BANK RECONCILIATION

AND PROOF OF CASH

BANK DEPOSIT
o 3 KINDS OF BANK DEPOSIT:
1. DEMAND DEPOSIT – current account or checking account
or commercial deposit where deposit are covered by deposit
slips and where funds are withdrawable in demand by
drawing checks against the bank.
- NONINTEREST BEARING
2. SAVING DEPOSIT – depositor has passbook upon the
initial deposit. The passbook is required for deposit and withdrawal.
- INTEREST BEARING
3. TIME DEPOSIT – interest bearing
- evidenced by formal agreement called
certificate if deposit.
- may be preterminated or withdrawn on demand or after
certain period of time
agreed upon.
• When account is opened at the bank, the person authorized to draw
checks against the account will be required to sign cards furnished by
the bank, to show the specimen signatures on the card with the
signature on the check.
• Legally, when a deposit is made, there exist a debtor-creditor
relationship between bank and the depositor. Bank as the debtor and
depositor being the creditor.
• Cash in bank and cash balance have equal or the same balances
because they are RECIPROCAL ACCOUNTS.
• If no errors are made in committed in recording and the same
information has been recorded by both accounts, the two should have
equal or the same balances.
BANK RECONCILIATION DEFINED
 Statement which brings into agreement the cash balance and the
bank balance.
 Prepared monthly
 BANK STATEMENT - exact copy of the depositor’s ledger in the
records of the bank.
COMPOSITION OF BANK STATEMENT:
a. cash balance per bank at the beginning
b. the deposit made by the depositor and acknowledge by the
bank
c. the checks drawn by the depositor and paid by the bank
d. the daily cash balance per bank during the month
 Canceled checks – check issued by the depositor and paid by the
bank during the month.
RECONCILING ITEMS
1. Book reconciling items:
a. credit memos
b. debit memos
c. errors
2. Bank reconciling items:
a. Deposit in transit
b. Outstanding checks

NOTES: book reconciling items require adjusting entries on

the book of depositor.
CREDIT MEMOS
• Credited by the bank to the depositor’s acct but not
yet recorded by depositor as cash receipts.
• Increases the bank balance on the ledger
• EXAMPLES:
1. Notes rec’l collected by the bank in favor of the
depositor and credited to the acct of the depositor
2. Proceeds of the bank loan credited to the acct of
the depositor
3. Matured time deposits transferred by the bank to
the current acct of the depositor.
DEBIT MEMOS
• Checks paid by the bank which are charged or debited by the
bank but not yet recorded by the depositor as cash disbursement.
• EXAMPLES:
1. NSF OR No Sufficient Fund checks DAIF or Drawn Against
Insufficient Fund – deposited but returned by the bank for
fund insufficiency.
2. Technically defective checks – returned by the bank cause of
technical defects.
- absence of signature or countersignature, erasures not
countersigned, mutilated checks, conflict between amount in
words and in figures.
3. Bank service charges – interest, collection, checkbook and
penalty.
4. Reduction of loan – amount deducted from the current acct
of the depositor in payment for loan which the depositor
owes to the bank and which has already matured.
DEPOSIT IN TRANSIT
• Recorded by the depositor as cash receipts but
not yet reflected on the bank statement.
• EXAMPLE:
1. Collections already forwarded to the bank
for deposit but too late to appear in bank
statement
2. Undeposited collections – still in the hands
of the depositor. Included as CASH ON
HAND.
OUTSTANDING CHECKS
• Recorded by the depositor as cash disbursement but not yet
reflected on the bank statement.
• EXAMPLES:
1. Checks drawn and already given to the payee but not yet
presented for payment
2. Certified checks – the has stamped on its face the word
“accepted” or “certified” indicating sufficiency of fund.
- immediately debited or charged to insure the
eventual payment of the check.
- deducted from total outstanding checks if
included because they are no longer
outstanding for bank recon purposes.
FORMS OF BANK RECONCILIATION
A. ADJUSTED BALANCE METHOD – the book balance and the bank
balance are brought to a correct cash balance that must appear on
the balance sheet.
- preferred method of bank recon
- book balance and bank balance are adjusted to equal the
correct cash balance.
B. BOOK TO BANK METHOD – book balance is reconciled with
bank balance or book balance is adjusted to equal the bank
balance.
C. BANK TO BOOK METHOD - bank balance is reconciled with
book balance or bank balance is adjusted to equal the book’
balance.

