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1A Chapter 2

Bank reconciliation is a monthly statement that aligns the cash balance per book with the cash balance per bank, explaining discrepancies between the two. It involves analyzing bank statements and identifying reconciling items such as credit/debit memos, deposits in transit, and outstanding checks. The document outlines methods for reconciliation, general procedures for preparation, and the need for adjusting entries based on book reconciling items.

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7 views3 pages

1A Chapter 2

Bank reconciliation is a monthly statement that aligns the cash balance per book with the cash balance per bank, explaining discrepancies between the two. It involves analyzing bank statements and identifying reconciling items such as credit/debit memos, deposits in transit, and outstanding checks. The document outlines methods for reconciliation, general procedures for preparation, and the need for adjusting entries based on book reconciling items.

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andreagirlygirl
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Intermediate Accounting

Chapter 2: Bank Reconciliation


By Erick Justin C. Manarang

BANK RECONCILIATION
- A Bank reconciliation is a statement which brings into agreement the cash balance per book and cash balance per
bank. The bank reconciliation is usually prepared monthly, due to the preparation of bank statement at the end of the
month.
In other words, this is a report that explains the difference between the book (company) balance of cash and the
cash balance reported on the bank statement.

BANK STATEMENT
- A monthly report of the bank to the depositor and, also it is the exact copy of depositor’s ledger in the records of the
bank, showing:
a. The cash balance per bank at the beginning
b. The deposits 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
NOTE:
The depositor records the transactions affecting the Cash in Bank, while the bank maintains the record a record for the
depositor’s account (so meaning monitored nila galaw ng isa’t isa)
Cash in Bank = Asset of the Depositor
Depositor’s Account = Liability of the Bank
RECONCILING ITEMS
At the end of every month, comparison between the cash records of the depositor and the bank statement
received from the bank will yield the following reconciling items:
1. Book Reconciling Items:
a. Credit Memos
i. These are deposits made directly by the bank to the company’s account.
b. Debit Memos
i. Charges to the Depositor’s account made directly by the bank.
c. Errors
i. Despite the internal control, errors may still arise in either the bank’s records or the company
records.

2. Bank Reconciling Items:


a. Deposits in Transit
i. Deposit made near the end of the month and recorded on the depositor’s books but is not received
by the bank in time to be reflected on the bank statement. (Recorded kay depositor on time but not
reflected kay bank, parang online enrollment bayad na pero hindi agad nagrereflect sa ledger)
Intermediate Accounting
Chapter 2: Bank Reconciliation
By Erick Justin C. Manarang

b. Outstanding Checks
i. Checks written by the company and issued to payees but have not been cleared or presented to the
bank for payment.
c. Errors
i. Despite the internal control, errors may still arise in either the bank’s records or the company
records.

EXAMPLE OF BOOK AND BANK RECONCILING ITEMS


A. Credit Memos
a. Notes Receivable collected by bank in favor of the depositor and credited to the account of the depositor.
b. Proceeds of bank loan credited to the account of the depositor.
c. Matured time deposits transferred by the bank to the current account of the depositor.
B. Debit Memos
a. NSF or no sufficient fund check – these are checks deposited but returned by the bank because of
insufficiency of fund. NSF is also known as DAIF or “Drawn against insufficient funds”
b. Technically defective checks – these are checks deposited but returned by the bank because of technical
defects such as absence of signature or countersigned, erasures not countersigned, mutilated checks,
conflict between amount in word and in figures.
c. Bank in service charges – these include bank charges for interests, collection, checkbook, and penalty.
d. Reduction of loan – This pertains to amount deducted from the current account of the depositor in
payment for loan which the depositor owes to the bank and which has already matured.
C. Deposits in Transit
a. Collection already forwarded to the bank for deposit but too late to appear in the bank statement.
b. Undeposited collections or those still in the hands of the depositor. In effect, these are cash on hand
awaiting to delivery to the bank for deposit.
D. Outstanding Checks
a. Checks drawn and already given to payees but not yet presented for payment.
b. Certified checks – a certified check is one where the bank has stamped on its face the word “accepted” or
“certified” indicating sufficiency of fund. (It means that the check was recognized and accepted by the bank)
NOTE: Certified Checks should be deducted from the total outstanding checks because they are no longer
outstanding for bank reconciliation purposes.
EXAMPLE OF SOME ERRORS
A. Understatement of cash receipts on the book of depositor.
B. Understatement of checks drawn by depositor.
C. Deposit of another entity is credited by the bank to the account of the depositor.
D. Check of another entity charged to the account of the depositor.
Intermediate Accounting
Chapter 2: Bank Reconciliation
By Erick Justin C. Manarang

FORMS OF BANK RECONCILIATION


The following formats may be used in reconciling the book balance and the bank balance:

a. Adjusted balance method


- Under this method, the book balance and the bank balance are brought to a correct cash balance that
must appear on the balance sheet.

b. Book to bank method


- Under this method, the book balance is reconciled with the bank balance or the book balance is
adjusted to equal the bank balance.
c. Bank to book method
- Under this method, the bank balance is reconciled with the book balance or the bank balance is
adjusted to equal the book balance.
NOTE: The first method is preferred over the other two.
GENERAL PROCEDURES IN PREPARING THE RECONCILIATION
A. Determine the balance per book and the balance per bank
B. Trace the cash receipts to the bank statement to ascertain whether there are deposits not yet acknowledge by the
depositor.
C. Trace the checks issued to the bank statement to ascertain whether there are checks not yet presented for
payment.
D. The bank statement should be examined to determine whether there are bank credits or bank debits not yet
recorded by the depositor.
E. Watch out for errors. Again, errors are reconciling items of the party which committed them.
F. Formal reconciliation may be prepared because all reconciling items have already been determined.
G.
PREPARATION OF ADJUSTING ENTRIES
Only the book reconciling items require adjusting entries on the book of depositor.
The adjustments are necessary to bring the cash in bank balance to its correct balance for statement presentation
purposes.
In the preparation of adjustments, an item added to the book balance is debited to cash and an item deducted from
the book balance is credited to cash.
NOTE: PLEASE REFER TO THE BOOK THAT HAS BEEN RECOMMENDED BY THE PROFESSOR.
Intermediate Accounting 2023/2024 - Volume 1 – by Valix
Intermediate Accounting 2023/2024 – Volume 1 – by Millan
Intermediate Accounting 2023/2024 – Volume 1 – by Robles
Intermediate Accounting – Volume 1 – by Cabrera

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