BANK RECONCILIATION

Formulas Terms Errors

Adjusted balance method Credit memos
 Collec ons made by bank on behalf of the BOOK ERRORS
Balance per book xx depositor Nature of error Effect on Correc on
Add: Credit memos (CM) xx  Interest income earned by the deposit ending balance
Less: Debit memos (DM) (xx)  Proceeds from loan of cash
Add/Less: Book errors xx  Unrolled-over matured me deposits Understatement Understatement Debit /
Adjusted balance xx transferred by the bank to the en ty’s account in book debit Addi on
Understatement Overstatement Credit /
Balance per bank xx Debit memos in book credit Deduc on
Add: Deposit in transit (DIT) xx  Bank service charges Overstatement Overstatement Credit /
Less: Outstanding checks (OC) (xx)  No sufficient funds (NSF) or drawn against in book debit Deduc on
Add/Less: Bank errors xx insufficient funds (DAIF) – checks deposited and Overstatement Understatement Debit /
Adjusted balance xx already recorded by the bank but subsequently in book credit Addi on
returned to the depositor because the drawer’s
Book to bank method fund is insufficient to pay for the check BANK ERRORS
 Automa c debits Understatement Understatement Credit /
Balance per book xx  Payment of loans in bank credit Addi on
Add: Credit memos (CM) xx Understatement Overstatement Debit /
Outstanding checks (OC) xx Outstanding checks, exclude the following: in bank debit Deduc on
Less: Debit memos (DM) (xx)  Cer fied checks – automa cally debits Overstatement Overstatement Debit /
Deposits in transit (DIT) (xx) (reduces) the depositor’s account in bank credit Deduc on
Balance per bank xx
 Stale checks – revert back to cash and added to Overstatement Understatement Credit /
cash balance per books in bank debit Addi on
Bank to book method
Adjus ng reconciling entries Direct Inverse
Balance per bank xx
 Are made only for book reconciling items (CM, UC – C OC – D
Add: Deposits in transit (DIT) xx
DM, book errors) UD – D OD – C
Debit memos (DM) xx
 No adjus ng entries are needed for bank
Less: Outstanding checks (OC) (xx)
reconciling items in the en ty’s books (DIT, OC,
Credit memos (CM) (xx)
bank errors)
Balance per book xx