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Lesson 8 - Bank Reconciliation Statement

This document provides information about bank reconciliation statements including: - The purpose of maintaining a checking account and key terms used. - Types of checks and documents involved in bank reconciliation like deposit slips, bank statements, and reconciling items. - The steps to reconcile the cash balance per books to the cash balance per bank statement including adjusting for deposits in transit, outstanding checks, bank charges, and other reconciling items. - Sample journal entries to record reconciling items like bank charges, bank collections, dishonored checks, and errors.

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245 views

Lesson 8 - Bank Reconciliation Statement

This document provides information about bank reconciliation statements including: - The purpose of maintaining a checking account and key terms used. - Types of checks and documents involved in bank reconciliation like deposit slips, bank statements, and reconciling items. - The steps to reconcile the cash balance per books to the cash balance per bank statement including adjusting for deposits in transit, outstanding checks, bank charges, and other reconciling items. - Sample journal entries to record reconciling items like bank charges, bank collections, dishonored checks, and errors.

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Unknownymous
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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Bank Reconciliation Statement

References:
Abeleda, N. (2012) Simplified Accounting for Sole Proprietorship, Vol. 1
Valix, C. (2017) Theory of Accounts

Checking Reason for having a checking account: keeping cash in the


account place of business is not safe. It is vulnerable to theft,
embezzlement, and misappropriation.

Most businesses maintain a checking account. All collections are


deposited to this account and all payments are made through
issuance of checks.

The use of a checking account requires additional record of all cash


transactions.

Bank statements are provided every month. This document


shows all the deposits made to the account, payments made,
customer deposit to the bank, interest earned and tax withheld,
bank charges, etc.

Terms used in Checking account (current account) – a bank account that


relation to a allows a bank customer to deposit cash and to write checks for
checking payments.
account
Depositor – a person, organization, or business that has a deposit
in a bank. One of the requirements to be a depositor is filling up a
Signature Card for the authorized signatory.

Signature Card – a bank form which contains the signature of


the person(s) authorized to sign in the check and pertinent bank
documents. This prevents unauthorized persons from issuing a
check and to detect forged signatures.

Checkbook – a booklet consisting of blank checks which are pre-


numbered; also includes a check stub.

Check stub – a stub is a blank page in which the depositor can


record check issuances, as well as deposits to the account to
monitor the balance of the account; it serves as a record and a
way to prevent issuing checks when the balance is insufficient.
Check – a negotiable instrument signed by the depositor ordering
the bank to pay a sum of money to the payee.

Drawer – the one who signs the check ordering the bank to make
a payment.

Drawee – the bank on which the check is drawn.

Payee – the person or entity to whom payment is to be made.

Deposit slip – a bank form where the deposits can be listed down
in detail by the depositor; filled in duplicate. Cash deposits are
usually separated from check deposits for easy reference.
Validated by the teller when credited to the bank account.

Kinds of Checks:
• Cancelled checks – checks paid by the bank and have
already been deducted from the depositor’s account. This is
returned to the depositor, together with the bank
statement.

• Stale check – a check issued but not yet presented to the


bank for payment for a period of six months or more. Some
banks consider a check outstanding for a period of more
than three months as stale. Stale checks can no longer be
presented to the bank for encashment or deposit. They will
have to be replaced by the issuer.

• Certified check – a check certified by the bank as to


sufficiency in funds and guaranteed to be honored when
presented for payment.

• Crossed check – a check which can only be deposited to


the account of the payee; not for encashment.

• Post-dated check – a check which is dated sometime in


the future. It can only be encashed or deposited on or after
the date on the check.

• Dishonored check – a check not accepted for deposit or


encashment due to some defects such as having no
signature, having erasures, words do not tally with the
figures, having unauthorized signatures, etc.
Bank statement – a monthly statement provided by the bank to
the depositor which summarizes all the cash transactions (deposits
and checks paid) during the specific month.

It also shows the beginning balance, bank charges, bank


collections made by depositor’s customers directly to the bank,
interest earned and tax withheld, and the ending balance.

Bank Bank reconciliation – the process of reconciling the cash balance


Reconciliation in the books of the business and the cash balance in the bank
and reconciling statement.
items
Bank reconciliation statement – a statement which reconciles
the cash balance per books and per bank; prepared by the
business to adjust the balance of the cash account to the correct
amount.

Included in the reconciling items are as follows:

Deposit in transit – deposit made by the business at the end of


the month, received by the bank but not included in the bank
statement (called Late Deposit).

Recorded in the books, not in the bank statement.

Outstanding checks – checks issued by the business but not yet


presented for payment or paid by the bank.

Recorded in the books, not in the bank statement.

Bank service charge – fee charged by the bank for services it is


rendering; such as printing of account, requisition of checkbooks
debited to the account.

Not recorded in the books, appears in the bank statement.

Bank collection – a collection made by the bank in favor of the


depositor; or when the depositor’s customer pays their account by
depositing the payment directly to the bank.

Not recorded in the books, appears in the bank statement.

Interest income – interest earned on the deposit.


Not recorded in the books, appears in the bank statement.

Drawn against insufficient fund (DAIF) – a check deposited


by the depositor but returned by the bank because the account has
insufficient fund to cover the amount of the check.

Not recorded in the books, appears in the bank statement.

Error – refers to the mistake committed by any one or both of the


parties (bank or depositor, or both)

Forms used by Bank Credit Memo – a form used by the bank notifying the
the bank in depositor that his account is credited (increased) which may be
relation to a due to the interest earned or collection made by the bank in favor
checking of the depositor.
account
Bank Debit Memo – a form used by the bank to notify the
depositor that his account is debited (decreased) due to bank
service charges.

See excel file Basic Accounting_01

Steps in bank Steps in Bank Reconciliation


reconciliation
BANK TO ADJUSTED BALANCE
1. Start with the unadjusted cash balance per bank.
2. Compare the bank credits with the deposits. (Reference with
check stub or cash ledger)
Deposits not recorded by the bank are presumed to be deposits
in transit, especially near the end of the month.
3. Arrange the cancelled checks in numerical order (from bank
statement) and compare with the issued checks per books
(CDJ).
Checks not yet paid by the bank are outstanding checks; this
will be subtracted from the unadjusted cash balance per bank.
4. After making the adjustments in the bank balance, double rule
the adjusted balance per bank.

BOOK TO ADJUSTED BALANCE


1. Start with the unadjusted cash balance per books.
2. Look for a bank credit in the bank statement which is not
recorded in the books (CRJ). It could be a bank collection or
interest earned, which must be added to the cash balance per
books.
3. Compare bank debits in the bank statement with the checks
issued (CDJ). Debits which ae not recorded in the books could
be bank charges or checks marked DAIF, which must be
deducted from the cash balance per books.
4. After making the adjustments in the books, double rule the
adjusted balance per books.

Adjusting Sample of entries for bank reconciliation:


entries for bank
reconciliation Bank service charge
Miscellaneous expense 200
Cash in bank 200

Bank collection
Cash in bank 5,000
Accounts receivable 5,000

DAIF check
Accounts receivable 7,500
Cash in bank 7,500

Book Error
Cash in bank 900
Advertising expense 900
Recorded advertising expense of 4500 as 5400.

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