LET US MAKE THE BANK RECONCILIATION OF THE PREVIOUS CASH TRANSACTION OF THE COMPANY AND THAT OF THE BANK STATEMENT.
Let us first compare the deposits entry of the book compared to the bank.
a, notice that the bank has 1000 deposit entry on the first day, this is the deposit in transit last month .this will not be a reconciling item because this is already taken up by the book last month.
b. you will also noticed that there is a 5.00 feb. 10 not posted in the bank statement . this should be investigated because it is feb. 10 and not end of month.
c. the collection of 2.28 is not reflected in the bank.
d. there is a deposit reflected in the bank but not in the books 1.00.
e. there is 20,000 deposits in the bank but not in the books
f. an interest of saving deposit is also reflected in the deposit column of the bank
LET US COMPARE THE CREDITS OF THE BOOK COMPARED TO THE BANK.
a. thebank has a withdrawal captioned returned checks , not yet in the books
b. there is also withdrawal in the bank 30.00 not in the books.
c. you will notice that the bank withdrawal showed check no. 395 but the amount is 30.00 , an investigation showed that it is actually 3.00 as per the check itself which was the amount recorded by book..
d. comparing the checks issued by the book against the checks paid by the bank
first you must get the list of outstanding last month. say the ff:
check no. 385 20
384 60
383 6
356
386
388
389
total 400
2nd get also the list of checks no. amount in the book, compare now all the check entries of the bank in the list of outstanding check beginning and that of the current checks issued by the book.
after all of these are done, you will notice that , check no. 385, 84, 83 , from the beg. outstanding checks are not still paid by the back hence still outstanding at the end.
also you will notice that check no. 96, 97, 98 are not in the withdrawal column of the bank , that means these still outstanding checks end of the month.
YOU CAN NOW PREPARE THE BANK RECONCILIATION AS FF:
BOOK BANK
UNADJUSTED BALANCES 22,681 42,705
1. proceeds of loan from bank 20,000
2. interest earned 30
3. returned check ( 40)
4. deposit not recorded by book 1
5. cost of checkbook ( 30)
1. deposit in transit 2.28 12.
deposit 2.10 5
2. error by bank.:
actual check 3.00
paid by bank 30.00 27
3. outstanding checks end ( 107)
ADJUSTED BALANCES 42642 42,642
the list of outstanding checks as ff:
balance from last month outstanding checks still unpaid to this month:
check no. 385
384
383
balance from this month checks issued
396
397
398
total outstanding checks end 107.00
LET US NOW PREPARE , THE PROOF OF CASH BANK RECONCILIATION OR THE FOUR COLUMN BANK RECONCILIATION.
BEG DEPOSITS WITDRAWAL END
BALANCE PER BANK 21,130 22,019 444 42,705
1.outstanding check beg (400) (400)
2 outstanding check end 107 (107)
3.deposit in transit beg 1000 (1000 )
4. deposit in transit end 17 17
5. proceeds of loan (20,000) ( 20,000)
6. interest earned (30) ( 30)
7. cost of check (30 ) 30
8. returned checks (40) 40
9. error in check amout (27 ) 27
10. deposit not in book (1) (1 )
balance per book 21,730 1,005 54 22,681
LET ME EXPLAIN ONE BY ONE:
FIRST, PLEASE BE AWARE THAT IN THIS SET UP, IT IS ASSUMED THAT THE BOOK IS CORRECT.
1. THE beginning balance is just the one made last month
2. why the 400 is deducted , because that 400 is part of 444 and that 400 is not anymore in the credits side of the books because that 400 was already credited by the book preveious months.
3. why the 107 is added in the withdrawal column , because that 107 is already recorded in the books credits but not yet recorded in the bank withdrawal, but why deducted from ending balance , because , the book has already deducted that amount from its book balance since those checks are already credited to cash in bank.
4. why 1000 is deducted because that 1000 was already recorded by the book last month but only recorded now in the bank
5. why 17 is added, because the book has already recorded that deposit , bank not yet.
6. why 20,000 deducted , because the book has not recorded it.
7. why 30 deducted from deposits, because the book has not yet recorded it.
8. why 30 cost of check deducted , because , the book has not recorded it. It is added in the ending because the ending balance of bank is reduced because of this amount
9 the returned checks was deducted from wthdrawal because the book has not recorded it and it was added to the balance of the bank because the balance was reduced because of this./
10. the error of 27 is added in the withdrawal because the bank recorded it as 30 but should be 3 or an over credit of 27. , this tends to decrease the bank balance so it was added to the end balance
11. the 1 is deducted from the deposits because it is not in the books, and deducted in teh ending balance
TAKE NOTE THAT YOU CAN also PREPARE THIS METHOD WHERE THE BANK IS PRESUMED CORRECT. SO IT WILL BE JUST A REVERSE.
=========================================================================
PROBLEM
The following data of IBM as of SEPT 30.
ENDING CASH BALANCE PER BANK 15,496.91
ENDING CASH BALANCE PER BOOK 14,692.71
DEPOSIT IN TRANSIT END OF MONTH 2,615.23
OUTSTANDING CHECKS END OF MONTH 25.00
A notes receivable of the company were collected by the bank 1,045.00
TO INCLUDE THE INTEREST INCOME OF 45.00
a check issued by TALIBAN WAS REFLECTED IN THE
WITHDRAWAL COLUMN OF THE BANK 617.08
A CASH SALE WAS MADE AND WAS DEPOSIT
1,,729.00 BUT BUT WAS JORNALIZED AS 1792.00
PREPARE BANK RECONCILIATION.
AND PREPARE ENTRY====
=====================================================================
ON JULY 2, APPLE CO. RECEIVES BANK STATMENT FOR JUNE 30.,
BANK BALANCE 5,680
BOOK BAL 3,275
1. COLLECTION OF JUNE 30 , DEPOSITED JULY 1
2. OUTSTANDING CHECKS END 12,310
3. COLLECTION OF NOTES FOR 150.00 LESS COLLECTION FEES OF 25.0 WAS NOT TAKEN BY THE CO.
4. THE BANK CHARGED THE COM. FOR OVERDRAFT 80
5. A CANCELLED CHECK OR PAID CHECKS ISSUED TO A SUPPLIER FOR 9,618 WAS RECORDED AS 9,168 IN BOOKS.
PREPARE BANK RECON
========================================================================
PROBLEM 3
the following data was available in the bank reconciliation made for june. WHAT WAS THE TOTAL OUTSTANDING CHECKS END OF MAY LAST MONTH
CHECKS PAID BY THE BANK IN JUNE 17,180
BANK CHARGES BY BANK 30
SERVICE CHARGE BY BANK IN MAY AND
RECORDED IN TH BOOK JUNE 20
TOTAL CREDITS TO CASH BY BOOK JUNE 19,802
A DEBIT BY BANK ON RETURNED CHECK
IN JUNE , NO ENTRY IN BOOK YET 100
RETURNED CHECK DEBIT BY BANK IN MAY
BUT REDEPOSIT BY BOOK IN JUNE ( NO ENTRY
IN MAY ,NOR IN JUNE BY THE COM. 250
OUTSTANDING CHECKS JUNE 8,060
DEP. INTRANSIT JUNE END 600
SOLUTION GUIDE.
