CHAPTER 2 - BANK RECONCILIATION AND PROOF OF CASH

What is Bank Reconciliation?

● It is a statement which brings into agreement the cash balance per book (cash balance in the general
ledger) and cash balance per bank (as shown in the bank statement).
● It is usually prepared monthly because the bank provides to the depositor a bank statement every end
of the month.

What is a bank statement?

● It is a monthly report provided by the bank to the depositor showing all transactions that have affected
the cash deposited in the bank.
● It shows details on the following: beginning of the month balance, credits to the account (increases),
debits to the account (decreases) and the end of the month balance.

What are reconciling items?

● They are the very reason why the cash balance per book (general ledger) does not equal to the cash
balance per bank (per bank statement)
● These are:
a. Book reconciling items
b. Bank reconciling items

What are book reconciling items?

● They are those items which have been added or deducted by the bank to the depositor’s account in
which the depositor had no knowledge until after the receipt of the monthly bank statement. An error
committed in the books will likewise be treated as book reconciling items.
● These may include:
a. Credit memos
b. Debit Memos
c. Book errors

What are Credit Memos?

● These are items not representing deposits credited (added) by the bank to the account of the depositor
but not yet recorded by the depositor as cash receipts.
● Examples:
a. notes receivable collected by the bank in favor of the depositor and credited to the account of
the depositor;
b. Proceeds of bank loan credited to the account of the depositor;
c. Matured time deposits transferred by the bank to the current account of the depositor

What are Debit Memos?

● These are items, not representing checks issued by the depositor and paid by the bank, which are
charged, debited or deducted by the bank to the account of the depositor but not yet recorded by the
depositor as cash payments.
● Examples:
a. NSF, DAIF or DAUD checks
b. Technically defective checks
c. Bank Service Charge
d. Loan Amortization

What are Bank reconciling items?

● They are items which the depositor already recorded either as increase or decrease in “Cash” but not
yet acknowledged by the bank either as deposits or withdrawals at the end of the month. Likewise,
errors committed by the bank is a bank reconciling item.
● These may include:
a. Deposits in transit
b. Outstanding checks
c. Bank errors

What are Deposits in Transit?

● These are cash collections already recorded by the depositor in its books but not yet reflected in the
bank statement.
● Examples:
a. Collections already forwarded to the bank for deposits but too late to appear in the bank
statement.
b. Undeposited collections or those still in the hands of the depositor awaiting deposit.
What are Outstanding Checks?
● These are checks already recorded by the depositor as cash payments (thru issuance of checks) but
not yet reflected in the bank statement.

What are the forms of Bank Reconciliation?

● Adjusted balance method
● Book to bank method
● Bank to book method

What is a Proof of Cash?

● It is an expanded reconciliation in that it includes proof or receipts and disbursements.