CHAPTER 8 BANK RECONCILIATION

Kinds of bank deposits:

Demand deposit current account or checking account or commercial deposits are covered by
deposit slips and where funds are withdrawable on demand by drawing checks against the bank.
(non-interest bearing).
Saving deposit depositor is given a passbook upon the initial deposit. Required when making
deposits and withdrawals. (interest bearing)
Time deposit evidenced by formal agreement embodied in an instrument called certificate of
deposit. (interest bearing)

Bank reconciliation:

Necessarily only for demand deposit or checking account.

A statement which brings into agreement the cash balance per book and cash balance per bank. It
shows cash balance per bank at the beginning, deposits acknowledged, checks paid, other charges and
credits and the daily cash balance per bank during the month.

Canceled checks - Checks issued by the depositor and paid by the bank during the month. Literally
canceled by stamping or punching to show that they have been paid.

Reconciling items:

1) book reconciling items:

Credit memos
Debit memos
Errors

2) bank reconciling items:

Deposits in transit
Outstanding checks
Errors

Credit memos

Deposits credited by the bank to the account of the depositor but not yet recorded by the depositor as
cash receipts. Increasing bank balance

Notes receivable collected by the bank

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

Debit memos

Checks paid by the bank which are charged or debited by the bank to the account of depositor but not
yet recorded by the depositor as cash disbursements.

NSF or no sufficient fund checks

 Technically defective checks
Bank service charge
Reduction of loan (payment)

Deposits in transit

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

Outstanding checks

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

Forms of bank reconciliation:

Adjusted balance method book balance and bank balance are brought to correct cash balance
Book to bank method book balance is reconciled with the bank balance or the book balance is
adjusted to equal the bank balance.
Bank to book method - bank balance is reconciled with the book balance or the bank balance is
adjusted to equal the book balance.

Adjusted balance method:

Book balance xx

Add: credit memos xx

Total xx

Less: debit memos xx

Adjusted book balance xx

Bank balance xx

Add: deposits in transit xx

Total xx

Less: outstanding checks xx

Adjusted bank balance xx

Book to bank method:

Book balance xx

Add: credit memos xx

 Outstanding checks xx

Total xx

Less: debit memos xx

Deposits in transit xx

Bank balance xx

Bank to book method:

Bank balance xx

Add: deposits in transit xx

Debit memos xx

Total xx

Less: outstanding checks xx

Credit memos xx

Bank balance xx