THE UNKNOWN IS THE OUTSTANDING CHECK END OF LAST MONTH.
IN COMPUTING FOR THE OUTSTANDING CHECKS END OF MONTH , THE FF; PROCEDURE
BEG OUTSTANDING 100
PLUS ISSUED CHECKS 25
TOTAL EXPECTED TO BE DEBITED BY BANK 125
less: ACTUAL DEBIT BY BANK FOR PAID CHECK ( 80)
STILL OUTSTANDING CHECKS END 45
HAVING THIS AS A GUIDE, AND THE UNKNOWN IS THE BEG OUSTANDING , YOU SIMPLY DO A WORK BACK TECHNIQUE
OUTSTANDING END 45
add actual debit by bank 80
total 125
less. issued checks by the company 25
end outstanding 100
in the case at hand , the outstanding checks amount is 5,438
TO BE EASIER FOR YOU TO DETERMINE THE UNKNOWN ESPECIALLY WHEN A MATHEMATICAL COMPUTATION IS ONLY NEEDED, SIMPLY DRAW THE SEQUENCE OF THE ADDITION AND SUBTRACTION AND FILL IT WITH THE AVAILABLE FIGURE AND BY WORK BACK YOU CAN COMPUTE FOR THE UNKNOWN
IN THE ABOVE TECHNIQUE, THERE MAY BE TWO UNKNOWN SAY , THE ISSUED CHECKS BY BOOK AND THE PAID BY BANK and yet to can still reconstruct to arrive at the unknown.
IN THE BANK RECONCILIATION , ONE OF THE DIFFICULT TO ANALIZE IS THE RETURNED CHECK OF THE NSF CHECKS.
ESPECIALLY WHEN THE COMPANY'S RULE IS THE RETURNED check DEPOSIT BY THE BANK IS NOT NECESSARILY CREDITED TO CASH IN BANK by the company , IN THE ASSUMPTION THAT ANYWAY IT WILL BE REDEPOSITED , THE PROBLEM IS SOMETIMES THE PAYOR OR THE DRAWER OF THAT CHECK WILL REDEEMED or recall THE CHECK AND REPLACED IT BY NEW ONE WHICH NECESSITATES THE ISSUING OF OFFICIAL RECEIPT AND MAKING A DEBIT TO CASH IN BANK. , FORGETTING THAT THERE WAS NO credit TO CASH WHEN THAT WAS RETURNED BY THE BANK.
the book ledger would appear like this
DR CR. balance
deposit 100
returned check of 1000 no entry
check replacement 100 200
so assuming the returned has no entry, then the replacement check was entered as deposit again. there will be a reconciling item,
the procedure where the returned check will have no entry in the assumption that anyway this will be redeposited is not a proper way, because the redeposit of this check will be covered by a deposit slip, though will not be covered by an OFFICIAL RECEIPT and therefore will not be debited to cash in bank but you may be confused because how come there is a deposit slip but has no official receipt.
but in case the drawer of that check has recall the check and issue a replacement check with of course has a different check no. ,it would be necessary that an OFFICIAL RECEIPT be issued and an entry debiting cash in bank will made and the returned check has no entry, then a reconciling will occur.
ANOTHER CONFUSION THERE IS IF THE RETURNED WILL BE REDEPOSITED THAT WILL BE COVERED AGAIN BY A DEPOSIT SLIPS , THAT IT MAY BE MERGED TO A NUMEROUS CHECKS COLLECTION. THE BANK NOW HAS TWO ENTRIES ON THAT SAME CHECK ,WHILE THE BOOK MAY ONLY HAVE ONE DEPOSIT ENTRY., IF THE COMPANY IS NOT CREDITING THE RETURNED AND NOT DEBITING CASH WHEN IT IS REDEPOSITED.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROBLEM 4
TYLER CO. STARTED BUSINESS OCT 1.. ON THAT DATE , THE COM HAS 4,000 CASH BALANCE. THE FOLLWING TRANSACTIONS TRANSPIRED.
TYLER THE BANK
OCT DEPOSITS 7,350 7,110
OCT CHECKS ISSUED AND PAID respectively 6,290 6,130
oct. bank charges 10
oct. balance 5,070 4,970
november deposits 8,220 8,280
nov. checks 9,410 9,220
november bank charge 15
notes collected by bank in november include int. income 1,015
oct bank charge only in november recorded by company 10
november cash balances 3,870 5,030
prepare four column bank reconciliation. END OF NOV. use this format
BEG BAL COLLECT DISBURSE END BAL
PER BOOK 5,070 8,220 9420 3,870
CORRECTED BOOK ____________________________________________________
PER BANK 4,970 9,295 9,235 5,030
CORRECTED BANK_________________________________________________________
THE TECHNIQUE
RECONCILE FIRST THE BEG. BALANCE, SINCE THERE IS NO BANK RECON MADE LAST OCT.
ALTHOUGH THERE IS A DATA IN OCTOBER . THERE IS DEPOSIT IN TRANSIT BECAUSE THE BOOK DEPOSITS IS BIGGER, THERE IS ALSO OUTSTANDING CHECKS BECAUSE THE ISSUED CHECKS IS BIGGER THAN THE PAID CHECKS BY BANK.
TAKE NOTE THAT THE DEPOSIT IN TRANSIT LAST OCT END IS LIKELY TO BE PART OF THE BANK DEPOSITS IN NOVEMBER., WHERE THAT DEPOSIT WAS ALREADY RECORDED BY THE BOOK IN OCT. AND SO A RECON ITEM IN DEPOSIT COLUMN.
IN THE DISBURSEMENT COLUMN , THE POSSIBLE RECON ITEM IS THE BANK CHARGES
TAKE NOTE THAT THE OUTSTANDING CHECK END OF OCT, MAY BE PAID BY BANK IN NOVENMBER BUT THIS IS ALREADY RECORDED BY BOOK IN OCT.
Monday, June 16, 2014
Saturday, June 14, 2014
THIS IS A CONTINUATION OF THE TOPIC ABOUT BANK RECONCILIATION.
