Bank Reconciliation

Procedure in Opening Checking Account

1. Documentary requirements should be presented to the bank. 2. The person authorized to draw checks against the account will be required to sign signature cards. 3. These specimen signature cards will be filed by the bank so that any teller who may be unfamiliar with the depositors signature can test the authenticity of the check by comparing the depositors signature on the card with the signature on the check.

4. If the depositor is a corporation, the bank will request that the directors pass a resolution authorizing certain officers of the corporation as signatories of the checks and a copy of these resolution be filed with the bank.

Illustration
Assume that Company X (the depositor) collected P100,000 from the customer in settlement of the account. The collection is deposited at the First Bank. The entry to record the collection and the subsequent deposit is: Cash in bank 100,000 Account receivable 100,000 On the book of the bank, the entry is: Cash 100,000 Demand deposit(Company X) 100,000

Let us assume further that Company X subsequently issued a check of P30,000 in payment of an account payable. On the books of the Company X, the entry is Accounts payable 30,000 Cash 30,000 The entry on the books of the bank is: Demand deposit(Company X) Cash

30,000

30,000

What is Bank Reconciliation?

It is a statement which brings into agreement the cash balance per book and the 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. This shows the cash balance per bank at the beginning, the deposits acknowledged, the checks paid, other charges and credits and the daily cash balance per bank during the month. When the bank statement is received, attached thereto are the depositors cancelled checks and any debit or credit memoranda that have affected the depositors balance.

Reconciling Items
Book reconciling items: a. Credit memos b. Debit memos c. Errors Bank reconciling items: a. Deposits in transit b. Outstanding checks c. Errors

Credit memos
Refer to 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. 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.

Debit memos
Refer to items not representing checks paid by the depositor which were charged or debited by the bank to the account of the depositor but not yet recorded by the depositor as cash disbursement. They have the effect of decreasing the bank balance. a. NSF checks reason DAIF, DAUD. b. Technically defective checks- absence of signature or countersignature, mutilated, erasures not countersigned, conflict between words and figures. c. Bank service charges. d. Reduction of loan.

Deposit in transit
Are collections already recorded by the depositor as cash receipts but not yet reflected on the bank statement. 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 hand of the depositor.

Forms of Bank Reconciliation

Adjusted balance method- the book balance and the bank balance are brought to a correct cash balance that must appear on the balance sheet. Book to bank method- the book balance is reconciled with the bank balance or the book balance is adjusted to the bank balance. Bank to book method- the bank balance is reconciled with the book balance or the bank balance is adjusted to the book balance.

Proforma adjusted balance method

Book balance add credit memos Total less debit memos adjusted book balance Bank balance add deposits in transit total less outstanding checks adjusted bank balance xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx

Outstanding checks
Are checks already recorded by the depositor as cash disbursements but not yet reflected on the bank statement.
a. check drawn and already given to the payee but not yet presented for payment. b. Certified checks. Check stamped by the bank on its face the word accepted or certified indicating sufficiency of fund.