FINANCIAL ACCOUNTING AND REPORTING 0
Bank Reconciliation – is a statement which brings into agreement the cash balance per book (depositor’s record) and cash
balance per bank as reflected in the bank statement.
Reconciling Items
1. Book Reconciling Items
a. Timing Difference
i. Credit memos – items not representing deposits credited by the bank to the account of the depositor but are not
yet recorded by the depositor as cash receipts as at cut-off date.
ii. Debit memos - - items not representing checks paid by the bank which are charged or debited by the bank to
the account of the depositor but are not yet recorded by the latter as cash disbursements as at cut-off date.
b. Book errors (errors committed, in good faith, by the depositor)
2.
Bank Reconciling Items
a. Timing Difference
i. Deposits in transit – collections already recorded by the depositor as cash receipts but are not yet reflected on
the bank statement.
ii. Outstanding checks – checks already recorded by the depositor as cash disbursements but are not yet reflected
on the bank statement.
b. Bank errors (errors committed, in good faith, by the bank)
Forms of Bank Reconciliation:
Adjusted Balance Method
Book balance, unadjusted
xx
Bank balance, unadjusted
Add: Credit memos (CM)
xx
Add: Deposits in transit (DIT)
Total
xx
Total
Less: Debit memos (DM)
xx
Less: Outstanding checks (OC)
Book balance, adjusted
xx
Bank balance, adjusted
xx
xx
xx
xx
xx
Book to Bank Method
Book balance, unadjusted
Add: CM and OC
Total
Less: DM and DIT
Bank balance, unadjusted
xx
xx
xx
xx
xx
Bank to Book Method
Bank balance, unadjusted
Add: DIT and DM
Total
Less: OC and CM
Book balance, unadjusted
xx
xx
xx
xx
xx
*Errors should be corrected by the same party which committed the same. The adjustment (added or deducted)shall depend on the nature
of the error and the form of bank reconciliation adopted by the Company.
Two – Date Bank Reconciliation:
This reconciliation attempts to reconcile the beginning and ending balances of the Company’s cash in bank account.
Guide computations for the following balances:
Ending Book and Bank Balances
Book balance, beginning
xx
Bank balance, beginning
Add: Book debits (R)
xx
Add: Bank credits (R)
Total
xx
Total
Less: Book credits (D)
xx
Less: Bank debits (D)
Book balance, ending
xx
Bank balance, adjusted
Deposits in transit, end
DIT, beginning
Add: Current deposits per book
Total
Less: Current deposits per bank
DIT, ending
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
Outstanding checks, end
OC, beginning
Add: Checks issued per book
Total
Less: Checks paid per bank
OC, ending
xx
xx
xx
xx
xx
Proof of Cash
A proof of cash is an expanded reconciliation which attempts to reconcile the beginning cash in bank balance, current period receipts,
current period disbursements and cash in bank ending balance.
Guide computations for the following balances:
Adjusted Balance Method (Book)
Particulars
BB
R
Book balance, unadjusted
Xx
xx
Credit memos:
Last month
Xx
(xx)
Current month
xx
Debit memos:
Last month
(xx)
Current month
Book balance, adjusted
Xx
xx
Adjusted Balance Method (Book)
Particulars
BB
R
Bank balance, unadjusted
Xx
xx
Deposits in transit:
Last month
Xx
(xx)
Current month
xx
Outstanding checks:
Last month
(xx)
Current month
Bank balance, adjusted
Xx
xx
D
xx
EB
xx
xx
(xx)
xx
xx
(xx)
xx
D
xx
EB
xx
Book to Bank Method (Book)
Particulars
BB
R
Book balance, unadjusted
xx
xx
Credit memos:
Last month
xx
(xx)
Current month
xx
Debit memos:
Last month
(xx)
Current month
Deposits in transit:
Last month
(xx)
xx
Current month
Outstanding checks:
Last month
xx
Current month
Bank balance, unadjusted
xx
xx
D
xx
EB
xx
xx
(xx)
xx
(xx)
(xx)
xx
xx
(xx)
xx
xx
xx
xx
(xx)
xx
xx
(xx)
xx
Bank to Book Method (Book)
*Bank reconciling items – same treatment as under adjusted balance method
*Book reconciling items – reverse treatment
*Errors should be corrected by the same party which committed the same. The adjustment (added or deducted) shall depend on the nature
of the error and the form of bank reconciliation adopted by the Company.
Important notes on the preparation of Proof of Cash:
1. Book debits and bank credits pertain to cash receipts while book credits and bank debits refer to cash disbursements.
2. Proof of cash intends to cancel the effects of timing differences in the recording of cash in bank transactions.
3. Receipts and disbursements related to cash in bank must be recorded in the month where the actual collection or payment of cash has
taken place.
Handout – Bank Reconciliation & Proof of Cash