Financial accounting Chapter 8
of the bank to the depositor showing:
3 kinds of bank deposits
1. DEMAND DEPOSIT
This is the current account or
checking account or commercial
deposit where deposits are
covered by deposit slips and
where funds are withdrawable
on demand by drawing checks
against the bank. It is
noninterest bearing.
2. SAVING DEPOSIT
The depositor is given a
passbook upon initial deposit.
The passbook is required when
making deposits and
withdrawals. It is interest
bearing.
3. TIME DEPOSIT
May be preterminated or
withdrawn on demand or after a
certain period of time agreed
upon. It is evidenced by a
formal agreement embodied in
an instrument called certificate
of deposit. It is interest bearing.
BANK RECONCILATION
Is a statement which brings into
agreement the cash balance per book
and cash balance per bank.
Prepared Monthly.
Bank statement a monthly report
disbursements. It decreases the
A. The cash balance per bank at the
beginning.
B. The deposits made by the depositor
and acknowledged by the bank.
C. The checks drawn by the depositor
and paid by the bank.
D. The daily cash balance per bank
during the month.
RECONCILING ITEMS
1. BOOK RECONCILING ITEMS
A. 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. It
increases the bank balance.
Examples:
1. Notes receivable collected by
bank in favor of the depositor
and credited to the account of
the depositor.
2. Proceeds of bank loan credited
to the account of the depositor.
3. Matured time deposits
transferred by the bank to the
current amount of the depositor.
B. 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
bank balance.
Examples:
1. NSF or No sufficient Fund
Checks/ DAIF or Drawn
Against Insufficient Funds
These are checks deposited but
returned but the bank because
of insufficiency of fund.
2. 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.
3. Bank Service Charge
These include bank charges for
interest, collection, checkbook
and penalty.
4. Reduction of Loan
This pertains to amount
deducted from the current
account of the depositor in
payment for loan which the
depositors owe to the bank and
which has already matured.
C. ERRORS
2. BANK RECONCILING ITEMS
A. DEPOSITS IN TRANSIT
Collections already recorded by
the depositor as cash receipts
 but not yet reflected on the
bank statement.
INCLUDES:
1. Collections already forwarded to
the bank for deposit but too late
to appear in the bank
statement.
2. Undeposited collections or
those still in the hands of the
depositor.
B. OUTSTANDING CHECKS
Checks already recorded by the
depositor as cash
disbursements but not yet
reflected on the bank
statement.
INCLUDES:
1. Checks draw and already given
to payees but not yet presented
for payments.
2. CERTIFIED CHECKS one
where the bank has a stamped
on its face the word accepted
or certified indicating sufficient
of fund.
C. ERRORS
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.
B. Book to Bank 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
The bank balance is reconciled
with the book balance or the
bank balance is adjusted to
equal the book balance.