Bank Reconciliation Statement

A report which compares the bank balance as per company's accounting records with the balance shown in the bank statement. This statement outlines the deposits, withdrawals, and other activities affecting a bank account for a specific period.

Common Causes of Discrepancy

• Time Lags – Prevents one of the parties (company or bank) from recording the transaction in the same period as the other party.
• Uncleared Checks – Checks that are not presented.
• Errors – Mistakes made either by the bank or the depositor.

Reconciling Items

Book Reconciling Items

Credit Memo

Refers to items not representing deposits, which were credited by the bank to the account of the depositor and which are not yet recorded by the depositor as cash receipts.

• A. Notes receivable collected by the bank in favor of the depositor and credited to the account of the depositor.
• B. Proceeds of a bank loan credited to the account of the depositor.
• C. Matured time deposits.

Credit Transactions

• Collection of cash proceeds from notes receivables.
• Interest income earned by the deposit.

Debit Memo

Represents checks paid by the bank, which are charged or debited by the bank to the account of the depositor and not yet recorded by the depositor as cash disbursement.

• A. NSF (No Sufficient Fund) checks.
• B. Technically defective checks.
• C. Bank service charges.
• D. Reduction of loan.

Debit Transactions

• Bank service charge – monthly fee charged by the bank for its services (e.g., cost of printing checks, writing funds to other locations, and other fees).
• NSF (Not Sufficient Fund) – Banks also use a debit memorandum when a deposited check from a customer "bounces" due to insufficient funds. This is also referred to as DAIF (Drawn Against Insufficient Fund) or DAUD (Drawn Against Uncleared Deposits).

Bank Reconciling Items

Deposit in Transit

Collections already recorded by the depositor as cash receipts but not yet reflected in the bank statement.

• A. Collections already forwarded to the bank for deposit but too late to appear in the bank statement.
• B. Undeposited collections still in the hands of the depositor.

Outstanding Checks

Checks already recorded by the depositor as cash disbursements but not yet reflected on the bank statement.

• A. Checks drawn and given already to payees but not yet presented for payment.
• B. Certified checks – checks where the bank has stamped "accepted" or "certified," indicating sufficiency of funds. These should be deducted from the total outstanding checks because they are no longer outstanding for bank reconciliation purposes.

Errors

Must be properly analyzed for correct treatment.

Formats

• Adjusted Balance Method
• Book to Bank Method
• Bank to Book Method