BANKRECONCILIATION

Bank Deposits

1. Demand deposit – CA or commercial deposit, NONinterest-bearingdeposits – covered by deposit slipswithdrawal – drawing checks

2. Saving deposit – deposits and withdrawals can be made anytime with passbook- interest-bearing

Bank Deposits (cont.)

3. Time deposit – evidenced by formal agreement embodied in certificate of deposit- interest-bearing- may be preterminated or withdrawn on demand or after a certain period of time agreed upon

Bank Reconciliation

• Statement w/c brings into agreement the cash balance per book and the cash balance per bank

• necessary only for a demand deposit or checking account

Reconciling items

Book reconciling items

1. Credit memos2. Debit memos3. Errors

Reconciling items (cont.)

Bank reconciling items

1. Deposits in transit2. Outstanding checks3. Errors

Credit memos

• Items not representing deposits credited by the bank to the account of the depositor but not yet recorded by the depositor as cash receipts

• Increase bank balance• Examples: note receivable collected by bank,

proceeds of bank loan, matured time deposit

Debit memos

• Items not representing checks paid by bank w/c are charged or debited by the bank to the account of the depositor but not yet recorded by the depositor as cash disbursements

• Decrease bank balance• Examples: NSF checks, technically defective

checks, bank service charges, reduction of loan

Deposits in transit

• Collections already recorded by the depositor as cash receipts but not yet reflected on the bank statement

• Include:a. collections already forwarded to the bank for deposit but too late to appear in BSb. undeposited collections (cash on hand)

Outstanding checks

• Checks already recorded by the depositor as cash disbursements but not yet reflected on the bank statement

• Include:a. checks drawn & delivered to payee but not yet presented for paymentb. certified checks – should be deducted from the total OC (if included therein)

Forms of bank reconciliation

1. Adjusted balance method – book & bank balance are brought to correct cash balance that must appear on the balance sheet

2. Book to bank method – book balance is adjusted to equal the bank balance

3. Bank to book method – bank balance is adjusted to equal the book balance

Adjusted balance method

Book balance xxAdd: Credit memos xxLess: Debit memos (xx)Adjusted book balance xx

Bank balance xxAdd: Deposits in transit xxLess: Outstanding checks (xx)Adjusted bank balance xx

Book to bank method

Book balance xxAdd: Credit memos xx

Outstanding checks xx xxTotal xxLess: Debit memos xx

Deposits in transit xx (xx)Bank balance xx

Bank to book method

Bank balance xxAdd: Debit memos xx

Deposits in transit xx xxTotal xxLess: Credit memos xx

Outstanding checks xx (xx)Book balance xx