BANK

RECONCILIATION
 Three kinds of Bank Deposits:
 Demand deposit – a current account or checking account
or commercial deposits where deposits are covered by
deposit slips and where funds can be withdrawn on demand
by writing a check against the bank. This deposit is non-
interest bearing.
 Savings deposit – the depositor is given a passbook upon
the initial deposit and where such passbook is required when
making deposits and withdrawals. This deposit is interest
bearing.
 Time deposit – evidenced by a formal agreement embodied
in an instrument called certificate of deposit. This may be
withdrawn on demand or after a certain period of time
agreed upon. This deposit is interest bearing.
Bank Reconciliation
 This a statement which brings into
agreement the cash balance per book and
the cash balance per bank. This is
normally prepared monthly because the
bank provides the depositor with the
bank statement at the end of every
month.
 Bank Statement
 A bank statement is a monthly report of the
bank to the depositor showing the following:
a) Cash balance per bank at the beginning;
b) The deposits acknowledged;
c) The checks paid;
d) Other charges and credits; and
e) The daily cash balance per bank during the month.

 Note: The bank statement is the exact copy of the

depositor’s ledger in the records of the bank.
 Reconciling items
 At the end of every month, comparison
between the cash records of the depositor
(book balance, cash in bank ledger or t-
account) and the bank statement (bank
balance) received from the bank will yield the
following reconciling items:
◦ Book reconciling items:
 Credit memos
 Debit memos
 Errors
◦ Bank Reconciling items:
 Deposits in transit
 Outstanding checks
 Errors
Book Reconciling items:
 Credit Memos – these are items not
representing deposits credited by the bank
to the account of the depositor but not yet
recorded by the depositor as cash receipts.
They have the effect of increasing the bank
balance. Examples of credit memos are:
◦ Notes receivable collected by the bank in favor of
the depositor and credited to the account of the
depositor.
◦ Proceeds of bank loan credited to the account of
the depositor.
◦ Matured time deposits transferred by the bank to
the current account of the depositor.
 Book Reconciling items:
 Debit Memos – refer to items not representing checks paid by
the bank which are charged or debited by the bank to the
account of the depositor but not yet recorded by the depositor
as cash disbursements. They have the effect of decreasing the
bank balance. Examples are:
◦ NSF checks or “No sufficient fund” checks – checks deposited
but returned by the bank because of insufficiency of fund
(bouncing checks).
◦ Technically defective checks – presented for deposit but
returned by the bank due to technical defects such as absence
of signature or counter signature, erasures not countersigned,
mutilated checks, conflict between amount in words and
amount in figures.
◦ Bank service charges and Reduction of loan
 Bank Reconciling Items:
 Deposits in transit – are collection
already recorded by the depositor as cash
receipts but not yet reflected on the bank
statement. Examples are:
◦ Collection already forwarded to the bank for
deposit but too late to appear in the bank
statement.
◦ Undeposited collections – those that are still in
the hands of the depositor. These are cash on
hand awaiting delivery to the bank for deposit.
 Bank Reconciling Items:
 Outstanding Checks – are checks already recorded
by the depositor as cash disbursements but not yet
reflected on the bank statement. Outstanding checks
include:
◦ Checks drawn and already given to the payee (supplier)
but not yet presented for payment.
◦ Certified checks – these are checks that were stamped on
its face the word “accepted” or “certified” indicating
sufficiency of fund. Certified checks immediately
decreases the depositors account.
 A certified check should be deducted from the total
outstanding checks (if included therein) because they
are no longer outstanding for bank reconciliation
purposes.
Bank Recon Methods:
 Book to Bank Method
 Bank to Book Method
 Adjusted Balance Method