PROOF OF CASH

Two-date bank reconciliation

= the bank reconciliation is so-called “two-date: because it literally involves two dates.
The procedures followed for a one-date reconciliation are the same for a two-date bank
reconciliation.
A two-date bank reconciliation becomes complicated only when certain facts or data are omitted,
hence the necessity for computing them.
But if all the facts are available, then reconciliation statements will simply be prepared as of the
two dates prepared.
Among others, the omitted information may be any one or a combination of the following:
a) Book balance – beginning and ending
b) Bank balance – beginning and ending
c) Deposit in transit – beginning and ending
d) Outstanding checks – beginning and ending

If the ending balance are not given, the following formulas may help. If beginning balances are
omitted, the formulas should simply be reversed or just work back.

Computation of book balance

Balance per book – beginning of month xx
Add: Book debits during the month xx
Total xx
Less: Book credits during the month xx
Balance per book – end of month xx

Book debits= refer to cash receipts or all items debited to the cash in bank account.
Book credits= refer to cash disbursements or all items credited to the cash in bank account.
In a T-account form, the cash in bank may appear as follows:
Cash in bank
Balance – beginning xx Book credits xx
Book debits xx Balance – ending xx

Computation of bank balance

Balance per bank – beginning of month xx
Add: Bank credits during the month xx
Total xx
Less: Bank debits during the month xx
Balance per bank – end of month xx

Bank credits= refer to all items credited to the amount of the depositor which include deposits
acknowledged by bank and credit memos.
In the absence of any statement to the contrary, bank credits are assumed to be deposits
acknowledged by bank.
Bank debits= refer to all items debited to the account of the depositor which includes checks
paid by the bank and debit memos.
In the absence of any statement to the contrary, bank debits are assumed to be checks paid
by bank.

In a T-account form, the depositor’s account, Company X, will appear as follows:

Company X
Book debits xx Balance – beginning xx
Balance – ending xx Bank credits xx
Computation of deposit in transit
Deposits in transit – beginning of month xx
Add: Cash receipts deposited during the month xx
Total deposits to be acknowledge by the bank xx
Less: Deposits acknowledge by bank during month xx
Deposit in transit – end of month xx

Computation of outstanding checks

Outstanding checks – beginning of month xx
Add: Checks drawn by depositor during the month xx
Total checks to be paid by bank xx
Less: Checks paid by bank during the month xx
Outstanding checks – end of month xx

Illustration:
In reconciling the cash in bank with the bank statement balance for the moths of January and
February, the following data are gathered:

Cash in bank ledger

Balance, January 31 50,000
Book debits for February, including January CM
for note collected of P15,000 200,000
Book credits for February, including NSF check
of P5,000 and service charge of P1,000 for January 180,000
Bank statement for February
Balance, January 31 84,000
Bank credits for February, including CM for
note collected of P20,000 and January
deposit in transit of P40,000 170,000
Book debits for February, including NSF check of
P10,000 and January outstanding check of P65,000 130,000

The bank reconciliation for the month of January can easily be prepared because all the
necessary data are available

Balance per book, January 31 50,000

Note collected by bank in January 15,000
Total 65,000
NSF check for January ( 5,000)
Service charge for January ( 1,000)
Adjusted book balance 59,000
Balance per bank, January 31 84,000
Deposit in transit for January 40,000
Total 124,000
Outstanding check for January ( 65,000)
Adjusted bank balance 59,000

The bank reconciliation for the month of February requires computation of balance per book,
deposits in transit and outstanding checks.
Computation of book balance:
Balance per book – January 31 50,000
Add: Book debits during February 200,000
Total 250,000
Less: Book credits during February 180,000
Balance per book – February 28 70,000

Computation of bank balance:

Balance per bank – January 31 84,000
Add: Bank credits during February 170,000
Total 254,000
Less: Bank debits during February 130,000
Balance per bank 124,000

Computation of deposit in transit:

Deposit in transit – January 31 40,000
Add: Cash receipts during February:
Book debits 200,000
Less: January CM for note collected 15,000 185,000
Total 225,000
Less: Deposits acknowledged by bank in February
Bank credits 175,000
Less: February CM for note collected 20,000 150,000
Deposits in transit – February 28 75,000

