FA1 - Bank Reconciliation

14
BANK RECONCILIATION

description

notes on bank reconciliation

Transcript of FA1 - Bank Reconciliation

Page 1: FA1 - Bank Reconciliation

BANKRECONCILIATION

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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

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deposit – evidenced by formal agreement embodied in certificate of deposit- interest-bearing- may be preterminated or withdrawn on demand or after a certain period of time agreed upon

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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

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Reconciling items

Book reconciling items

1. Credit memos2. Debit memos3. Errors

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Reconciling items (cont.)

Bank reconciling items

1. Deposits in transit2. Outstanding checks3. Errors

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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

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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

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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)

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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)

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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

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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

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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

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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