BANK

RECONCILIATION
 Concept of bank
reconciliation

Forms of bank
reconciliation
CONTENT
OUTLINE
Reconciling items

Performing bank
reconciliation statements
 Current/checking account  Bank statement
 Non-Interest
bearing

Company A Bank Savings account  Passbook

 Interest bearing

Time deposit  Certificate of time deposit

 Interest bearing
 Company A Bank

Checking account

1. Deposit Cash in bank xx Cash xx

Cash on hand xx Deposit liability – Co. A xx

2. Payment Accounts payable xx Deposit liability – Co. A xx

of A/P Cash in bank xx Cash xx

Reciprocal Accounts
 at if the k Company A
W h
o r ban Bank
ny
compa its an
comm ?
error

Balance at beginning of month – P450,000

1. Deposit – 100,000 Cash in bank 10,000 Cash 100,000

Cash on hand 10,000 Deposit liability – Co. A 100,000
Book error! – understatement of cash in bank per books

2. Payment Accounts payable 60,000 Deposit liability – Co. A 6,000

of A/P – 60,000 Cash in bank 60,000 Cash 6,000

Bank error! – overstatement of cash (deposit liability)

Unadjusted balances P400,000 P544,000

Adjustments: 1) 90,000 -
2) - (54,000)
Adjusted balances P490,000 P490,000
BANK RECONCILIATION

It is a schedule prepared that accounts for the differences between:

Cash balances per book Cash balances per bank
(company’s record) (bank statement)

It is prepared only for checking/demand deposit and is prepared

monthly because the bank provides the depositor with the bank
statement at the beginning (normally first week) of the month.
BANK RECONCILIATION

Bank reconciliation is prepared to:

• Explain the difference between the cash balance in the accounting

records and the cash balance reported on the financial statements.

• Arrive at the adjusted (correct) cash balance to be shown in the FS.

• Provide information for reconciling journal entries.

BANK RECONCILIATION

Methods: Adjusted Balance Method

Book to Bank Method

Bank to Book Method

BANK RECONCILIATION

BOOK RECONCILING ITEMS BANK RECONCILING ITEMS

1. Credit Memos 1. Deposit in transit
2. Debit Memos 2. Outstanding checks
3. Book errors 3. Bank errors
 Example 1
DEPOSIT IN TRANSIT Collections already forwarded to
the bank for deposit but too late to
These are deposits appear in the bank statement
already recorded in the
cash books in one
period but were taken
up by the bank only in Example 2
the next period. Undeposited collections awaiting
delivery to the bank for deposit
 OUTSTANDING CHECKS

These are checks written and released

to payees and are recorded in the cash
books but are not yet presented for
encashment or deposit to the bank
 Example 1: BANK SERVICE
CHARGE
These include bank charges
for interest, collection, check
book and penalty.
Example 2: NSF/DAIF/ DAUD
Checks
These are checks deposited
and already recorded by the
bank but subsequently
returned by the bank to the
entity because of
insufficiency of fund
Example 3: PAYMENT OF
LOAN
This pertains to amount
DEBIT MEMO deducted from the current
account of the depositor in
These are charges payment for loan which the
and deductions by depositor owes to the bank
the bank to the and which has already
matured.
account of the entity
not yet recorded by
Example 4: BANK SERVICE
the entity
CHARGE
Final withholding tax on
interest income
 Example 1 Example 3
CREDIT MEMO
Collections made by the bank Matured time deposits
on behalf of the entity. transferred by the bank to
These are collections the current account of the
or deposits made by company
the bank to the
account of the
Example 2 company but not yet Example 4
recorded by the
Proceeds of bank loan entity. Interest income credited to
credited to the account of the account.
the entity
 BANK OR BOOK (DEPOSITOR) ERRORS
Errors made by the company or the bank that must be corrected for the bank and book
balances to be reconciled.

The following are the rules for errors assuming the company is using the adjusted balance
method of presenting bank reconciliation

EFFECT OF ERROR TREATMENT

1. Understatement of cash receipts ADD to the unadjusted cash in bank balance
2. Overstatement of cash receipts DEDUCT from the unadjusted cash in bank balance
3. Understatement of cash
DEDUCT from the unadjusted cash in bank balance
disbursements
4. Overstatement of cash
ADD to the unadjusted cash in bank balance
disbursements
FORMS OF BANK RECONCILIATION

Adjusted Balance
Book to Bank Bank to Book
Method
Method Method
(commonly used)
FORMULA FOR ADJUSTED BALANCE METHOD

Balance per books, end Pxx Balance per bank, end Pxx
Add: Credit Memos xx Add: Deposits in transit xx
Book errors xx xx Bank errors xx xx
Total xx Total xx
Less: Debit Memos xx Less: Outstanding checks xx
Book errors xx xx Bank errors xx xx
Adjusted balance Pxx Adjusted balance Pxx
FORMULA FOR BOOK TO BANK METHOD

BOOK BALANCE Pxx

Add: Credit Memos xx
Outstanding Checks xx xx
Total xx
Less: Debit Memos xx
Deposit in Transit xx xx
BANK BALANCE Pxx
FORMULA FOR BANK TO BOOK METHOD

BANK BALANCE Pxx

Add: Deposit in Transit xx
Debit Memos xx xx
Total xx
Less: Outstanding Checks xx
Credit Memos xx xx
BOOK BALANCE Pxx
Balance per books P891,000
Add: Note collected by bank 90,000
Total 981,000
Less: Payment of loan P31,905
NSF check 12,000
BSC 500
Error in recording check 10,000 54,905
Adjusted balance P926,595

Balance per bank P896,595

Add: DIT 160,000
Total 1,056,595
Less: Outstanding checks P80,000
Error in recording deposit 50,000 130,000
Adjusted balance P926,595