LET ME DEFINE SOME TERMINOLOGIES THAT WOULD APPEAR ON THE BANK STATEMENT GIVEN BY THE BANK
1. NSF - no sufficient funds , that means the check you have deposited and the bank initially credited your account and accepted , but has no available funds, that means the owner of the check has no withdrawable funds in his bank account. in this case your \\ bank will make a debit entry on the bank statement and a debit note is given and returned the check to the company who deposited such check. The amount of that check will be reflected on the debit side of the bank statement to be given to you by the bank at the end of the month.
Depending on the accounting procedure, this returned check can be automatically journalized by simply crediting CASH IN BANK AND debiting the appropriate account. In the event that the owner of the check advise the company toREDEPOSIT THIS CHECK , an OFFICIAL RECEIPT CAN BE MADE AGAIN BUT INDICATING THAT THIS IS A PREVIOUSLY RETURNED CHECK. That official receipt shall again be DEBITED TO CASH IN BANK ledger account and again will form part of the deposit slips to be made during the day .
IT MAY BE POSSIBLE THAT THE RETURNED CHECK MAY NOT BE COVERED BY AN OFFICIAL RECEIPT AGAIN, SINCE ANYWAY IT WILL BE REDEPOSITED , SO THIS REDEPOSIT WILL APPEAR AGAIN ON THE DEPOSIT SIDE OF THE BANK STATEMENT BUT NOT IN YOUR DEPOSIT COLUMN , SO IF YOU ARE RECONCILING THE DEPOSIT AMOUNT OF YOUR CASH LEDGER AGAINST THE DEPOSIT COLUMN OF THE BANK STATEMENT , THIS REDEPOSIT CHECK WILL BE A DIFFERENCE BUT YOUR ENDING CASH BALANCE AND THE BANK BALANCE WILL BE THE SAME SINCE THE BANK WHEN RETURNING THIS CHECK HAS PUT THAT AMOUNT ON THE WITHDRAWAL COLUMN.
2. transfers - if the company has an arrangement of an automatic transfer of the funds from savings to current account, the bank will enter a credit or withdrawal enrtry on the savings passbook and make a debit or deposit entry on the checking or current account. SIMILARLY THE COMPANY SHOULD MAKE DEBIT CASH IN BANK CURRENT AND CREDIT CASH IN BANK SAVINGS.
.
3. INT - refers to interest income earned during the quarter that was credited to the savings account. THE COMPANY MUST MAKE AN ENTRY TO DEBIT CASH IN BANK/
4. WT - witholding taxes on the interest earned , is reflected on the debit side of the bank statement
.
5. EC - SOME banks uses this code to refer to ERROR CORRECTED, they may have debited someithing which have been credited or vice versa.. THE COMPANY NEED NOT MAKE AN ENTRY
6. CM - refers to credit memo issued by the bank,affecting the companys deposit balances meaning amount reflected on the deposit side.
7. DM - referes to debit memo , meaning a debit or withdrawal has been made to the bank account of the company . THE COMPANY SHOULD MAKE SURE THAT IT HAS MAKE AN ENTRY CREDITING CASH IN BANK
NOW LET ME DEFINE SOME TERMINOLOGIES AS FAR AS THE COMPANY IS CONCERNED
1. ENDING OUTSTANDING CHECK - END at the end of the month - these are check that were/was issued by the company that either still in the possession of the company and or still in the possession of the payee but still not deposited to up to the end of the month to their bank. This is composed of checks issued several months ago or even years ago and those issued the current month but were not yet deposited to their individual bank of the payees. TAKE NOTE THAT THESE CHECKS WERE ALREADY CREDITED TO THE CASH IN BANK ACCOUNT BY THE COMPANY AT THE TIME THE CHECKS WERE PREPARED AND SIGNED. IF THAT IS THE CASE THE CREDIT TOTALS OF THE CASH IN BANK LEDGER of the company IS BIGGER THAN THE WITHDRAWAL TOTAL OF THE BANK STATEMENT . this will result to the BOOK BALANCE TOBE SMALLER THAN THE BANK BALANCE. HENCE THIS IS A RECONCILING ITEM.
2. BEGINNING OUTSTANDING CHECKS = This is simply the outstanding checks at the end of the preceeding or previous month which MAY OR MAY NOT be again deposited by the payee the next month . that is why the outstanding checks at the end of the month may come from the beginning outstanding checks. IF THIS IS THE BEGINNING OUTSTANDING CHECKS , IT IS POSSIBLE THAT SOME OR ALL OF THESE CHECKS WILL BE PRESENTED TO THE BANK THE FOLLOWING MONTH, THOSE THAT WILL NOT BE PRESENTED TO THE BANK , WILL FORM PART OF THE OUTSTANDING CHECKS AT THE END.
3. DEPOSIT IN TRANSIT END - as you may recall above, the collections during the day are supposed to be deposited the following day. Naturally, especially on the COLLECTIONS made on the last day of the month will be reflected or credited by the bank the following month. that means , the total collection of the company during the month may not tally with the CREDITS MADE BY THE BANK TO THE COMPANYS BANK STATEMENT, since in the first place the collections made by the company AT the last day of the month is credited by the bank next month. THIS WILL RESULT TO THE BOOK BALANCE IS BIGGER THAN THE BANK BALANCE. HENCE A RECONCILING ITEM.
4. DEPOSIT IN TRANSIT BEG- This is the ending deposit intransit last month , which should be credited by the bank the first day of the current month . THAT MEANS THE CREDIT OF THE BANK TO THE BANK STATEMENT CONSIST OF: deposit in transit of last month which is expected to be credited thismonth and the deposits made during the month , EXCEPT THOSE COLLECTION AT THE END OF THE MONTH WHCH WERE DEPOSIT THE NEXT MONTH.
5. STALE CHECK- it is a check that was issued or unissued but signed but were not deposited to bank for a period of six month.. When a stale check was a part of the collection and was erroneously deposited to the bank , the bank may accept it for reason they did not noticed but finally will be credited to the bank statement. IN THE SAME MANNER THAT THE COMPANY MAY HAVE ISSUED A CHECK to the payee BUT WAS NOT YET PRESENTED TO THE BANK FOR DEPOSIT BY THE PAYEE six months ago..
6. CASHIERS OR MANAGERS CHECK= it is a check of the bank issued by the request of the company payable to any payee instructed by the compnay to the bank. THE BANK WILL DEBIT THE BANK STATEMENT TO REFLECT THAT MANAGERS CHECK.
You may also encounter the term CANCELLED CHECKS and PAID CHECKS, these are company checks that were presented to the bank for payment and has appeared on the withdrawal column of the bank statement . these checks are returned to the company together with the bank statement.
BEFORE WE PROCEED, LET ME SAY THAT THE ACCOUNTING SYSTEM ENTRY ON CASH COLLECTIONS AND DEPOSITS HAS SOME METHODS.
