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Bank Reconciliation Statement

Bank Statement
• A bank statement is a report prepared by the bank which shows the deposits made, checks
paid, and other charges and credits recorded by the bank for the month as well as the cash
balance per bank records.
• A bank statement is prepared only for demand or checking accounts.
• A bank statement is prepared once a month.
Bank Reconciling Items (Captured by the book but not yet by the bank)
1. Outstanding Checks (-): checks not yet encashed
2. Deposits in transit (+)
3. Bank errors (+/-)
Book Reconciling Items (Captured by the bank but not yet by the books)
1. Bank charges (-): example - bank deducted service fee for check
2. Notes collected by the bank (+): client paid to the bank, not to the owner
3. Not sufficient funds (NSF) checks (-): bank did not increase their amount
4. Book errors (+/-)
5. Interest earned (+)
Bank Reconciliation
• A bank reconciliation is a schedule prepared by the business explaining the difference between
the bank’s and the company’s record of cash.
• is is prepared once a month upon receipt of the bank statement.
• ere are three methods of preparing bank reconciliation.
a. Book to bank method
b. Bank to book method
c. Adjusted balances method
• Prepared by an individual who neither handles nor records cash.
• Periodic bank reconciliations can help identify any cash errors or irregularities that have
occurred in accounting for cash either by the business unit or the bank.
• Most differences in bank and book balances for cash are “normal” and are the result of
temporary timing lags.
a. Deposit in transit - a deposit near the end of the month that reduce the cash balance but
have not yet cleared the bank (these are deducted from the bank statement balance in
getting to the corrected cash balance).
b. Outstanding checks
c. Bank service charge
d. Not sufficient funds (NSF)
e. An amount owed to the depositor and paid directly to the bank by a third party, such as
a direct payroll deposit by an individual’s employer or interest
f. An amount owed by the depositor to a third party and draed directly out of the
depositor’s account, such as a transfer to a savings plan (deducted from the cash balance
on the depositor’s books in getting to the corrected cash balance).
Reconciling Items

Treatment Under the


Reconciling Item Definition
Adjusted Balance Method
Cash receipts recorded by the depositor
Deposits in Transit or un- but which reached the bank too late to be
Add to balance per bank
deposited receipts included in the bank statement for the
current month
Checks issued by the depositor but are Subtract from balance per
Outstanding Checks
not yet presented to the bank for payment bank
Items which are charged or debited by the
bank to the account of the depositor aside
from checks paid. ese are evidenced by
Unrecorded bank charges/ debit memos. Examples: bank service Subtract from balance per
bank debits charges, NSF checks, technically defective book
checks, payment of loan.e depositor
learns of these only upon receipt of bank
statement.
Treatment Under the
Reconciling Item Definition
Adjusted Balance Method
Items which are credited by the bank to
the account of the depositor aside from
deposits received. ese are evidenced by
credit memos. Examples: collection of
Unrecorded bank credits Add to balance per book
notes receivable, proceeds of bank loan,
interest earned. e depositor learns of
these only upon the receipt of the bank
statement.
Errors made by the bank or depositor
Bank or depositor errors
which makes the records disagree

Pro-forma Bank Reconciliation under the Adjusted Balances Method

ABC Company
Bank Reconciliation
December 31, 20YY

Balance per Book P xxx

Add: Bank Credits P xxx


Book Errors xxx xxx

Sub-total P xxx

Less: Bank Charges P xxx


Book Errors xxx xxx

Adjusted Cash Balance P xxx

Balance per Bank P xxx

Add: Deposits in Transit P xxx


Bank Errors xxx xxx

Sub-total P xxx

Less: Outstanding Checks P xxx


Bank Errors xxx xxx
Balance per Bank P xxx

Add: Deposits in Transit P xxx


Bank Errors xxx xxx

Sub-total P xxx

Less: Outstanding Checks P xxx


Bank Errors xxx xxx

Adjusting Entries
1. Adjusting entries for book reconciling items and errors of depositor should be prepared in the
books of the business.
2. is is necessary to bring the cash in bank balance to its correct balance for balance sheet
presentation.