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Compensating balance
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If problem is silent, ignore the compensating balance and treat it as part of cash.
If compensating balance is legally restricted, treat such as cash held as compensating
balance reported as either current or non-current asset depending on the term of the loan
or borrowing.
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The main difference between the two systems is the timing of the recognition of the expenses and
the cash account that is credited when the petty cash fund is used or replenished.
Bank Reconciliation
It is a statement which brings into agreement the cash balance per book (general ledger) and the
cash balance per bank (bank statement). It is usually prepared on a monthly basis.
There
In doing bank reconciliation, there are certain items that are considered.
Reconciliation items for books balance are as follows:
Credit memos
Debit memos
Errors
As a rule, all credit memos will increase the cash balance per books while all debit memos will
decrease cash balance per books. Effects of errors to the cash balance per books vary depending
on the nature of the error committed.
Reconciliation items for cash balance per bank statement are as follows:
Deposit in Transit
Outstanding Checks
Errors
As a rule, deposits in transit will increase the cash balance per books while outstanding checks will
decrease cash balance per books. Effects of errors to the cash balance per books vary depending
on the nature of the error committed. It is to be noted, however, that certain types of outstanding
checks will not be a reconciling item such as certified checks.
After all reconciling items are correctly reflected, the adjusted balance per book and the adjusted
balance per bank should already be in agreement. However, there are instances when this does not
happen. For cases like this, there is a logical reason to believe that a cash shortage or a cash
overage exists. Treatment of such is the same as the previous discussion in this text.
It should be noted that in doing bank reconciliations, adjusting entries for book reconciling items are
necessary to reflect the correct cash balance in the book of the entity.
Two-Date Bank Reconciliation
It is basically a bank reconciliation that involves two dates, the first date represents the beginning
cash balance and the second date represents the ending cash balance. In order to prepare this kind
of reconciliation, a proof of cash is needed.
Proof of Cash
A proof of cash is a bank reconciliation tool that provides proof for receipts and disbursements. In
using this tool, it must be emphasized that at the end of the reconciliation process, the balances of
beginning and ending cash as well as the balances of receipts and disbursements in the books and
in the bank should be the same.
There
However, the adjusted balance method is the method that is commonly used.
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