METHOD 1 : THE COLLECTION IS FIRST DEBITED TO CASH ON HAND, THEN WHEN IT IS DEPOSITED USING THE DEPOSIT SLIP , THAT IS THE TIME THE THE CASH IN BANK ACCOUNT IS USED AND CREDIT CASH ON HAND.
METHOD 2 : ALL COLLECTIONS ARE DIRECTLY DEBITED TO CASH IN BANK WHETHER ACTUALLY DEPOSITED OR NOT.
NOW , WHAT WOULD BE THE POSSIBLE DIFFERENCES BETWEEN THE BANK BALANCE OF YOUR CASH DEPOSIT IN THE BANK AS PER THEIR BANK STATEMENT VERSUS THE CASH IN BANK BALANCE AS IT APPEARS IN SUBSIDIARY LEDGER OF THAT BANK.
Let me go first to the basic of bank reconciliation.
Let us assume that the company has just started business this month.
1. Of course the company has no beginning balance in their CASH IN BANK ACCOUNT.
2. There will be a daily collections which are covered by an official receipts and therefore daily DEBIT TO CASH IN BANK IS MADE.on the basis of that official receipts. that offcial receipts would indicate whether it is a cash colllection or a check collection in which case the drawee bank and the check no. is written on that OFFICIAL RECEIPT.
3. A DAILY deposits slips are also prepared ON THE BASIS OF THE ACTUAL CASH AND ACTUAL CHECKS AND NOT ON THE BASIS OF THE OFFICIAL RECEIPTS to cover those collections made during the day and deposited to the bank. Normally there is no entry on this deposit slips because it was already debited on the basis of official receipts.
4. that means , your collections during the day is exactly what is in the deposit slips and what is on the deposit slips amount total is also the total to be reflected in the bank statement as DEPOSIT. IF JUST IN CASE THE COLLECTIONS AMOUNT ON THAT DAY IS DIFFERENT WITH THE AMOUNT OF THE APPEARING ON THE DEPOSIT SLIPS AFTER THE BANK HAS ACCEPTED THAT DEPOSIT SLIPS BECAUSE OF SOME REASONS , THEN A RECONCILING ITEM IS EXPECTED. Say, the official receipt the amount recorded is 500.00 but thedeposit slips says 5,000 , the debit to CASH IN BANK ACCOUNT IN THE COMPANYS BOOK 500.00 is not anymore tally with the deposit slips 5,000.00 reflected by the bank on the bank statement deposit column. this becomes a reconciling item. because the BOOK BALANCE IS SMALLER THAN THE BANK BALANCE., SO THE 4500.00 SHOULD BE ADDED TO THE BOOK BALANCE TO RECONCILE WITH THE BANK BALANCE.
THERE IS ALSO A POSSIBILITY THAT THE AMOUNT ENTERED BY THE BANK ON THE DEPOSIT COLUMN IS is say 900.00 DIFFERENT FROM THE DEPOSIT SLIPS of 90.00 due to misreading of the amount THIS WILL BECOME A RECONCILING ITEM.. THE BANK BALANCE IS BIGGER THAN THE BOOK BALANCE BY 810.00, SO THIS 810.00 SHOULD BE DEDUCTED TO THE BANK BALANCE.
5. the collections made during the END of the month, as a basic rule will be deposited the following banking day on the next month, but will be debited to CASH IN BANK this month , therefore that collections will not be reflected on your bank statement this month , but to be reflected the first day of the following month. THE BOOK BALANCE IS BIGGER THAN THE BANK BALANCE . THIS IS NOW WHAT WE CALL DEPOSIT IN TRANSIT - END, WHICH SHOULD BE ADDED TO THE BANK BALANCE TO RECONCILE WITH THE BOOK BALANCE
6. the company shall prepare disbursement voucher and the corresponding checks to pay something . the voucher number and the check no.and the amount shall be posted to the CREDIT side of the CASH IN BANK LEDGER ACCOUNTS. for the whole month . IN CASE THE PAYEE DEPOSITED THAT CHECK TO HIS OWN BANK, YOUR BANK SHALL DEBIT OR REFLECT THE CHECK NUMBER AND THE AMOUNT ON THE WITHDRAWAL COLUMN OF THE BANK STATEMENT for the whole month . THE PROBLEM IS , IF THE PAYEE FAILED TO DEPOSIT THAT CHECK TO HIS BANK DURING THE MONTH , THE CREDIT TOTALS OF THE COMPANYS CASH IN BANK ACCOUNTS FOR THE ISSUED CHECKS WILL BE BIGGER THAN THE BANK WITHDRAWAL AND NOT ANYMORE TALLY WITH THE WITHDRAWAL COLUMN OF THE BANK STATEMENT this difference is WHAT WE CALL OUTSTANDING CHECKS END OF THE MONTH. . THEREFORE THE BANK BALANCE WILL BE BIGGER THAN THE BOOK BALANCE, HENCE THIS OUTSTANDING CHECKS SHOULD BE DEDUCTED FROM THE BANK BALANCE TO RECONCILE WITH THE BOOK BALANCE
THERE IS ALSO A POSSIBLITY THAT THE AMOUNT OF THE CHECK say 2,000.00 IS DIFFERENT FROM THE AMOUNT OF THE DISBURSEMENT VOUCHER USED TO CREDIT CASH IN BANK say 20,000.00 and this check was presented to the bank, a difference now will appear, ESPECIALLY WHEN THE PAYEE HAS DEPOSITED THIS CHECK TO HIS BANK. therefore all you have to do is to simply compare the credit in your cash in bank ledger for each ofthe check issued as against the check no. and amount appearing on the withdrawal column of the bank statement . THIS WILL BECOME A RECONCILING ITEM. TAKE NOTE THAT IN THE EVENT THAT THE CHECK WAS NOT PRESENTED TO BANK, THIS WILL NOT BE A RECONCILING ITEM BUT JUST AN ERROR IN THE COMPANYS BOOK IF NOT UNCOVERED.
the above is the regular differences in the bank reconciliation especially during the first month of companys operation.
The following may also contribute to the difference in the book balance of cash inbank vis a vis the bank for the simple reason that the transactions emanates from the bank and which the company was not given due notice.
1. A CHECK DEPOSIT MADE BUT LATER ON FOUND OUT BY THE BANK THAT THE OWNER OF THE CHECK HAS NO SUFFICIENT FUND IN HIS BANK. THE BANK NOW WILL REFLECT AN AMOUNT ON THE WITHDRAWAL COLUMN OF THE BANK STATEMENT INDICATING A ( NSF) CODE AND A DEBIT NOTE IS GIVEN TO THE COMPANY. THERE IS A POSSIBILITY THAT THAT DEBIT NOTE MAY NOT REACHED THE COMPANY , HENCE , THE COMPANY MAY NOT BE ABLE TO MAKE A CREDIT ENTRY ON THE CASH IN BANK ACCOUNT. hence the withdrawal column of the bank statement is bigger than the credits of the book. The ending balance of the bank statment is smaller than the book balance. , HENCE A DEDUCTION TO THE BOOK BALANCE IS NEEDED as a reconciling item.
