TOPIC: BANK RECONCILIATION
Reconciling items
At the end of every month, comparison between the
cash records of the depositor and the bank
statement received from the bank will yield the
following reconciling items:
1. Book reconciling items:
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•
•
Credit memos
Debit memos
Errors
2. Bank reconciling items:
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•
•
Deposits in transit
Outstanding checks
Errors
Credit memos
Credit memos refer 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 are:
a. Notes receivable collected by bank in favor of
the depositor and credited to the account of the
depositor.
b. Proceeds of 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 refer 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 are:
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".
b. Technically defective checks - These 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.
c. Bank service charges - 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 for loan which the depositor owes to the
bank and which has already matured.
Deposits in transit
Deposits in transit are collections already recorded
by the depositor as cash receipts but not yet
reflected on the bank statement.
Deposits in transit include:
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 the
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.
Outstanding checks include:
a. Checks drawn and already given to payees but
not yet presented for payment.
b. Certified checks — A certified check is one
where the bank has stamped on its face the word
"accepted" or "certified" indicating sufficiency of
fund. When the bank certifies a check, the account
of the depositor is immediately debited or charged
to insure the eventual payment of the check.
Certified checks should be deducted from the total
outstanding checks (if included therein) because
they are no longer outstanding for bank
reconciliation purposes.
Forms of bank reconciliation
The following formats may be used in reconciling
the book balance and the bank balance:
a. Adjusted balance method — Under this method,
the book balance and the bank balance are brought
to a correct cash balance that must appear on the
balance sheet.
b. Book to bank method — Under this method, the
book balance is reconciled with the bank balance
or the book balance is adjusted to equal the bank
balance.
c. Bank to book method — Under this method, the
bank balance is reconciled with the book balance
or the bank balance is adjusted to equal the book
balance.
✓ The first method is preferred over the other
two.