JPIA-HAU

FINANCIAL ACCOUNTING Proof of Cash (Two-Date Bank

Reconciliation)
AND REPORTING 1
Cash and Cash Equivalents 1. Definition. A proof of cash is an
expanded reconciliation in that it
Overview of the Handouts: includes proof of receipts and
1. Bank reconciliation disbursements. This approach may
2. Proof of Cash be useful in discovering possible
discrepancies in handling cash
particularly when cash receipts have
Bank Reconciliation been recorded but have not been
deposited.
1. Definition. A bank reconciliation is a
statement which brings agreement the 2. Guides and assumptions in Proof of
cash balance per book and cash Cash
balance per bank. It is usually prepared a. CMs and DMs of last month will
every month as mostly; banks send be received in the following
bank statements monthly. month, thus will only be recorded
as receipts/disbursements in the
2. Forms of Bank Reconciliation following month.
a. Adjusted balance method – book b. DITs and OCs of last month will
balance and bank balance are be cleared or paid by the bank in
brought to a correct cash balance the following month, thus will only
that must appear in the balance be recorded as
sheet receipts/disbursements in the
b. Book to bank method – the book following month.
balance is reconciled with the c. Errors of last month will be
bank balance or the book corrected by either book or bank
balance is adjusted to equal the in the following month.
bank balance d. The correcting entries (in either
c. Bank to bank method – the bank books of depositor and the bank)
balance is reconciled with the will produce an overstatement or
book balance or the bank understatement of the receipts or
balance is adjusted to equal the disbursements.
book balance E.g. For CM, the CIB will be debited in the
following month when notified by the bank. This
3. Solution Guide for Bank Reconciliation will overstate the receipts since CIB was
Book balance, unadjusted xx debited. To adjust, the receipts will be deducted
Add: Credit memos xx by the amount of the CM.
Less: Debit memos xx
Add or Less: Errors xx 3. Solution Guides for Proof of Cash
Book balance, adjusted xx Formula for Deposit in Transit, end
Deposit in Transit, beg. xx
Errors: Add: Deposit made by the company this month xx
Overstated Receipts Less Total deposits to be acknowledged by the
Understated Receipts Add bank xx
Overstated Disbursements Add Less: Deposit acknowledged by the bank this
Understated Disbursements Less month xx
Deposit in Transit, end. xx
Bank balance, unadjusted xx
Add: Deposit in transit xx Formula for Deposit made by the company this
Less: Outstanding checks xx month
Add or Less: Errors xx Book receipts (Debits) xx
Bank balance, adjusted xx Less:
Credit memo last month xx
Errors: Book errors last month corrected this
Overstated Credits Less month
Understated Credits Add Overstatement of CD xx
Overstated Debits Add Understatement of CR xx
Understated Debits Less Book errors this month
Overstatement of CR xx
Note: Errors vary. In an event where the company Add: Understatement of CR xx
has extraordinary policies (e.g. combining cash fund Deposit made by the company this month xx
and cash in bank in a single account), items must be Mnemonics: BDCM-OUOU
carefully scrutinized whether or not they are part of
Cash in Bank or not.

Financial Accounting and Reporting 1 – Cash

 JPIA-HAU
Formula for Deposit acknowledged by the bank
this month
Bank receipts (Credits) xx
Less:
Credit memo this month xx
Bank errors last month corrected this
month
Overstatement of CD xx
Understatement of CR xx
Bank errors this month
Overstatement of CR xx
Add: Understatement of CR xx
Deposit acknowledged by the bank this month xx

Mnemonics: BCCM-OUOU

Formula for Outstanding Checks, end

Outstanding checks, beg. xx
Add: Checks issued by the company this
month xx
Total checks to be paid by the bank xx
Less: Checks paid by the bank this month xx
Outstanding checks, end. xx

Formula for Checks issued by the company this

month
Book disbursements (Credits) xx
Less:
Debit memo last month xx
Book errors last month corrected this
month
Overstatement of CR xx
Understatement of CD xx
Book errors this month
Overstatement of CD xx
Add: Understatement of CD xx
Checks issued by the company this month xx

Mnemonics: BCDM-OUOU

Formula for Checks paid by the bank this month

Bank disbursements (Debits) xx
Less:
Debit memo this month xx
Bank errors last month corrected this
month
Overstatement of CR xx
Understatement of CD xx
Bank errors this month
Overstatement of CD xx
Add: Understatement of CD xx
Checks paid by the bank this month xx

Mnemonics: BDDM-OUOU

4. Additional Treatments on Certain Items

Financial Accounting and Reporting 1 – Cash