2. A CASH TRANSFER EFFECTED BY THE BANK FROM SAVINGS ACCOUNT TO CHECKING / CURRENT MAY NOT ALSO REACHED THE COMPANY , ALTHOUGH IF THE BANK STATEMENT REACH THE COMPANY BEFORE CLOSING OF THE BOOKS , THE ACCOUNTANT CAN MAKE AN ENTRY OF TRANSFERS USING THE TRANSFERS AMOUNT AS IT APPEARS ON ON THE BANK STATEMENT BOTH THE SAVINGS AND CHECKING ACCOUNT.
3. an interest earned by the companys deposit is credited in the bank statement but the credit note did not reached the company. this should be added to the book balance.
4. a loan application by the company from that bank was approved and was credited to the bank statement but a credit note was not also received by the company hence no entry was made debiting cash in bank account. this should be added to the book balance.
LET US GO NOW TO THE VARIOUS TYPES OF BANK RECONCILIATION.
1. THE RECONCILIATION OF BOOK CASH IN BANK BALANCE AGAINST THE BALANCE OF THE BANK STATEMENT. IN this reconciliation , the DEBIT AND THE CREDIT OF THE COMPANYS CASH IN BANK ACCOUNT IS NOT BEING RECONCILED WITH THE DEPOSITS AND WITHDRAWAL PER BANK STATEMENT , what is being reconciled is the ending balances.
Later we will discuss a bank reconciliation where the DEBITS TO CASH IN BANK, IS ALSO RECONCILED TO THE DEPOSITS COLUMN OF THE BANK STATEMENT, AND THE CREDITS TO CASH IN BANK IS RECONCILED WITH THE WITDRAWAL OF THE BANK STATEMENT.
A TYPICAL TYPE OF BANK RECONCILIATION:
PER BOOK PER BANK
UNADJUSTED BALANCES 181 155
reconciling items
1. returned check ( 3)
2. deposit in transit 3
3. less outstanding checks (16)
4. wrong deposit amount entered by bank
should be 90..00
recorded 9.00 81
5. wrong check amt
book entry 50.;00
bank actual amt. 5.00 45
ADJUSTED BALANCES 223 223
explanations:
1. the returned check was originally debited by book to cash in bank, then deposited to the bank, later on the bank after recording it as deposit has put it on the withdrawal column because it has no sufficient funds OR NSF , or try next clearing. the bank balance was reduced as a consequence, therefore the book should deduct on its balance to reconcile with the bank. DEBIT an certain applicalbe account credit cash in bank.
2. deposit intransit of 3. this is normally the collection at end of month debited by books but the bank received it next month, therefore the cash in bank balance per book is bigger, and the bank smaller hence added to the bank balance.
3. outstanding checks. ACTUALLY , how is this determined.
a. get your bank statement, compare the check no. and amount reflected on its withdrawal column as against the CHECK NO. AND AMOUNT IN YOUR CASH IN BANK CREDIT COLUMN AND THAT OF THE OUTSTANDING CHECKS END LISTING LAST MONTH. ANY CHECK NO AND ITS AMOUNT NOT FOUND IN THE BANK WITHDRAWAL COLUMN IS THE OUTSTANDING CHECKS AT THE END OF THE MONTH. since these checks are already deducted in the book balance and not yet reflected in the withdrawal column of the bank , the BANK BALANCE IS SMALLLER THAN THE BOOK BALANCE, HENCE THIS OUTSTANDING CHECKS ARE DEDUCTED FROM THE BANK BALANCE.
BUT AS A SHORT CUT , THESE OUTSTANDING CHECKS END CAN BE DETERMINED AS FF:
BEG. OUTSTANDING CHECKS 10,000
ADD: ISSUED CHECK BY BOOK 5,000
LESS: paid by the bank or shown on the
withdrawal column of the bank 3,000
EQUALS OUTSTANDING CHECKS 12,000 STILL NOT PRESENTED TO THE BANK
4. a wrong deposit of 81.00. the actual amount of the deposit is 90.00 as recorded by the book, but it was erroneously as 9.00 by the bank, therefore the bank balance gets smaller , hence it is added to its balance.
5. wrong check amount, the actual check amount is 5.00 but the b00k recorded it as 50.00, hence the book balance becomes smaller by 45.00 because it deducts more , hence it must be added to the book balance.
2. A BANK RECONCILIATION WHERE , IT IS PRESUMED THAT THE BANK BALANCE IS ACCURATE. OR THE BOOK BALANCE IS THE ONE ACCURATE.
EXAMPLE WHERE BOOK IS PRESUMED CORRECT.
THIS BANK TO BOOK RECONCILIATION
BANK BALANCE 155
add: deposit intransit 3
returned checks 3
outstanding checks ((16)
wrong deposit by bank
should be 90.00
per bank 9.00 81
wrong check amount by book
per bank 5.00
per book 50.00 (45)
BOOK BALANCE 181
explanations:
what ever happens it is presumed that the book is correct. though strange .
1. deposit in transit , it is self explanatory because the book is correct here.
2. returned check , although the bank is correct but as a presumption it must be added back to the bank balance because the book did not make an entry crediting cash in bank.
3. since outstanding checks are already credited to the cash in bank account per books , the banks should deduct this to its balance.
4. the wrong deposit made is an error of the bank , where its balance is short of 81.00 .
5. the 45.00, is deducted to the bank balance because the book is prsumed correct.
there is reverse situation where the BANK IS THE ONE PRESUMED CORRECT , SO THE RECONCILING ITEM AS SHOWN ABOVE WILL BE JUST A REVERSE.
3. THE LAST METHOD OF BANK RECONCILIATION IS THE PROOF OF CASH BANKRECONCILIATION where THE DEBITS OF CASH IN BANK IS RECONCILED WITH THE DEPOSITS OF THE BANK, AND CREDITS TO CASH IN BANK IS RECONCILED WITH THE WITHDRAWAL OF THE BANK STATEMENT. THIS WILL RESULT TO THE AUTOMATIC RECONCILIATION OF THE END BALANCES.
LET US FIRST ASSUME THAT THIS IS THE START OF THE BUSINESS FIRST MONTH.
as you are aware, any ending balances is a result of adding the beginning , add the debits and deduct the credits would equal to END BALANCE especially in an asset accounts.
