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ACC 102

BANK RECONCILIATION

Bank reconciliation-

 Brings agreement
 To the cash balance per book
 Cash balance per bank
 Bank reconciliation is needed in order to adjust the differences that arises from a multitude of
transactions
 Prepared monthly
 Bank provides the deposit w/ a bank statement at the end of every month

Components of monthly bank statement from the bank to the depositor:

 Check balance per bank at the beginning

 Bank acknowledges deposit made by depositor
 The bank pays checks drawn by the depositor
 Shows daily cash balance per bank during the month

Reciprocal accounts-

If you are going to debit cash, there is a corresponding credit on the banks account

Reconciling items-

 Happens at the end of every month

 Comparison of depositor and bank statements
 Book reconciling items:
o Credit memos-
 Items not representing deposits
 Credited by the bank to the bank account of the depositor
 Not yet recorded by depositor as cash receipts
 Effect = + bank balance

Example of credit memos:

a. Notes receivable collected by bank

b. Proceeds of bank loan
c. Matured time deposits:
 Transferred by bank
 To current account of depositor
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o Debit memos-
 Items not representing checks paid by bank
 Charged/debited by bank
 To bank account of depositor
 But not yet recorded by depositor as cash disbursement

Example of debit memos:

a. No sufficient fund checks (NFS)

b. Technically defective checks
c. Bank service charges
d. Reduction of loan
o Errors
 Bank reconciling items:
o Deposits in transit-
 Collections recorded by depositor
 Recorded as cash receipts
 Not yet reflected on bank statements

Deposit in transit includes:

a. Collections-
 Already forwarded to the bank for deposit
 Too late to appear in the bank statement
b. Un-deposited collections-
 Still in the hands of the depositor
o Outstanding checks-
 Checks recorded by depositor
 Recorded as cash disbursements
 Not yet reflected on the bank statement

Outstanding checks include:

a. Checks-
Drawn and already given to payees
Not yet represented for payment
b. Certified checks-
 Banks have a stamp on its face
 Worded “accepted/certified”= sufficiency of funds
 For bank reconciliation purposes
 Will not be considered outstanding checks
o Errors
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Forms of bank reconciliation:

a. Adjusted balance method-

 Book and bank balance are brought to correct cash balance
 Must appear on the balance sheet

BOOK BALANCE XX
CREDIT MEMOS XX
TOTAL XXXX
(DEBIT MEMOS) (XX)
=ADJUSTED BOOK BALANCE XX
BOOK BALANCE XX
DEPOSIT IN TRANSIT XX
TOTAL XXXX
(OUTSTANDING CHECKS) (XX)
=ADJUSTED BANK BALANCE XX

b. Book to bank method-

 Book is reconciled w/ bank balance
 Book balance adjusted to = bank balance

BOOK BALANCE XX
CREDIT MEMOS XX
OUTSTANDIND CHECKS XX
TOTAL X XXXXX
(DEBIT MEMOS) (XX)
(DEPOSIT IN TRANSIT) (XX)
=BANK BALANCE XX

c. Bank to book method-

 Bank balance is reconciled w/ book balance
 Bank balance is adjusted to = book balance

BOOK BALANCE XX
DEPOSIT IN TRANSIT XX
DEBIT MEMOS XX
TOTAL XXXXXX
(OUTSTANDING CHECKS) (XX)
(CREDIT MEMOS) (XX)
= BOOK BALANCE XX