Intermediate Accounting 1

BANK RECONCILIATION
Chapter 2

 BANK RECONCILIATION
This a statement which brings into agreement the cash balance per
book and cash balance per bank.
 This is usually prepared monthly because the bank provides the
depositor with the bank statement at the end of every month.
RECONCILING ITEMS
1. Book reconciling items:
a. Credit memo
b. Debit memo
c. Errors
2. Bank reconciling items
a. Deposits in transit
b. Outstanding checks
c. Errors
CREDIT MEMOS
 These are items not representing deposits credited by the bank to
the account of the depositor but not yet recorded by the
depositor as cash receipts
1. Notes receivable collected by the bank.
2. Proceeds of bank loan
3. Matured time deposits
DEBIT MEMOS
 These are items not representing checks paid by bank which are
charged or debited by the bank to the account of the depositor
but not yet recorded by the depositor as cash disbursement.
1. NSF checks
2. Technically defective checks
3. Bank service charges
4. Reduction of loan
DEPOSITS IN TRANSIT
 These are collections already recorded by the depositor as cash
receipts but not yet reflected on the bank statement.
1.Collections already forwarded to the bank for deposit but too late
to appear in the bank statement.
2. Undeposited collections.
OUTSTANDING CHECKS
 These are checks already recorded by the depositor as cash
disbursements but not yet reflected on the bank statement.
1. Checks drawn and already given to payee but not yet presented for
payment.
2. Certified checks

FORMS OF BANK RECONCILIATION

1. Adjusted balance method
 The book balance and the bank balance are brought to a correct
cash balance that must be appear on the balance sheet.
2. Book to bank method
 It starts with the book balance and ends with the bank balance;
the usual book reconciling items are treated in the same manner
they are treated in the adjusted balance method. With respect to
the bank reconciling items the treatment is reversed.

3. Bank to book method

 It starts with the bank balance and ends with the book balance;
the usual bank reconciling items are treated in the same manner
they are treated in the adjusted balance method. With respect to
the book reconciling items the treatment is reversed.
 PREPARATION OF ADJUSTING ENTRIES
 Only the book reconciling items require adjusting entries on the
book of the depositor.
 The adjustments are necessary to the bring the cash in bank
balance to its correct balance for statement presentation
purposes.