BANK RECONCILIATION
MICHAEL G. AUDITOR
WHAT IS BANK RECONCILIATION?
 activity that reconciles an entity’s bank account with its financial records
 a useful financial internal control tool used to prevent fraud
 output of bank reconciliation process is a bank reconciliation statement
 outlines the deposits, withdrawals, and other activities affecting a bank
account for a specific period
WHY RECONCILE?
 the account balance as reported by the bank is compared to the general
ledger of a business
 businesses maintain a cash book and the bank too keeps an account for every customer
 The bank sends the account statement to its customers every month or at
regular intervals.
 Sometimes these balances do not match.
 The business needs to identify the reasons for the discrepancy and reconcile
the differences.
 This is done to confirm every item is accounted for and the ending balances
match.
OTHER PURPOSE OF BR?
 Detecting errors such as double payments, missed payments, calculation errors
 A check payment of P10,000 was recorded at P100,000 by the company.
 Tracking and adding bank fees and penalties in the books
 Bank service charge for the month of February 2022 and checkbook fees are reflected in
the bank statement but not yet taken up in the company’s book
 Spot fraudulent transactions and theft
 ABC made P100,000 deposit per deposit control book of the treasury department but was
not found in the bank statement received. The investigation unveiled that such deposit
didn’t really happened and that two employees had collided to commit the fraud
 Keeping track of accounts payable and receivables of the business
 The bank statement can reveal the checks encashed by suppliers and amount of
cash/check credited to its accounts from customers, creditors, lenders, etc.
 You receive a bank statement, typically at the end of each month,
from the bank.
 The statement itemizes the cash and other deposits made into the
checking account of the business.
 The statement also includes bank charges such as for account
servicing fees.
Before the reconciliation process, business should ensure that they have recorded all
transactions up to the end of your bank statement.
Businesses that use online banking service can download the bank statements for the
regular reconciliation process rather than having to manually enter the information.
STEP 1 COMPARE THE AMOUNTS
 Compare the amount of each deposit recorded in the debit side of the bank column
of the cashbook with credit side of the bank statement. BOOK DEPOSITS vs BANK
CREDITS
 Compare the amount of each credit side of the bank column with the debit side of
the bank statement. BOOK DISBURSEMENTS vs BANK DEBITS
DBO BANK
ABC, ENTERPRISE
Book Debits
Feb-01
Feb-02
Feb-05
Feb-10
Feb-13
Feb-15
Feb-18
Feb-20
Feb-23
Feb-27
Feb-28
Total
Bank Credits/ Deposits
Amount
10,000.00
20,000.00
30,000.00
12,000.00
3,000.00
28,000.00
3,600.00
18,500.00
6,000.00
18,100.00
2,000.00
151,200.00
Feb-04
Feb-05
Feb-11
Feb-13
Feb-16
Feb-18
Feb-21
Feb-23
Feb-26
Feb-28 CM1
Feb-28 CM2
Total
Amount
10,000.00
20,000.00
15,000.00
12,000.00
3,000.00
28,000.00
3,600.00
18,500.00
6,000.00
100,000.00
5,000.00
221,100.00
 Deposits in transit are amounts that are received and recorded
by the business but are not yet recorded by the bank.
 TREATMENT: They must be added to the bank statement.
 Outstanding checks are those that have been written and recorded in
cash account of the business but have not yet cleared the bank
account. This often happens when the checks are written in the last few
days of the month. CERTIFIED CHECKS are not considered
outstanding.
 TREATMENT: They need to be deducted from the bank balance.
 Bank errors are mistakes made by the bank while creating the bank
statement.
 Common errors include entering an incorrect amount or omitting an amount from
the bank statement.
 Compare the cash account’s general ledger to the bank statement to spot the
errors.
STEP 2. ADJUST THE BANK STATEMENTS
 Adjust the balance on the bank statements by
 adding deposits in transit
 deducting outstanding checks
 add/deduct bank errors.
Book deposits
Less Dep. Ackn. By Bank
Total Bank Credits
Less items not deposited
Deposits Acknowledged
Deposit in transit
151,200.00
221,100.00
120,000.00
101,100.00
50,100.00
Balance Per Bank Statement
Add: Deposit in Transit
Add: Effect of bank errors
116,750.00
50,100.00
Book disbursements
Less Checks. Ackn. By Bank
Total Bank debits
104,350.00
Less items not checks
6,850.00
Deposits Acknowledged
Outstanding checks
137,000.00
97,500.00
39,500.00
Balance Per Bank Statement
Add: Deposit in Transit
Add: Effect of bank errors
Less: Outstanding Checks
Less: Effect of bank errors
116,750.00
50,100.00
39,500.00
STEP 3. ADJUST THE CASH ACCOUNT
 Adjust the cash balances in the business account by adding interest or
deducting monthly charges and overdraft fees.
