Bank Reconciliation

Chapter 8
Bank Reconciliation

Bank Reconciliation Statement

A bank reconciliation statement is a report that is prepared for
the purpose of bringing the balances of cash per records and per
bank statement into agreement.

Bank reconciliation are prepared to:

a. Explain the difference between the cash balance reported on the
bank statement and the cash balance in the accounting books.
b. Arrive at the adjusted (correct) cash balance to be shown in the
financial statements.
c. Provide information for reconciling journal entries.
Bank Reconciliation

Reconciling Items
Bank reconciling items:
a. Deposits in Transit - are deposits already made but not
yet received by the bank, or received by the bank but not
yet credited to the depositor's bank account.
Deposits in transit often occur when deposits are
mailed to the bank, placed in an overnight depository, made
through check and the check has not yet cleared, or made
after the bank's cut-off.
Bank Reconciliation

Reconciling Items
Bank reconciling items:
b. Outstanding checks - are checks drawn and released to
payees but are not yet encashed with the bank.

c. Bank errors - errors committed by the bank

Bank Reconciliation
Outstanding checks exclude the following:
Certified checks - the bank, when certifying the checks
automatically debits (reduces) the depositor's account and
assumes direct liability on paying the certified checks to the
payee. Certified checks are already deducted from the
account, thus, they are no longer outstanding.
Stale checks - (checks that remain outstanding for a
relatively lon period of time) are reverted back to cash,
meaning, they are added back to the cash balance per
books, and are excluded from outstanding checks.
Bank Reconciliation

Reconciling Items
Book reconciling items:
a. Credit Memos - These are additions (bank credits) made
by the bank to the depositor's bank account but not yet
recorded by the depositor.
Examples:
• Collections made by the bank on behalf of the depositor
• Interest income earned by the deposit
• Proceeds from loan directly credited or added by the bank to the
depositor's account
Bank Reconciliation

Reconciling Items
Book reconciling items:
b. Debit Memos - These are deductions (bank debits)
made by the bank to the depositor's bank account but not
yet recorded by the depositor.
Examples:
• Bank service charges - represents bank charges for fees,
interest, penalties, and surcharges.
• Automatic debits, such as when the depositor and the bank
agree that the bank will make automatic payments of bills on
behalf of the depositor.
Bank Reconciliation

Examples:
• No sufficient funds (NSF) checks or Drawn against
insufficient funds (DAIF) checks - these are checks deposited
and already recirded by the bank but subsequently returned to the
depositor because the drawer's fund is insufficient to pay the
check.
• Payment of loans - this represents payment of loan which the
depositor agreed to be made out directly from its bank account.
Bank Reconciliation

Reconciling Items
Book reconciling items:
c. Book errors - errors committed by the depositor
(erroneous recording in the accounting books such as
transposition and slide)
 ABC Co.
Bank Reconciliation
For the month ended, October 31, 2018

Balance per book, end Pxx Balance per bank, end Pxx
Credit memos (CM) xx Deposits in transit (DIT) xx
Debit memos (DM) (xx) Oustanding checks (OC) (xx)
Book errors xx/(xx) Bank errors xx/(xx)
Adjusted balance Pxx Adjusted Balance Pxx
Illustration 1

You received your July 2018 bank statement. The July

31, 2018 cash balane in your accounting books is P300,000
while the cash balance shown on the bank statement is
P430,000. You determined the following reconciling item:
a. Credit memo - P190,000
b. Debit memo - P30,000
c. Deposits in transit - P50,000
d. Outsatanding checks - P20,000

Prepare the bank reconciliation.

 ABC Co.
Bank Reconciliation
For the month ended, July 31, 2018

Balance per book, end P300,000 Balance per bank, end P430,000
Credit memos (CM) 190,000 Deposits in transit (DIT) 50,000
Debit memos (DM) (30,000) Oustanding checks(OC)(20,000)
Book errors ---- Bank errors ----
Adjusted balance P460,000 Adjusted Balance P460,000