BEG DEPOSITS WITHDRAWAL END BALANCE
BANK BALANCES 0 216 61 155 ADD:collection end of month
not reflected this month in the bank
DEPOSIT INTRANSIT 3 3
less: checks issued but not
presented to the bank yet
OUTSTANDING CHECKS 16 ( 16)
wrong deposit entry by bank
should be 90.00
taken 9.00 81 81
wrong check amout by book
taken by book 50.00
actual 5.00 45 (45)
RETURNED CHECK (3) 3
BOOK\\\ BALANCE -0 300 119 181
As explained earlier , proof of cash is simply compare the totals of the DEPOSITS IN THE BANK STATEMENT AS AGAINST THE DEBITS OF CASH IN BANK IN THE COMPANYS BOOK. in the above example, the total of bank deposit is 216, whereas in the books it is 300, compose of 81 and 3.
IN ACTUAL PRACTICE, THIS DEPOSIT IN TRANSIT MUST BE QUANTIFIED AND IDENTIFIED AS TO OFFICIAL RECEIPT NOS.AND AMOUNTS.
the same is true with the WITHDRAWALS COLUMN of the bank statement where it is compared to the credits to CASH IN BANK in the company books. As explained earlier , the credits to CASH IN BANK are those checks covered by a disbursement vouchers, take note that it may not be automatically BE SHOWN ON THE WITHDRAWAL COLUMN OF THE BANK STATEMENT for the simply reason that the checks may be in the companys possession still, and in the hands of the payee but are not yet deposit by them to their individual banks.
that means the possible difference between the WITHDRAWAL OF THE BANK VIS A VIS THE CREDITS OF THE BOOK FOR THE CHECKS ISSUED are the checks issued by the company but not yet presented to the bank , hence it is not yet reflected on the bank statement but were already in the CREDIT TO CASH IN BANK ACCOUNT in the books of the company.
that is why in the above example , the book totals of the withdrawal is 119, and bank total is 61, the books is bigger by 58 because of the differences mentioned..
IN ACTUAL PRACTICE , these outstanding checks must be LISTED as to CHECK NO. AND AMOUNT and you can do that as explained above.
LET ME SHOW YOU THE ACTUAL PICTURE OF AN OFFICIAL RECEIPT, DEPOSIT SLIPS, CASH IN BANK LEDGER AND THE BANK STATEMENT .
OFFICIAL RECEIPT.
received from TONY the sum of 20,000 pesos
check no. 300202
received by: ---------------
journal entry: CASH IN BANK 20,000
CREDIT.................................
--------------------------------------------------------------------
DEPOSIT SLIPS.
name of bank check no. amount
tokyo bank 300202 20,000.00
name of depositor_____________-
______________________________________________________
CASH IN BANK LEDGER
DATE descriptions debit credit balance
BEG. BAL 21730.00
2.1 collection today 400.00
2.3 collection today 500.00
2.5 collection 30.00
2./15 collection 10.00
2.3 disbursement:
check no. 390 8.00
check no. 391 1.00
check 392 4.00
check 393 7.00
2.6 collection 40.00
2.9 collection 5.00
check 394 10.00
check 395 3.00
2.10 collection 5.00
check 396 5.00
check 397 11.00
2.24 collection 3.00
2.28 check 398 5.00
2.28 collection 12.00
totals 1005.00 54.00 22,681.00
__________________________________________________________________________
THE COPY OF A BANK STATEMENT
DATE DEPOSIT WITHDRAWAL BALANCE
BEG. BAL 21,130.00-
2.1 Deposit 1,000.00
deposit 400.00
deposit 500.00
deposit 30.00
check no. 389 200.00
check 388 100.00
check 386 10.00
deposit 10.00
depo 40.00
depo 5.00
check 390 8.00
check 356 4.00
check 391 1.00
392 4.00
393 7.00
2.27 deposit 1..00
depo 3.00
check 394 10.00
check 395 30.00
returned check 40.00
proceeds of loan 20,000.00
interest earned 30.00
cost of check books 30.00
totals 22,019.00 444.00 42,705.00
you should expect that the contents of the deposits of the bank statement would include the deposit in transit last month which is expected to be part of the deposits column this month . It may also include ,interest earned by the company out of that deposit and any proceeds of loan granted to the company by that bank.
also expect that the withdrawal column of the bank statement would include those outstanding checks as of last month that was not yet presented to the bank last month and which may be part of the withdrawal this month. It may also include bank charges for cost of check books,, cost any documentary tax , result of importation charges, may include charges due to importation of materials of course coursed thru the bank etc etc.
WHAT IS THE PROCEDURE ON HOW TO RECONCILE THE BOOK AND BANK BALANCES.
1.. get the list of the deposits slips of the last day last month representing DEPOSIT IN TRANSIT LAST MONTH< . check if that amount is now reflected on the deposit column of the bank statement, see any difference , if there is any, then that is a reconciling item.
2. GO TO the CASH IN BANK LEDGER. compare the book entry of collection against the collection appearing on the bank statement , take note of any difference , that is a reconciling item.
3. check if there is an amount in the deposit column of the bank where it does not represent deposit but other name description. and not in the debit of the book. that is a reconciling item.
4. get the list of the outstanding checks last month, where it indicates the check no. and the amount. CHECK THE CHECK NO. AND AMOUNT IF IT IS REFLECTED ON THE BANK WITHDRAWAL COLUMN OF THIS MONTH. take note the bank statement indicates the check number and the amount. IF IT IS SEEN IN THE BANK WITHDRAWAL COLUMN OF THE BANK STATMENT , THOSE CHECKS ARE SAID TO BE " PAID CHECKS AND WILL NOT ANYMORE PART OF OUTSTANDING CHECK. , BUT THOSE CHECKS THAT ARE NOT REFLECTED\\\\\IN THE BANK STATEMENT IS STILL PART OF THE OUTSTANDING CHECKS END OF MONTH.
5. LOOK AT YOUR CREDIT ENTRIES ON YOUR CASH IN BANK LEDGER REPRESENTING ISSUED CHECKS . COMPARE THE CHECK NO. AND ITS AMOUNT AS WRITTEN IN THE CREDIT SIDE OF THE LEDGER AND COMPARE WITH THE CHECK NO. AND AMOUNT IN THE WITHDRAWAL SIDE OF THE BANK STATEMENT. ANY AMOUNT NOT IN THE WITHDRAWAL COLUMN OF THE BANK IS STILL OUTSTANDING CHECKS.
THEREFORE THERE ARE TWO SOURCES OF THE OUTSTANDING CHECKS AT THE END.
A. THOSE COMING FROM THE BEG. OUTSTANDING CHECKS THAT WERE NOT PRESENTED TO THE BANKYET AS OF THE CURRENT MONTH.
B. THOSE CURRENT CHECK ISSUED DURING THE MONTH BUT NOT YET SEEN IN THE WITHDRAWAL COLUMN OF THE BANK THIS MONTH.
Having known the above technique, you can now compute any unknown amount just in case . Let us say.