The January CM of P15,000 is deducted from the book debits of P200,000 because this item is a
cash receipt not representing deposit for the month of February.
In other words, procedurewise, all items debited to the cash in bank account which do not
represent deposits should be deducted from the book debits total to arrive at the cash receipts
deposited.
In the absence of any statement to the contrary, book debits are assumed to be cash receipts
deposited.
The February CM of P20,000 for note collected is deducted from the bank credits because this is
not a deposit.
In other words, all items credited to the depositor’s account which do not represent deposits
should be deducted from the bank credits to determine the deposits acknowledge by bank.
Moreover, bank credits are assumed to be deposits acknowledged by bank in the absence of
any statement to the contrary.

Computation of outstanding checks:

Outstanding checks – January 31 65,000
Add: Checks drawn by depositor during February:
Book credits 180,000
Less: January DMs 6,000 174,000
Total 239,000
Less: Checks paid by bank during February:
Bank debits 130,000
Less: February NSF 10,000 120,000
Outstanding checks – February 28 119,000

The January DMs of P6,000 are deducted from the book credits, because they are cash
disbursements not representing checks.
In other words, all items not representing checks credited to the cash in bank account should
be deducted from the book credits total to arrive at the checks drawn by the depositor.
But as a rule, all book credits in the absence of any statement to the contrary are assumed to
be checks issued.
The February DM for NSF of P10,000 is deducted from the bank debits because this is not a bank
disbursement representing a check paid.
In other words, all items debited to the account of the depositor not representing checks paid
should be deducted from the bank debits total to arrive at the checks paid by bank.
But as a rule, all bank debits in the absence of any statement to the contrary are assumed to be
checks paid by bank.

Company X
Bank Reconciliation
February 28
Balance per book 70,000
Note collected by bank in February 20,000
Total 90,000
NSF check for February ( 10,000)
Adjusted book balance 80,000
Balance per bank 124,000
Deposits in transit for February 75,000
Total 199,000
Outstanding checks for February (119,000)
Adjusted bank balance 80,000

Proof of Cash
A proof of cash is an expanded reconciliation in that it includes proof of receipts and
disbursements.
= This approach may be useful in discovering possible discrepancies in handling cash particularly
when cash receipts have been recorded but have not been deposited.
There are three forms of proof of cash namely:
a) Adjusted balance method
b) Book to bank method
c) Bank to book method
In all three forms, a four-column worksheet is necessary, although under the adjusted balance
method, an 8-column worksheet may be required.
For our illustration, let us summarized the data used in the two-date reconciliation.

January 31 February 28
Balance per book 50,000 70,000
Balance per bank 84,000 124,000
Book debits 200,000
Book credits 180,000
Bank debits 130,000
Bank credits 170,000
Deposits in transit 40,000 75,000
Outstanding checks 65,000 119,000
NSF check 5,000 10,000
Service charge 1,000
Note collected by bank 15,000 20,000

The book debits and credits and the bank debits and credits for January are not listed anymore
because they are not necessary. The proof of cash pertains to the receipts and disbursements
for the current month of February.
Adjusted balance method
COMPANY X
PROOF OF CASH
For the month of February
January 31 Receipts Disbursements February 28
Balance per book 50,000 200,000 180,000 70,000
Note collected:
January 15,000 ( 15,000)
February 20,000 20,000
NSF check:
January ( 5,000) ( 5,000)
February 10,000 (10,000)
Service charge:
January ( 1,000) 0 ( 1,000) 0
Adjusted book balance 59,000 205,000 184,000 80,000
Balance per bank 84,000 170,000 130,000 124,000
Deposits in transit:
January 40,000 ( 40,000)
February 75,000 75,000
Outstanding checks:
January ( 65,000) ( 65,000)
February 0 0 119,000 (119,000)
Adjusted bank balance 59,000 205,000 184,000 80,000

General comments:
a) The January 31 and February 28 columns require no further explanation.
b) The receipts and disbursements columns pertain to the current month of February. Actually,
the proof of cash is a reconciliation of the receipts and disbursements for the current period.
c) The proof of cash, following the adjusted balance method, means that the book receipts and
disbursements for the current month are adjusted to equal the correct receipts and
disbursements for the current month.