 Bank charges are service charges and fees deducted for the bank’s processing of the
business’ checking account activity. This can include monthly charges or charges from
overdrawing your account. They must be deducted from your cash account. If you’ve
earned any interest on your bank account balance, they must be added to the cash
account.
 An NSF (not sufficient funds) check is a check that has not been honored by the bank due
to insufficient funds in the entity’s bank accounts. This means that the check amount has
not been deposited in your bank account and hence needs to be deducted from your cash
account records.
 Errors in the cash account result in an incorrect amount being entered or an amount being
omitted from the records. The correction of the error will increase or decrease the cash
account in the books.
DBO BANK
ABC, ENTERPRISE
Book Debits
Feb-01
Feb-02
Feb-05
Feb-10
Feb-13
Feb-15
Feb-18
Feb-20
Feb-23
Feb-27
Feb-28
Total
Bank Credits/ Deposits
Amount
10,000.00
20,000.00
30,000.00
12,000.00
3,000.00
28,000.00
3,600.00
18,500.00
6,000.00
18,100.00
2,000.00
151,200.00
Feb-04
Feb-05
Feb-11 CM3
Feb-13
Feb-16
Feb-18
Feb-21
Feb-23
Feb-26
Feb-28 CM1
Feb-28 CM2
Total
Amount
10,000.00
20,000.00
15,000.00
12,000.00
3,000.00
28,000.00
3,600.00
18,500.00
6,000.00
100,000.00
5,000.00
221,100.00
Book Credits
Feb-01
Feb-02
Feb-05
Feb-08
Feb-12
Feb-13
Feb-17
Feb-21
Feb-24
Feb-25
Feb-26
Total
Bank Debits/ Disbursements
Chk No.
001
002
003
004
005
006
007
008
009
010
011
Amount
5,000.00
2,000.00
8,000.00
12,000.00
28,000.00
15,000.00
17,000.00
33,000.00
4,500.00
3,600.00
8,900.00
137,000.00
Feb-06
Feb-08
Feb-09
Feb-17
Feb-18
Feb-21
Feb-26
Feb-28
Feb-28
Total
Chk No.
001
003
002
005
007
008
009
DM1
DM2
Amount
5,000.00
8,000.00
2,000.00
28,000.00
17,000.00
33,000.00
4,500.00
850.00
6,000.00
104,350.00
Balance Per Book/ Ledger
Add: Credit Memo Items
Add: Effect of book errors
Less: Debit Memo Items
Less: Effect of book errors
Adjusted balance per Book
14,200.00
120,000.00
6,850.00
127,350.00
STEP 4. COMPARE THE BALANCES
 After adjusting the balances as per the bank and as per the books,
the adjusted amounts should be the same.
 If they are still not equal, you will have to repeat the process of
reconciliation again.
 Once the balances are equal, businesses need to prepare journal
entries for the adjustments to the balance per books.
ADJUSTMENTS
 FOR CMs
 Check on the nature of the CMs.
 It could probably be a bank loan automatically credited to account, collections made by the bank,
or interest accrued on company’s deposits.)
 FOR DMs
 Check on the nature of the DMs.
 It could probably be a bank service fees/ charges, or NSF checks
ABC Enterprise
Statement of Bank Reconciliation
February 28, 2022
Balance Per Book/ Ledger
Add: Credit Memo Items
Add: Effect of book errors
Less: Debit Memo Items
Less: Effect of book errors
Adjusted balance per Book
14,200.00 Balance Per Bank Statement
120,000.00 Add: Deposit in Transit
Add: Effect of bank errors
6,850.00 Less: Outstanding Checks
Less: Effect of bank errors
127,350.00 Adjusted balance per DBO
CIB
A/R
15,000.00
CIB
LP
100,000.00
15,000.00
100,000.00
CIB
A/R
5,000.00
BSC
CIB
850.00
Checking fee
CIB
5,000.00
850.00
6,000.00
6,000.00
116,750.00
50,100.00
39,500.00
127,350.00
HOW OFTEN SHOULD YOU RECONCILE YOUR BANK ACCOUNT?
 Reconcile your bank account each time you receive a statement from
your bank.
 This is often done at the end of every month, weekly and even at the end
of each day by businesses that have a large number of transactions.
INTEGRATE ACCOUNTING INFORMATION SYSTEM
 Bank reconciliation done through accounting software is easier and
error-free.
 The bank transactions are imported automatically allowing you to match
and categorize a large number of transactions at the click of a button.
 This makes the bank reconciliation process efficient and controllable.
READ AND LEARN MORE
 What is DAUD
 DAIF
 NSF
 Certified checks
 Window dressing
 Kiting
 Imprest Cash System
 Internal Control System for Cash
 Stale check
 Post-dated check
 Overdraft
 IOUs