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Bank Reconciliation

The document provides two examples of bank reconciliations with reconciling items identified. The first example shows a difference between the book and bank balances in July with credit memos, debit memos, deposits in transit, and outstanding checks identified. The second example

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Kim Ternura
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619 views14 pages

Bank Reconciliation

The document provides two examples of bank reconciliations with reconciling items identified. The first example shows a difference between the book and bank balances in July with credit memos, debit memos, deposits in transit, and outstanding checks identified. The second example

Uploaded by

Kim Ternura
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BANK RECONCILIATION

Learning Objectives

• Describe the nature of a bank reconciliation statement


• Identify common reconciling items and describe each of them
• Analyze the effects of the identified reconciling items
• Preparation of bank reconciliation statement
What is a Bank Reconciliation

• Is a statement which brings into agreement the cash balance per


book and cash balance per bank.
• It is usually prepared monthly because the bank provides the
depositor with the bank statement at the end of every month
Proforma reconciliation

1. Adjusted balance method


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

2. Book to Bank method


- the book balance is reconciled with the bank balance or
the book balance is adjusted to equal the bank balance.

3. Bank to Book method


- the bank balance is reconciled with the book balance or
the bank balance is adjusted to equal the book balance.
ADJUSTED BALANCE METHOD
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
b. Debit memos
c. Errors
2. Bank reconciling items
a. Deposit in Transit
b. Outstanding check
c. Errors
Book Reconciling Items

Credit Memos- these are additions(bank credits) made by the bank


to the depositor’s bank account but not yet recorded by the
depositor.

examples:
1. Notes Receivable collected by the bank in favor of
the depositor and credited to the account of the
depositor
2. Proceeds of loan credited to the depositor.
3. Interest income earned by the deposit
Debit Memos- these are deductions(bank debits) made by the bank
to the depositor’s bank account but not yet recordedby the
depositor.
Examples:
1. Bank Service Charge representing bank charges for fees,
interest, penalties and surcharge.
2. No sufficient fund check(NSF) or Drawn against insufficient fund
check(DAIF)- these are checks deposited already recorded by the
bank but subsequently returned to the depositor because the
drawer’s fund is insufficient to pay the check.
3. Automatic debits, such as when the depositor and the bank agree
that the bank will make automatic payments of the bills on behalf
of the depositor.
4. Payment of loans- this represents payment of loan which the
depositor agreed to be made out directly from its abnk account.

Book Errors- errors committed by the depositor(e.g., erroneous


recording in the accounting books.
Bank Reconciling Items

Deposit in transit- are collections already recorded by the depositor


as cash receipts but not yet reflected on the bank statement.

deposit in transit includes:


a. collections 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 delivery to
the bank for deposit.
• Outstanding checks- these are checks already recorded by the
depositor as cash disbursements but not yet reflected on the bank
statement.

Outstanding check include:


a. checks drawn and already given to payee but not yet presented for
encashment.
Illustration

1. You received your July 2016 bank statement. The July 31, 2016
cash balance in your accounting book is P300,000 while the cash
balance shown on the bank statement is P430,000. You
determined the following reconciling items:
a. Credit Memo-P190,000
b. Debit Memo- P30,000
c. Deposit in transit- P50,000
d. Outstanding check-P20,000

Requirement: Prepare the bank reconciliation.


2. You received your August 2016 bank statement. The August 31, 2016 cash balance
in your accounting books is P520,000 while the cash balance shown on the bank
statement is P410,000. You determined the following information:
a. Check No. 2345 for P45,000 issued to a supplier is not yet presented to the bank
for payment.
b. A P205,000 check deposit, with deposit slip no. 0989, is not yet credited to your
account.
c. A customer deposited P60,000 to your bank account. You have not yet recorded
this collection of account receivable in your accounting books.
d. The bank paid P10,000 monthly mobile phone charges directly out of your
account.
Requirements:
a.Prepare the bank reconciliation and the adjusting(reconciling) entries.

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