NOTE: errors are reconciling items of the party which committed them.
ADJUSTED BAL METHDOD PROFORMA
Book Balance xx
ADD: Credit memos xx
Total xx
LESS: Debit memos xx
Adjusted BOOK Balance xx

Bank Balance xx
ADD: Deposit in Transit xx
Total xx
LESS: Outstanding checks xx
Adjusted BANK Balance xx
BOOK TO BANK METHOD PROFORMA
Book Balance XX
ADD: Credit memos XX
Outstanding Balance XXXX
TOTAL XX
LESS: Debit memos XX
Deposit in Transit XXXX
BANK BALANCE XX
BANK TO BOOK METHOD PROFORMA
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
TWO-DATE BANK RECONCILIATION
• Involves two dates
• Same procedures as one date reconciliation
• Reconciliation only becomes complicated when some
items are omitted.
EXAMPLES:
a. Book Balance – beginning and ending
b. Bank Balance - beginning and ending
c. Deposit in Transit - beginning and ending
d. Outstanding Checks - beginning and ending
COMPUTATION OF BOOK BALANCE
Balance per Book – beginning of the month XX
ADD: Book debits during the month XX
TOTAL XX
LESS: Book credits during the month XX
Balance per Book – end of the month XX

• BOOK DEBITS - cash receipts or all items debited to

the CIB account
• BOOK CREDITS – cash disbursements or all items
credited CIB account
COMPUTATION OF BANK BALANCE
Balance per Bank – beginning of month xx
ADD: Bank Credits during the month xx
TOTAL xx
LESS: Bank debits during the month xx
Balance per Bank – end of the month xx

• Bank credits – credit memos and deposits and all items

credited to the account of the depositor
• Bank debits – checks paid by the bank and debit memos
and all items debited to the account of the depositor
COMPUTATION OF DEPOSIT IN TRANSIT
Deposit in Transit – beginning of the month XX
ADD: Cash receipts deposited during the month XX
TOTAL DEPOSITS TO BE ACKNOWLEDGE BY THE BANK XX
LESS: Deposits acknowledged by the bank XX
Deposit in Transit – end of the month XX

• All items added/debited to cash in bank account that are not

deposit should be deducted from book debits to arrive at cash
receipts deposited.
• All items added/credited to depositor’s account that does not
represent as deposit should be deducted from bank credits to
determine deposits acknowledged by the bank.
• As a rule, all book debits and bank credits are deposit
COMPUTATION OF OUSTANDING CHECKS
Outstanding checks – beginning of the month XX
ADD: Checks drawn by depositor during the month XX
TOTAL CHECKS TO BE PAID BY BANK XX
LESS: Checks paid by the bank during the month XX
Outstanding Checks – end of the month XX

• All items that do not represent checks credited to CIB account

should be deducted from the book credits to arrive at checks drawn
by the depositor.
• All items debited to depositor’s account not representing checks
paid should be deducted from the bank debits to arrive at checks
paid by the bank.
• As a rule, all book credits and bank debits are check issued and
checks paid
PROOF OF CASH
Reconciliation of the receipts and
disbursement of the current month.
TWO DATE BANK RECONCILIATION METHODS

1. Adjusted balance method

2. Book to bank method
3. Bank to book method

Note: the procedures are the same as the one date bank
reconciliation.
NOTES ON ADJUSTED BALANCE METHOD (BOOK)
 Credit memos of the previous month do not affect the current
month bank receipts. Should be deducted from the book receipts
for the current month.
 Credit memos of the current month have no effect on the
current month book receipts yet because the credit memos of the
current month are not yet recorded by the depositor during the
current month. Should be added to book receipts of the current
month.
 Debit memos of the previous month do not affect the bank
disbursement of the current month. Should be deducted from the
book disbursement for the current month.
 Debit memos of current month have no effect yet on the book
disbursement because they are not yet recorded by the
depositor. Should be added to book disbursement of the current
month.
NOTES ON ADJUSTED BALANCE METHOD (BANK)
 DIT of the previous month don’t affect the book receipts of the
current month. Should be deducted to current month’s bank
receipts if included.
 DIT of the current month have no effect on the current month’s
bank receipts because deposits are not yet recorded by the bank.
Should be added on the current month’s bank receipts.
 Outstanding checks of the previous month do not affect the
book disbursement because they are paid by the bank for the
current month. Should be deducted to current month’s bank
disbursement if included.
 Outstanding checks of the current month have no effect on the
current month bank disbursement because the checks are not yet
paid by the bank during the current month. Should be added to
current month bank disbursement.
NOTES ON BOOK TO BANK METHOD
 Book Reconciling items such as notes collected (CM), NSF and
service charges (DM) are treated in the same manner as adjusted
balance method.
 Bank Reconciling items such as DIT and OC are treated as
reversed.
 DIT of the previous month do not affect the book receipts of the
current month and should be added to the book receipts of the
current.
 DIT of the current month have no effect on the current month bank
receipts and should be deducted on the current month book receipts.
 OC of the previous month do not affect the current month book
disbursement and are added to current month book disbursement.
 OC of the current month have no effect yet on the current month
bank disbursement and are deducted from the current month book
disbursement.
NOTES ON BANK TO BOOK METHOD
 Bank reconciling items (DIT and OC) are treated the same manner as
adjusted balance method.
 Book reconciling items such as notes collected, NSF and service charges
are treated in reverse.
 Credit memos of previous month do not affect the current month bank
receipts and should be added to current month bank receipts.
 Credit memos of the current month have no effect yet on the current
month book receipts and should be deducted from the bank receipts of
the current month.
 Debit memos of the previous month do not affect the current month
bank disbursement and should be added to the current month
disbursement.
 Debit memos of the current month have no effect yet on the current
month book disbursement and should be deducted from the current
month bank disbursement.