Comments on the book items:

a) Credit memos of the previous month do not affect the bank receipts for the current but
increased the book receipts for the current month because the credit memos for the previous
month are recorded only by the depositor during the current month. Consequently, the book
receipts for the current month are overstated in relation to the correct receipts for the current
month. Hence, credit memos of the previous month are deducted from the book receipts for the
current month.
Thus, the January note collected amounting to P15,000, is deducted from the February book
receipts.
b) Credit memos of the current month already increased the bank receipts for the current month
but have no effect on the book receipts for the current month because the credit memos of the
current month are not yet recorded by the depositor during the current month. Consequently,
the book receipts for the current month are understated in relation to the correct receipts for
the current month. Hence, credit memos of the current month are added to the book receipts
for the current month.
Thus, the February note collected, amounting to P20,000, is added to the February book receipts.
c) Debit memos of the previous month do not affect the bank disbursements for the current
month but increased the book disbursements for the current month because the debit memos
of the previous month are recorded only by the depositor during the current month.
Consequently, the book disbursements for the current month are overstated in relation to the
correct disbursements for the current month. Hence, debit memos of the previous month are
deducted from the book disbursements for the current month.
Thus, the January NSF of P5,000 and January service charge of P1,000 are deducted from the
February book disbursements.
d) Debit memos of the current month already increased bank disbursements for the current
month but have no effect on the book disbursements for the current month because the debit
memos of the current month are not yet recorded by the depositor.
Consequently, the book disbursements for the current month are understated in relation to the
correct disbursements for the current month. Hence, debit memos of the current month are
added to the book disbursements for the current month.
Thus, the February NSF of P10,000 is added to the February book disbursements.

Comments on the bank items:

a) Deposits in transit of previous month do not affect book receipts for the current month but
increased bank receipts for the current month because the deposits are recorded only by the
bank during the current month.
Consequently, bank receipts for the current month are overstated in relation to the correct
receipts for the current month. Hence, deposits in transit of the previous month are deducted
from the bank receipts for the current month.
Thus, January deposit in transit of P40,000 is deducted from the February bank receipts.
b) Deposit in transit of the current month already increased book receipts but have no effect on
the bank receipts for the current month because the deposits are not yet recorded by the bank
during the current month.
Consequently, the bank receipts for the current month are understated in relation to the correct
receipts for the current month. Hence, deposits in transit of the current month are added to the
bank receipts of the current month.
Thus, the February deposit in transit of P75,000 is added to the February bank receipts.
c) Outstanding checks of the previous month do not affect the book disbursements but increased
bank disbursements for the current month because the outstanding checks of the previous
month are paid only by the bank during the current month.
Consequently, the bank disbursements for the current month are overstated in relation to the
correct disbursements for the current month. Hence, outstanding checks of the previous month
are deducted from the bank disbursements for the current month.
Thus, the January outstanding check of P65,000 is deducted from the February bank
disbursements.
d) Outstanding checks of the current month increased the book disbursements for the current
month but have no effect on the bank disbursements for the current month because the checks
are not yet paid by the bank during the current month.
Consequently, the bank disbursements for the current month are understated in relation to the
correct disbursements for the current month. Hence, outstanding checks of the current month
are added to the bank disbursements for the current month.
Thus, the February outstanding check of P119,000 is added to the February bank disbursements.

