BANK

RECONCILIATION
WHAT IS BANK RECONCILIATION?

• A bank reconciliation is a statement which brings into

agreement the cash balance per book and cash balance per
bank.
• The reconciliation is usually prepared monthly because the
bank provides the depositor with the bank statement at the
end of every month.
WHAT IS BANK RECONCILIATION?

• A bank statement is a monthly report of the bank to the depositor

showing:
a. The Cash Balance per Bank at the beginning.
b. The deposits made by the depositor and acknowledged by the
bank.
c. The checks drawn by the depositor and paid by the bank.
d. The daily cash balance per bank during the month.
WHAT IS BANK RECONCILIATION?

• Actually, the bank statement is an exact copy of the depositor’s ledger

in the records of the bank.
• When the bank statement is received, attached thereto are the
depositor’s cancelled checks and any debit or credit memoranda that
have affected the depositor’s account.
• The canceled checks are the checks issued by the depositor and paid by
the bank during the month.
RECONCILING ITEMS
BOOK RECONCILING
ITEMS
BOOK RECONCILING ITEMS

• Credit Memo
• Debit Memo
• Errors
BANK RECONCILING
ITEMS
BANK RECONCILING ITEMS

• Deposit in Transit
• Outstanding Checks
• Errors
CREDIT MEMOS
CREDIT MEMOS

• Refers to items not representing deposits credited by the

bank to the account of the depositor but not yet recorded by
the depositor as cash receipts.
• The credit memos have the effect of increasing the bank
balance.
TYPICAL EXAMPLES OF CREDIT MEMOS

a. Notes Receivable collected by bank in favor of the depositor

and credited to the account of the depositor.
b. Proceeds of a bank loan credited to the account of the
depositor.
c. Matured time deposits transferred by the bank to the current
account of the depositor.
DEBIT MEMOS
DEBIT MEMOS

• Refers to 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
disbursements. The debit memos have the effect of
decreasing the bank balance.
TYPICAL EXAMPLES OF DEBIT MEMOS

a. NSF or No Sufficient Fund Checks- These are checks

deposited but returned by the bank because of insufficiency
of fund. The other name for NSF is DAIF or Drawn Against
Insufficient Fund.
TYPICAL EXAMPLES OF DEBIT MEMOS

b. Technically Defective Checks- There are checks deposited

but returned by the bank because of technical defects such as
absence of signature or countersignature, erasures not
countersigned, mutilated checks, conflict between amount in
words and amount in figures.
TYPICAL EXAMPLES OF DEBIT MEMOS

c. Bank Service Charge- These include bank charges for

interest, collection, checkbook and penalty
d. Reduction of Loan- This pertains to amount deducted from
the current account of the depositor in payment of loan which
the depositor owes to the bank and which has already matured.
DEPOSIT IN TRANSIT
DEPOSIT IN TRANSIT

• Collections already recorded by the depositor as

cash receipt but not yet reflected on the bank
statement.
EXAMPLES OF DEPOSIT IN TRANSIT

a. Collections already forwarded to the bank for deposit but

too late to appear in the bank statement.
b. Undeposited collections or those still in hands of the
depositor. In effect, these are cash on hand awaiting
delivery to the bank for deposit.
OUTSTANDING
CHECKS
OUTSTANDING CHECKS

• Are checks already recorded by the depositor as

cash disbursements but not yet reflected on the
bank statement.
EXAMPLES OF OUTSTANDING CHECKS

a. Checks drawn and already given to payees but not yet

presented for payment.
b. Certified checks- Should be deducted from the total
outstanding checks (if included therein) because they are
no longer outstanding for bank reconciliation purposes.
 PRO- FORMA
RECONCILIATION
PRO- FORMA RECONCILIATION

Book Balance xxx

Add: Credit Memos xxx
Total xxx
Less: Debit Memos xxx
Adjusted Book Balance xxx
PRO- FORMA RECONCILIATION

Bank Balance xxx

Add: Deposit in Transit xxx
Total xxx
Less: Outstanding Checks xxx
Adjusted Bank Balance xxx
END