Adjusted Balance Method

Book balance
Add: Credit memos

Total
Less: debit memos

Adjusted book balance

Bank balance
Add: Deposit in transit

Total
Less: Oustanding checks

Adjusted bank balance

Book to Bank Method

Book balance
Add: Credit memos
Outsatanding checks
Total
Less: Debit memos
Deposit in transit
Bank balance

Bank to Book Method

Bank balance
Add: Deposit in transit
Debit memos

Total
Less: Credit memos
Outstanding checks

Book balance

Two-date Bank Reconciliation

As it is so called, two-date bank reconciliation involves two dates and the procedures

followed in solving for the adjusted cash balance is just the same with one-date bank
reconciliation.
Computation of Book balance
Balance per book beginning of the month
Add: book debits during the month

Total
Less: Book credits during the month

Balance per Book end of the month

Computation of Bank balance

Balance per book beginning of the month
Add: bank credits during the month
Total
Less: bank debits during the month

Balance per Bank end of the month

Other computations involved in bank reconciliation:

Computation of deposit in transit
Deposit in transit beginning of the month
Add: Cash receipts deposited during the month

Total deposit to be acknowledged by bank

Less: Deposits acknowledged by bank during the month

Deposit in transit end of the month

Computation of outstanding checks

Outstanding checks beginning of the month
Add: checks drawn by depositor during the month

Total checks to be paid by bank

Less: Checks paid by bank during the month

Outstanding checks end of the month

The format for the bank reconciliation

Cash per bank statement

XXX

XXX

Cash per books

|
Plus:

Deposits in transit

XXX

Bank errors

XXX

collections by

-----

the bank

XXX

Interest income

Depositer errors

XXX
Subtotal
XXX
XXX
Less:
----XXX

Plus:
Note and interest

Outstanding checks

(XXX)

Bank errors

(XXX)

-----

|
|

Subtotal

Less:
Non-sufficient fund

checks

Bank charges

Depositor errors

(XXX)
(XXX)
(XXX)
|
----Adjusted cash balance
XXX
=====

XXX

=====

Adjusted cash balance

Note: The adjusted cash balance on both sides must match.

addition,

In

adjusting journal entries are required on the books for any

items

shown to reconcile the cash per books to the adjusted cash

balance.

B. Terminology on the bank reconciliation

1. Deposits in transit
These are deposits that are in the cash per books but not in the cash per bank statement. The
reason is that there is delay between when the cash gets recorded on the books and when the bank
records the deposit. Deposits in transit are determined by comparing the deposits listed on the
books with the deposits listed on the bank statement.
2. Outstanding checks
These are checks that have been deducted from the cash per the books but not the cash per the
bank statement. The reason is that there is a delay between when the check gets recorded on the
books and when the bank records the check. Outstanding checks are determined by comparing the
check disbursements on the books with the checks listed on the bank statement.
3. Bank charges
An expense for bank services that is listed on the bank statement but is not recorded on the
company's books.
4. Non-sufficient fund checks (NSF checks)
A customer payment by check that has been recorded as a deposit on the books but was not
collectible because of insufficient funds in the account of the customer.
C. A Sample Problem
Gamecock Company's cash account has a year end balance of $30,530. Outstanding checks as of year end
totaled $2,050. Deposits in transit totaled $5,340 at year end. An NSF check of $500 is included in the
year end cash balance on the books. The bank has deducted this amount on the bank statement. The bank
incorrectly recorded a deposit as $270 that was correctly recorded by the Gamecock Company as $720.
The Gamecock Company incorrectly recorded a check disbursement on their books for $350 that
correctly cleared the bank for $325. The amount was originally posted to Adverting Expense. The bank
statement also shows a service charge of $35 on the account. The bank collected on note on behalf of the
Gamecock Company that included $3,000 in principal and $200 in interest. This is included on the bank
statement but is not yet on the books of the Gamecock Company. The balance per the bank statement is
$29,480.
1. Prepare the bank reconciliation

Cash per bank statement

30,530

29,480

Cash per books

|
Plus:
Deposits in transit

|
5,340

Plus:
Note and interest

Bank errors

450

collections by

-----

the bank

35,270

3,200
Subtotal

Error on posting

25
Less:
-----

check
|

Outstanding checks

33,755

(2,050)

-------

|
|

Subtotal

Less:

Non-sufficient fund

checks

Bank charges

(500)
( 35)
|
----Adjusted cash balance
33,220

33,220

======

Adjusted cash balance

======
2. Prepare any required journal entries for the Gamecock Company.

Debits
Credits
--------------1.

Cash

3,000
200

3,200
Notes Receivable
Interest Income

(To record collection of note and interest by bank)

2.

Cash

25
Advertising Expense

25
(To correct error in posting check)

3.
500

Accounts receivable

500

Cash
(To put NSF check back into receivables)

4.

Bank Changes Expense

Cash

35
(To record bank charges)

35