A. How much is the beginning outstanding checks if :
the outstanding checks at the end is.................................500.00
the checks issued by the company for the month 805.00
the amount of checks paid by the bank as it appears on
the withdrawal column//////..............................................600.00
OUTSTANDING END 500.00
ADD: CHECKS PAID BY BANK 600..00
less; CHECKS ISSUED BY BOOK 805.00
= OUTSTANDING BEG OF THE MONTH 295.00
B. how much is the amount of checks paid by the bank:
beg. outstanding 295.00
add: checks issued by book 805.00
less outstanding end 500.00
= paid checks 600.00
C . HOW MUCH WAS THE ISSUED CHECKS BY COMPANY DURING THE MONTH>
PAID CHECKS BY BANK 600
ADD: STILL UNPAID BY BANK 500
LESS: BEG OUSTANDING CHECKS 295
= CHECKS ISSUED BY THE COMPANY 805
LET ME DEFINE SOME TERMINOLOGIES THAT WOULD APPEAR ON THE BANK STATEMENT GIVEN BY THE BANK
1. NSF - no sufficient funds , that means the check you have deposited and the bank initially credited your account and accepted , but has no available funds, that means the owner of the check has no withdrawable funds in his bank account. in this case your \\ bank will make a debit entry on the bank statement and a debit note is given and returned the check to the company who deposited such check. The amount of that check will be reflected on the debit side of the bank statement to be given to you by the bank at the end of the month.
Depending on the accounting procedure, this returned check can be automatically journalized by simply crediting CASH IN BANK AND debiting the appropriate account. In the event that the owner of the check advise the company toREDEPOSIT THIS CHECK , an OFFICIAL RECEIPT CAN BE MADE AGAIN BUT INDICATING THAT THIS IS A PREVIOUSLY RETURNED CHECK. That official receipt shall again be DEBITED TO CASH IN BANK ledger account and again will form part of the deposit slips to be made during the day .
IT MAY BE POSSIBLE THAT THE RETURNED CHECK MAY NOT BE COVERED BY AN OFFICIAL RECEIPT AGAIN, SINCE ANYWAY IT WILL BE REDEPOSITED , SO THIS REDEPOSIT WILL APPEAR AGAIN ON THE DEPOSIT SIDE OF THE BANK STATEMENT BUT NOT IN YOUR DEPOSIT COLUMN , SO IF YOU ARE RECONCILING THE DEPOSIT AMOUNT OF YOUR CASH LEDGER AGAINST THE DEPOSIT COLUMN OF THE BANK STATEMENT , THIS REDEPOSIT CHECK WILL BE A DIFFERENCE BUT YOUR ENDING CASH BALANCE AND THE BANK BALANCE WILL BE THE SAME SINCE THE BANK WHEN RETURNING THIS CHECK HAS PUT THAT AMOUNT ON THE WITHDRAWAL COLUMN.
2. transfers - if the company has an arrangement of an automatic transfer of the funds from savings to current account, the bank will enter a credit or withdrawal enrtry on the savings passbook and make a debit or deposit entry on the checking or current account. SIMILARLY THE COMPANY SHOULD MAKE DEBIT CASH IN BANK CURRENT AND CREDIT CASH IN BANK SAVINGS.
.
3. INT - refers to interest income earned during the quarter that was credited to the savings account. THE COMPANY MUST MAKE AN ENTRY TO DEBIT CASH IN BANK/
4. WT - witholding taxes on the interest earned , is reflected on the debit side of the bank statement
.
5. EC - SOME banks uses this code to refer to ERROR CORRECTED, they may have debited someithing which have been credited or vice versa.. THE COMPANY NEED NOT MAKE AN ENTRY
6. CM - refers to credit memo issued by the bank,affecting the companys deposit balances meaning amount reflected on the deposit side.
7. DM - referes to debit memo , meaning a debit or withdrawal has been made to the bank account of the company . THE COMPANY SHOULD MAKE SURE THAT IT HAS MAKE AN ENTRY CREDITING CASH IN BANK
NOW LET ME DEFINE SOME TERMINOLOGIES AS FAR AS THE COMPANY IS CONCERNED
1. ENDING OUTSTANDING CHECK - END at the end of the month - these are check that were/was issued by the company that either still in the possession of the company and or still in the possession of the payee but still not deposited to up to the end of the month to their bank. This is composed of checks issued several months ago or even years ago and those issued the current month but were not yet deposited to their individual bank of the payees. TAKE NOTE THAT THESE CHECKS WERE ALREADY CREDITED TO THE CASH IN BANK ACCOUNT BY THE COMPANY AT THE TIME THE CHECKS WERE PREPARED AND SIGNED. IF THAT IS THE CASE THE CREDIT TOTALS OF THE CASH IN BANK LEDGER of the company IS BIGGER THAN THE WITHDRAWAL TOTAL OF THE BANK STATEMENT . this will result to the BOOK BALANCE TOBE SMALLER THAN THE BANK BALANCE. HENCE THIS IS A RECONCILING ITEM.
2. BEGINNING OUTSTANDING CHECKS = This is simply the outstanding checks at the end of the preceeding or previous month which MAY OR MAY NOT be again deposited by the payee the next month . that is why the outstanding checks at the end of the month may come from the beginning outstanding checks. IF THIS IS THE BEGINNING OUTSTANDING CHECKS , IT IS POSSIBLE THAT SOME OR ALL OF THESE CHECKS WILL BE PRESENTED TO THE BANK THE FOLLOWING MONTH, THOSE THAT WILL NOT BE PRESENTED TO THE BANK , WILL FORM PART OF THE OUTSTANDING CHECKS AT THE END.
3. DEPOSIT IN TRANSIT END - as you may recall above, the collections during the day are supposed to be deposited the following day. Naturally, especially on the COLLECTIONS made on the last day of the month will be reflected or credited by the bank the following month. that means , the total collection of the company during the month may not tally with the CREDITS MADE BY THE BANK TO THE COMPANYS BANK STATEMENT, since in the first place the collections made by the company AT the last day of the month is credited by the bank next month. THIS WILL RESULT TO THE BOOK BALANCE IS BIGGER THAN THE BANK BALANCE. HENCE A RECONCILING ITEM.
4. DEPOSIT IN TRANSIT BEG- This is the ending deposit intransit last month , which should be credited by the bank the first day of the current month . THAT MEANS THE CREDIT OF THE BANK TO THE BANK STATEMENT CONSIST OF: deposit in transit of last month which is expected to be credited thismonth and the deposits made during the month , EXCEPT THOSE COLLECTION AT THE END OF THE MONTH WHCH WERE DEPOSIT THE NEXT MONTH.
