checks are not yet paid
by the bank during the current month.
Consequently, the bank disbursements for the
current month are understated in relation to the
correct disbursements for the current month.
Hence, outstanding checks of the current month
are added to the bank disbursements for the
current month. Thus, the February outstanding
check of P 119,000 is added to the February bank
disbursements. Intermediate Accounting Part 1
 BOOK TO BANK METHOD
COMPANY X
PROOF OF CASH
For the month of February
January 31 Receipts Disbursements February 28
Balance Per Book 50,000 200,000 180,000 70,000
Note Collected:
January 15,000 -15,000
February 20,000 20,000
NSF Check:
January -5,000 -5,000
February 10,000 -10,000
Service Charge:
January -1,000 -1,000
Deposits in Transit:
January -40,000 40,000
February -75,000 -75,000
Outstanding Checks:
January 65,000 65,000
February -119,000 119,000
Balance Per Bank 84,000 170,000 130,000 124,000
vvvvvv vvvvvvv vvvvvvv vvvvvvv

Intermediate Accounting Part 1

 COMMENTS
a. The book reconciling items – note collected,
NSF, and service charge are treated in the
same manner following the adjusted balance
method.
b. The bank reconciling items – deposit in
transit and outstanding check are treated in
the “reverse”.
c. The book to bank proof of cash means that
the book receipts and disbursements are
adjusted to equal the bank receipts and
disbursements.
Intermediate Accounting Part 1
 COMMENTS

d. Deposits in transit of previous month do not

affect the book receipts for the current month
but increased the bank receipts for the current
month.
Consequently, the book receipts for the current
month are understated in relation to the bank
receipts for the current month. Hence, deposits
in transit of the previous month are added to
the book receipts for the current month. Thus,
the January deposit in transit of P 40,000 is
added to the February book receipts.
Intermediate Accounting Part 1
 COMMENTS
e. Deposits in transit of the current month
increased the book receipts for the current
month but have no effect on the bank receipts
for the current month. Consequently, the
book receipts for the current month are
overstated in relation to the bank receipts for
the current month. Hence, deposits in transit
of the current month are deducted from the
book receipts for the current month. Thus,
the February deposit in transit of P 75,000 is
deducted from the February book receipts.
Intermediate Accounting Part 1
 COMMENTS
f. Outstanding checks of the previous month do not
affect the book disbursements for the current
month but increased the bank disbursements for
the current month. Consequently, the book
disbursements for the current month are
understated in relation to the bank
disbursements for the current month. Hence,
outstanding checks of the previous month are
added to the book disbursements for the current
month. Thus, the January outstanding check of P
65,000 is added to the February book
disbursements.
Intermediate Accounting Part 1
 COMMENTS

g. Outstanding checks of the current month

increased the book disbursements for the current
month but have no effect yet on the bank
disbursements for the current month.
Consequently, the book disbursements for the
current month are overstated in relation to the
bank disbursements for the current month.
Hence, outstanding checks of the current month
are deducted from the book disbursements for
the current month. Thus, the February
outstanding check of P 119,000 is deducted from
the February book disbursements.
Intermediate Accounting Part 1
 BANK TO BOOK METHOD
COMPANY X
PROOF OF CASH
For the month of February
January 31 Receipts Disbursements February 28
Balance Per Bank 84,000 170,000 130,000 124,000
Deposits in Transit:
January 40,000 -40,000
February 75,000 75,000
Outstanding Checks:
January -65,000 -65,000
February 119,000 -119,000
Note Collected:
January -15,000 15,000
February -20,000 -20,000
NSF Check:
January 5,000 5,000
February -10,000 10,000
Service Charge:
January 1,000 1,000
Balance Per Bank 50,000 200,000 180,000 70,000
vvvvvv vvvvvvv vvvvvvv vvvvvv

Intermediate Accounting Part 1

 COMMENTS
a. The bank reconciling items – deposit in transit
and outstanding check are treated in the same
manner following the adjusted balance
method.
b. The book reconciling items – note collected,
NSF, and service charge are treated in the
“reverse”.
c. The bank to book proof of cash means that
the receipts and disbursements for the current
month are adjusted to equal the book receipts
and disbursements for the current month.
Intermediate Accounting Part 1
 COMMENTS
d. Credit memos of previous month do not
affect the bank receipts for the current
month but increased the book receipts for
the current month. Consequently, the bank
receipts for the current month are
understated in relation to the book receipts
for the current month. Hence, the credit
memos of the previous month are added to
the bank receipts for the current month.
Thus, the January note collected of P15,000
is added to the February bank receipts.
Intermediate Accounting Part 1
 COMMENTS
e. Credit memos of the current month increased
the bank receipts for the current month but
have no effect yet on the book receipts for the
current month. Consequently, the bank
receipts of the current month are overstated
in relation to the book receipts of the current
month. Hence, the credit memos of the
current month are deducted from the bank
receipts for the current month. Thus, the
February note collected of P 20,000 is
deducted from the February bank receipts.
Intermediate Accounting Part 1
 COMMENTS
f. Debit memos of previous month do not affect
the bank disbursements for the current month
but increased the book disbursements for the
current month. Consequently, the bank
disbursements for the current month are
understated in relation to the book
disbursements for the current month. Hence,
the debit memos of previous month are added
to the bank disbursements for the current
month. Thus, the January NSF of P 5,000 and the
January service charge of P 1,000 are added to
the February bank disbursements.
Intermediate Accounting Part 1
 COMMENTS
g. Debit memos of current month increased the
bank disbursements for the current month but
have no effect yet on the book disbursements
for the current month. Consequently, the bank
disbursements for the current month are
overstated in relation to the book
disbursements for the current month. Hence,
the debit memos of current month are
deducted from the bank disbursements for the
current month. Thus, the February NSF of P
10,000 is deducted from the February bank
disbursements for the current month.
Intermediate Accounting Part 1