Book to bank method

COMPANY X
PROOF OF CASH
For the month of February
January 31 Receipts Disbursements February 25
Balance per Book 50,000 200,000 180,000 70,000
Note collected:
January 15,000 ( 15,000)
February 20,000 20,000
NSF Check:
January ( 5,000) ( 5,000)
February 10,000 ( 10,000)
Service Charge:
January ( 1,000) ( 1,000)
Deposits in transit:
January ( 40,000) 40,000
February ( 75,000) ( 75,000)
Outstanding checks:
January 65,000 65,000
February 0 0 (119,000) (119,000)
Balance per Bank 84,000 170,000 130,000 24,000
Comments:
a) The book reconciling items – note collected, NSF check and service charge – are treated in the
same manner following the adjusted balance method.
b) The bank reconciling items – deposited in transit and outstanding check – are treated in the
“reverse”.
c) The book to bank proof of cash means that the book receipts and disbursements are adjusted
to equal the bank receipts and disbursements.
d) Deposit in transit of previous month do not affect the book receipts for the current month but
increased the bank receipts for the current month.
Consequently, the book receipts for the current month are understated in relation to the bank
receipts for the current month. Hence, deposits in transit of the previous month are added to
the book receipts for the current month.
Thus, the January deposit in transit of P40,000 is added to the February book receipts.
e) Deposits in transit of the current month increased the book receipts for the current month but
have no effect on the bank receipts for the current month. Consequently, the book receipts for
the current month are overstated in relation to the bank receipts for the current month. Hence,
deposits in transit of the current month are deducted from the book receipts for the current
month.
Thus, the February deposit in transit of P75,000 is deducted from the February book receipts.
f) Outstanding checks of the previous month do not affect the book disbursements for the
current month but increased the bank disbursements for the current month. Consequently, the
book disbursements for the current month are understated in relation to the bank
disbursements for the current month. Hence, outstanding checks of the previous month are
added to the book disbursements for the current month.
g) Outstanding checks of the current month increased the book disbursements for the current
month but have no effect yet on the bank disbursements for the current month
Consequently, the book disbursements for the current month are overstated in relation to the
bank disbursements for the current month. Hence, outstanding checks of the current month are
deducted from the book disbursements for the current month.
Thus, the February outstanding check of P119,000 is deducted from the February book
disbursements.
Bank to book method
COMPANY X
PROOF OF CASH
For the month of February
January 31 Receipts Disbursements February 28
Balance per bank 84,000 170,000 130,000 124,000
Deposits In transit:
January 40,000 ( 40,000)
February 75,000 75,000
Outstanding checks:
January ( 65,000) ( 65,000)
February 119,000 ( 119,000)
Note collected:
January ( 15,000) 15,000
February ( 20,000) ( 20,000)
NSF Check:
January 5,000 5,000
February ( 10,000) 10,000
Service charge:
January 1,000 0 1,000 0
Balance per book 50,000 200,000 180,000 70,000

Comments:
a) The bank reconciling items – deposit in transit and outstanding check – are treated in the same
manner following the adjusted balance method.
b) The book reconciling items – note collected, NSF and service charge – are treated in the
“reverse”.
c) The bank to book proof of cash means that the bank receipts and disbursements for the current
month are adjusted to equal the book receipts and disbursements for the current month.
d) Credit memos of previous month do not affect the bank receipts for the current month but
increased the book receipts for the current month. Consequently, the bank receipts for the
current month are understated in relation to the book receipts for the current month.
Hence, the credit memos of the previous month are added to the bank receipts for the current
month.
Thus, the January note collected of P15,000 is added to the February bank receipts.
e) Credit memos of the current month increased the bank receipts for the current month but
have no effect yet on the book receipts for the current month. Consequently, the bank receipts
of the current month are overstated in relation to the book receipts of the current month. Hence,
the credit memos of the current month are deducted from the bank receipts for the current
month.
Thus, the February note collected of P20,000 is deducted from the February bank receipts.
f) Debit memos of previous month do not affect the bank disbursements for the current month
but increased the book disbursements for the current month.
Consequently, the bank disbursement for the current month are understated in the relation to
the book disbursements for the current month. Hence, the debit memos of previous month are
added to the bank disbursements for the current month.
Thus, the January NSF of P5,000 and the January service charge of P1,000 are added to the
February bank disbursements/
g) Debit memos of current month increased the bank disbursements for the current month but
have no effect yet on the book disbursements for the current month.
Consequently, the bank disbursements for the current month are overstated in relation to the
book disbursements for the current month. Hence, the debit memos of current month are
deducted from the bank disbursements for the current month.
Thus, the February NSF of P10,000 is deducted from the February bank disbursements for the
current month.

Reference:
2012 edition Financial Accounting Volume One by Conrado T. Valix, Jose F. Peralta and Christian
Aris M. Valix