Bank Reconciliation G.
Ong
Bank Reconciliation – a statement prepared by an enterprise which brings into agreement the cash balance per
book (ledger) and cash balance per bank (bank statement).
Note: Bank Statement is a monthly report of the bank to the depositor showing the cash balance per bank at the beginning,
the deposits acknowledged (recorded by the bank), the checks paid by the bank, other charges and credits and daily cash
balance per bank during the month.
A. Reconciling Items:
Book Reconciling Items Bank Reconciling Items
1. Credit memos 1. Deposit in Transit – collections already recorded
Notes receivable collected by bank. (added) by the depositor as cash receipts but not yet
Proceeds of bank loan granted to reflected on the bank statement.
depositor. This also includes undeposited collections awaiting
Matured time deposit transferred by bank delivery to the bank by the depositor.
to the account of the depositor.
*Reconciling effect – to be added to the book *Reconciling effect – to be added to the bank balance.
(ledger) balance.
2. Debit memos 2. Outstanding Checks – checks already recorded
NSF or No Sufficient Fund – checks (deducted) by the depositor as cash disbursement but not
deposited but returned by bank because of yet reflected on the bank statement.
insufficiency of fund. This represents checks drawn and already given to payees
Technically Defective Check – checks but not yet presented for payment.
deposited but returned by bank because of This does not include certified checks**.
defects such as erasure without
countersignature, mutilated check, etc. **Certified checks – a check that acknowledged by the bank,
Bank Service Charges – this includes whereby the account of the depositor is immediately debited
charges for interest, collection fee by bank, (deducted) to insure the eventual payment of the check.
checkbook, penalty, etc.
Reduction of Loan – Amount deducted by
bank for payment of loan which the
depositor owed to the bank. *Reconciling effect – to be deducted from the bank
*Reconciling effect – to be deducted from the book balance.
(ledger) balance.
3. Errors committed or omitted by the depositor. 3. Errors committed or omitted by the bank. ***
***
Note: Only the BOOK reconciling items require adjusting entries on the book of the depositor. The adjustments are
necessary to bring the cash in bank balance to its correct balance for balance sheet purpose.
*** Errors Committed or Omitted:
Book Errors
a. Understatement of cash receipts – the error should be added to the book balance.
b. Overstatement of cash receipts – the error should be deducted from the book balance.
c. Understatement of cash disbursement – the error should be deducted from the book balance.
d. Overstatement of cash disbursement – the error should be added to the book balance.
Bank Errors
a. Understatement of bank credit – the error should be added to the bank balance.
b. Overstatement of bank credit– the error should be deducted from the bank balance.
c. Understatement of bank debit – the error should be deducted from the bank balance.
d. Overstatement of bank debit – the error should be added to the bank balance.
Bank Reconciliation – 1
Bank Reconciliation G. Ong
B. Forms of Bank Reconciliation
a. Adjusted Balance Method – the book balance and the bank balance are brought to a correct cash balance that
must appear on the balance sheet. (The preferred method)
b. Book to Bank Method – the book balance is reconciled to the balance per bank statement.
c. Bank to Book Method – the bank balance is reconciled to the unadjusted cash balance per ledger of the
depositor.
C. Computation of Book Balance
Balance per book – Beginning of the month (1st month) xxx
Add: Book debits during the 1st month (Cash receipts) xxx
Total Cash per book 1st month xxx
Less: Book credits during the 1st month (Cash payments) (x x x)
Unadjusted Balance per book – End of 1st month xxx
Add/Less: Adjustment (Reconciling items 1st month) xxx
ADJUSTED BOOK, End of 1st month/Beginning of 2nd month xxx
Add: Book debits during the 2nd month (Cash receipts) xxx
Total Cash per book 2nd month xxx
Less: Book credits during the 2nd month (Cash payments) (x x x)
Unadjusted Balance per book – End of 2nd month xxx
Add/Less: Adjustment (Reconciling items 2nd month) xxx
ADJUSTED BOOK, End of 2nd month/Beginning of 3rd month xxx
D. Computation of Bank Balance
Balance per bank – Beginning of the month (1st month) xxx
Add: Bank credits during the 1st month (Cash receipts) xxx
Total Cash per bank 1st month xxx
Less: Bank debits during the 1st month (Cash payments) xxx
UNADJUSTED Bank, End, 1st month/Beginning of 2nd month xxx
Add: Bank credits during the 2nd month (Cash receipts) xxx
Total Cash per bank 2nd month xxx
Less: Bank debits during the 2nd month (Cash payments) xxx
UNADJUSTED Bank, End, 2nd month/Beginning of 3rd month x xx
Note: Since the book reconciling items should be adjusted at the end of the month to bring the cash account to its correct
balance, the ADJUSTED BOOK balance will be the beginning balance of the book for the following month. But the bank
reconciling items are not adjusted, therefore, the UNADJUSTED BANK will be the beginning balance of the bank for the
following month.
E. Computation of Correct Cash Balance (Adjusted Balance Method)
Unadjusted Book Balance Unadjusted Bank Balance
Notes/Interest Collected by Bank Deposit in Transit
Proceeds from Bank Loans Understated Cash Receipts
Understated Cash Receipts Overstated Cash Payment
Overstated Cash Payments Outstanding Checks
NSF Checks Overstated Cash Receipts
Defective Checks by Customers Understated Cash Payments
Service Charges Understated Cash Payments
Payment of Maturing Loans Understated Cash Payments
Overstated Cash Receipts Understated Cash Payments
Understated Cash Payments s t
ADJUSTED BOOK BALANCE SADJUSTED BANK BALANCE
Bank Reconciliation – 2
Bank Reconciliation G. Ong
F. Computation of Deposits in Transit
Deposit in Transit, Beginning (Last month DIT) xxx
Add: Cash receipts deposited into the bank during the month** xxx
Total deposit to be recorded by bank xxx
Less: Deposits recorded by bank during the month *** xxx
Deposit in Transit, Ending xxx
** Debits/Receipts by book representing deposit to the bank only. If the debit includes other items than
deposits, these items should be deducted from the total debit or receipts by the book.
*** Credits/Receipts by bank representing deposit from the company only. If the credit includes other items
than deposits, these items should be deducted from the total credits or receipts by the bank.
G. Computation of Outstanding Checks
Outstanding checks, Beginning (Last month OC) xxx
Add: Checks drawn by depositor during the month** xxx
Total checks to be paid by bank xxx
Less: Checks paid by bank during the month *** xxx
Outstanding Checks, Ending xxx
** Credits/Disbursements by book representing checks issued by the company only. If the credit includes
other items than checks issued, these items should be deducted from the total credits or disbursements by
the book.
*** Debits/Disbursements by bank representing checks issued by the company only. If the debits include other
items than checks issued, these items should be deducted from the total debits or disbursements by the
bank.
Bank Reconciliation – 3
