BANK RECONCILIATION

BOOK BANK NOTE: Debit in book is

addition, Credit is
DR WITHDRAWAL DEPOSIT CR

deduction
DR RECEIPTS DISBURSEMENTS CR

XXX XXX (DM)

Debit in bank is deduction,

XXX XXX (CM)

Credit is addition

ABC CO.
BANK RECONCILIATION
For the month ended August 31, 20x1

Balance per books, end. Pxx Balance per bank, end. Pxx
Add: Credit Memo (CM) xx Add: Deposits in transit (DIT) xx
Less: Debit Memos (DM) (xx) Less: Outstanding Checks (OC) (xx)
Add/Less: Book errors xx Add/Less: Bank errors xx
Adjusted Balance Pxx Adjusted Balance Pxx

CREDIT MEMOS - additions (bank credits) made by the bank to the depositor’s
account but not yet recorded by the depositor
 Collections made by the bank
 Interest income earned
 Proceeds from loan directly credited (added) by the bank
 Unrolled-over matured time deposits transferred by the bank to the entity’s
account
(time deposits when matured are transferred from the entity’s account, should be recorded to the
entity’s book to recognize earning from the time deposit)

DEBIT MEMOS - deductions (bank debits) made by the bank to the

depositor’s account but not yet recorded by the depositor
 Bank service charge
 No sufficient funds (NSF) or Drawn against insufficient funds checks
(DAIF)
(checks returned because the drawer’s fund (the entity) is insufficient to pay for the check)
 Automatic debits
(automatic payments of bills made by the bank on behalf of the depositor (the entity))
 Payment of loans
(payments of loans made by the bank on behalf of the depositor (the entity))

BOOK Error - errors committed by the depositor (the entity)

DEPOSIT IN TRANSIT - deposits made but not yet credited by the bank to
the depositor’s bank account (deposits not yet recorded by the bank)

OUTSTANDING CHECKS - checks drawn and released by the payees but not
yet encashed with the bank (ex. the entity draws a check as a payment to a supplier but the
supplier haven’t encashed it)
excluded as OT checks:
 Certified Checks (if OC includes certified checks, deduct it)
 Stale Checks

BANK ERRORS - errors committed by the bank

Credit memos, debits memos, and book errors are book reconciling items
(depositor should make reconciling entries)


 DIT, OT checks, and bank errors are bank reconciling items

(depositor should NOT make reconciling entries)

ENTRIES
Proceeds from a loan
Cash xxx
Loan Payable xxx
#
NSF checks
Accounts Receivable xxx
Cash in Bank xxx
#
Bank service charge
Service charge xxx
Cash in Bank xxx
#
Payment of Loans
Loan Payable xxx
Cash in Bank xxx

ERRORS
Overstated Credit -> Make a debit (inverse relationship)
Overstated Debit -> Make a Credit (inverse relationship)
Understated Credit -> Make a Credit (direct relationship)
Understated Debit -> Make Debit (direct relationship)
Note: Refer to page 113 Millan Book for further understanding)
COMPUTATION OF DEPOSITS IN TRANSIT & OUTSTANDING CHECKS

DEPOSITS IN TRANSIT

1ST Step (if book/bank debit or book/credit is not given)

Beg. balance per book xxx

Book Debit xxx
Book Credit (xxx)
End. balance per book xxx

Beg. balance per bank xxx

Bank Credit xxx
Bank Debit (xxx)
End. balance per bank xxx

DIT

Deposits in Transit, beg. xxx

Add: Book Debit xxx
Less: CM, last month xxx
Less: Error of book, last month xxx
Add/Less: Error of the book, current month xxx xxx
Total Deposits to be acknowledge by bank xxx
Less: Deposits acknowledge by the bank
Bank Credit xxx
Less: CM, current month xxx
Less: Error of bank, last month xxx
Add/Less: Error of bank, current month xxx (xxx)
Deposits in Transit, end xxx

NOTE: CM last month and error of book last month are deducted, they are not included in DIT end of the
current month.
: Notice that “Total Deposits acknowledge by the bank” are all related to book, meaning this are the
amounts needed to complete the DIT end amount and should be recorded by the bank)
: “Less: Deposits acknowledge by the bank” they are already recorded by the bank so no need to add
them in DIT)
OUTSTANDING CHECKS

Outstanding checks, beg. xxx

Add: Checks Disbursement, this month
Book Credits xxx
Less: DM, last month xxx
Less: Error of book, last month xxx
Add/Less: Error of the book, current month xxx xxx
Total checks to be paid by bank xxx
Less: Check actually paid by the bank
Bank Debits xxx
Less: DM, current month xxx
Less: Error of bank, last month xxx
Add/Less: Error of bank, current month xxx (xxx)
Outstanding checks, end xxx

NOTE: DM last month and error of book last month are deducted, they are not included in OC end of the
current month.
: Notice that “Total checks to be paid by bank” are all related to book, meaning this are the amounts
needed to complete the OC end amount and should be paid & recorded by the bank)
: “Less: Check actually paid by the bank” they are already paid & recorded by the bank so no need to
add them in OC)

PROOF OF CASH

Per Book Beg. Balance End.Balance

Last Month Receipts Disbursements Current Month



(Book Balance) (Book Debits) (Book Credits) (Book Balance)

(squeeze if missing) (squeeze if (squeeze if missing) (squeeze if missing)
missing)
Balance per books xxx + xxx - xxx = xxx
Note collected by the
bank
Last Month xxx (xxx)
Current Month xxx xxx
Bank Service Charge
Last Month (xxx) (xxx)
Current Month xxx (xxx)
NSF Checks
Last Month (xxx) (xxx)
Current Month xxx (xxx)
Book Errors
Last Month Depends on the error

Current Month Depends on the error

 Same Procedure with Proof of Cash Per Bank

NOTE: Notice that Last month are always deducted, because receipts & disbursements are the amounts of current month
: Technique, if amounts are beside each other they are not the same sign, if they are away from each other they have
the same sign.