FINANCIAL ACCOUNTING AND REPORTING 0

Bank Reconciliation – is a statement which brings into agreement the cash balance per book (depositor’s record) and cash
balance per bank as reflected in the bank statement.

Reconciling Items
1. Book Reconciling Items
a. Timing Difference
i. Credit memos – items not representing deposits credited by the bank to the account of the depositor but are not
yet recorded by the depositor as cash receipts as at cut-off date.
ii. Debit memos - - items not representing checks paid by the bank which are charged or debited by the bank to
the account of the depositor but are not yet recorded by the latter as cash disbursements as at cut-off date.
b. Book errors (errors committed, in good faith, by the depositor)

2. Bank Reconciling Items

a. Timing Difference
i. Deposits in transit – collections already recorded by the depositor as cash receipts but are not yet reflected on
the bank statement.
ii. Outstanding checks – checks already recorded by the depositor as cash disbursements but are not yet reflected
on the bank statement.
b. Bank errors (errors committed, in good faith, by the bank)

Forms of Bank Reconciliation:

Adjusted Balance Method Book to Bank Method Bank to Book Method
Book balance, unadjusted xx Bank balance, unadjusted xx Book balance, unadjusted xx Bank balance, unadjusted xx
Add: Credit memos (CM) xx Add: Deposits in transit (DIT) xx Add: CM and OC xx Add: DIT and DM xx
Total xx Total xx Total xx Total xx
Less: Debit memos (DM) xx Less: Outstanding checks (OC) xx Less: DM and DIT xx Less: OC and CM xx
Book balance, adjusted xx Bank balance, adjusted xx Bank balance, unadjusted xx Book balance, unadjusted xx
*Errors should be corrected by the same party which committed the same. The adjustment (added or deducted)shall depend on the nature
of the error and the form of bank reconciliation adopted by the Company.

Two – Date Bank Reconciliation:

This reconciliation attempts to reconcile the beginning and ending balances of the Company’s cash in bank account.

Guide computations for the following balances:

Ending Book and Bank Balances Deposits in transit, end Outstanding checks, end
Book balance, beginning xx Bank balance, beginning xx DIT, beginning xx OC, beginning xx
Add: Book debits (R) xx Add: Bank credits (R) xx Add: Current deposits per book xx Add: Checks issued per book xx
Total xx Total xx Total xx Total xx
Less: Book credits (D) xx Less: Bank debits (D) xx Less: Current deposits per bank xx Less: Checks paid per bank xx
Book balance, ending xx Bank balance, adjusted xx DIT, ending xx OC, ending xx

Proof of Cash
A proof of cash is an expanded reconciliation which attempts to reconcile the beginning cash in bank balance, current period receipts,
current period disbursements and cash in bank ending balance.

Guide computations for the following balances:

Adjusted Balance Method (Book) Book to Bank Method (Book)
Particulars BB R D EB Particulars BB R D EB
Book balance, unadjusted Xx xx xx xx Book balance, unadjusted xx xx xx xx
Credit memos: Credit memos:
Last month Xx (xx) Last month xx (xx)
Current month xx xx Current month xx xx
Debit memos: Debit memos:
Last month (xx) (xx) Last month (xx) (xx)
Current month xx (xx) Current month xx (xx)
Book balance, adjusted Xx xx xx xx Deposits in transit:
Last month (xx) xx
Adjusted Balance Method (Book) Current month (xx) xx
Particulars BB R D EB Outstanding checks:
Bank balance, unadjusted Xx xx xx xx Last month xx xx
Deposits in transit: Current month (xx) xx
Last month Xx (xx) Bank balance, unadjusted xx xx xx xx
Current month xx xx
Outstanding checks: Bank to Book Method (Book)
Last month (xx) (xx) *Bank reconciling items – same treatment as under adjusted balance method
Current month xx (xx) *Book reconciling items – reverse treatment
Bank balance, adjusted Xx xx xx xx
*Errors should be corrected by the same party which committed the same. The adjustment (added or deducted) shall depend on the nature
of the error and the form of bank reconciliation adopted by the Company.

Important notes on the preparation of Proof of Cash:

1. Book debits and bank credits pertain to cash receipts while book credits and bank debits refer to cash disbursements.
2. Proof of cash intends to cancel the effects of timing differences in the recording of cash in bank transactions.
3. Receipts and disbursements related to cash in bank must be recorded in the month where the actual collection or payment of cash has
taken place.

Handout – Bank Reconciliation & Proof of Cash