5. STALE CHECK- it is a check that was issued or unissued but signed but were not deposited to bank for a period of six month.. When a stale check was a part of the collection and was erroneously deposited to the bank , the bank may accept it for reason they did not noticed but finally will be credited to the bank statement. IN THE SAME MANNER THAT THE COMPANY MAY HAVE ISSUED A CHECK to the payee BUT WAS NOT YET PRESENTED TO THE BANK FOR DEPOSIT BY THE PAYEE six months ago..
6. CASHIERS OR MANAGERS CHECK= it is a check of the bank issued by the request of the company payable to any payee instructed by the compnay to the bank. THE BANK WILL DEBIT THE BANK STATEMENT TO REFLECT THAT MANAGERS CHECK.
You may also encounter the term CANCELLED CHECKS and PAID CHECKS, these are company checks that were presented to the bank for payment and has appeared on the withdrawal column of the bank statement . these checks are returned to the company together with the bank statement.
BEFORE WE PROCEED, LET ME SAY THAT THE ACCOUNTING SYSTEM ENTRY ON CASH COLLECTIONS AND DEPOSITS HAS SOME METHODS.
METHOD 1 : THE COLLECTION IS FIRST DEBITED TO CASH ON HAND, THEN WHEN IT IS DEPOSITED USING THE DEPOSIT SLIP , THAT IS THE TIME THE THE CASH IN BANK ACCOUNT IS USED AND CREDIT CASH ON HAND.
METHOD 2 : ALL COLLECTIONS ARE DIRECTLY DEBITED TO CASH IN BANK WHETHER ACTUALLY DEPOSITED OR NOT.
NOW , WHAT WOULD BE THE POSSIBLE DIFFERENCES BETWEEN THE BANK BALANCE OF YOUR CASH DEPOSIT IN THE BANK AS PER THEIR BANK STATEMENT VERSUS THE CASH IN BANK BALANCE AS IT APPEARS IN SUBSIDIARY LEDGER OF THAT BANK.
Let me go first to the basic of bank reconciliation.
Let us assume that the company has just started business this month.
1. Of course the company has no beginning balance in their CASH IN BANK ACCOUNT.
2. There will be a daily collections which are covered by an official receipts and therefore daily DEBIT TO CASH IN BANK IS MADE.on the basis of that official receipts. that offcial receipts would indicate whether it is a cash colllection or a check collection in which case the drawee bank and the check no. is written on that OFFICIAL RECEIPT.
3. A DAILY deposits slips are also prepared ON THE BASIS OF THE ACTUAL CASH AND ACTUAL CHECKS AND NOT ON THE BASIS OF THE OFFICIAL RECEIPTS to cover those collections made during the day and deposited to the bank. Normally there is no entry on this deposit slips because it was already debited on the basis of official receipts.
4. that means , your collections during the day is exactly what is in the deposit slips and what is on the deposit slips amount total is also the total to be reflected in the bank statement as DEPOSIT. IF JUST IN CASE THE COLLECTIONS AMOUNT ON THAT DAY IS DIFFERENT WITH THE AMOUNT OF THE APPEARING ON THE DEPOSIT SLIPS AFTER THE BANK HAS ACCEPTED THAT DEPOSIT SLIPS BECAUSE OF SOME REASONS , THEN A RECONCILING ITEM IS EXPECTED. Say, the official receipt the amount recorded is 500.00 but thedeposit slips says 5,000 , the debit to CASH IN BANK ACCOUNT IN THE COMPANYS BOOK 500.00 is not anymore tally with the deposit slips 5,000.00 reflected by the bank on the bank statement deposit column. this becomes a reconciling item. because the BOOK BALANCE IS SMALLER THAN THE BANK BALANCE., SO THE 4500.00 SHOULD BE ADDED TO THE BOOK BALANCE TO RECONCILE WITH THE BANK BALANCE.
THERE IS ALSO A POSSIBILITY THAT THE AMOUNT ENTERED BY THE BANK ON THE DEPOSIT COLUMN IS is say 900.00 DIFFERENT FROM THE DEPOSIT SLIPS of 90.00 due to misreading of the amount THIS WILL BECOME A RECONCILING ITEM.. THE BANK BALANCE IS BIGGER THAN THE BOOK BALANCE BY 810.00, SO THIS 810.00 SHOULD BE DEDUCTED TO THE BANK BALANCE.
5. the collections made during the END of the month, as a basic rule will be deposited the following banking day on the next month, but will be debited to CASH IN BANK this month , therefore that collections will not be reflected on your bank statement this month , but to be reflected the first day of the following month. THE BOOK BALANCE IS BIGGER THAN THE BANK BALANCE . THIS IS NOW WHAT WE CALL DEPOSIT IN TRANSIT - END, WHICH SHOULD BE ADDED TO THE BANK BALANCE TO RECONCILE WITH THE BOOK BALANCE
6. the company shall prepare disbursement voucher and the corresponding checks to pay something . the voucher number and the check no.and the amount shall be posted to the CREDIT side of the CASH IN BANK LEDGER ACCOUNTS. for the whole month . IN CASE THE PAYEE DEPOSITED THAT CHECK TO HIS OWN BANK, YOUR BANK SHALL DEBIT OR REFLECT THE CHECK NUMBER AND THE AMOUNT ON THE WITHDRAWAL COLUMN OF THE BANK STATEMENT for the whole month . THE PROBLEM IS , IF THE PAYEE FAILED TO DEPOSIT THAT CHECK TO HIS BANK DURING THE MONTH , THE CREDIT TOTALS OF THE COMPANYS CASH IN BANK ACCOUNTS FOR THE ISSUED CHECKS WILL BE BIGGER THAN THE BANK WITHDRAWAL AND NOT ANYMORE TALLY WITH THE WITHDRAWAL COLUMN OF THE BANK STATEMENT this difference is WHAT WE CALL OUTSTANDING CHECKS END OF THE MONTH. . THEREFORE THE BANK BALANCE WILL BE BIGGER THAN THE BOOK BALANCE, HENCE THIS OUTSTANDING CHECKS SHOULD BE DEDUCTED FROM THE BANK BALANCE TO RECONCILE WITH THE BOOK BALANCE
THERE IS ALSO A POSSIBLITY THAT THE AMOUNT OF THE CHECK say 2,000.00 IS DIFFERENT FROM THE AMOUNT OF THE DISBURSEMENT VOUCHER USED TO CREDIT CASH IN BANK say 20,000.00 and this check was presented to the bank, a difference now will appear, ESPECIALLY WHEN THE PAYEE HAS DEPOSITED THIS CHECK TO HIS BANK. therefore all you have to do is to simply compare the credit in your cash in bank ledger for each ofthe check issued as against the check no. and amount appearing on the withdrawal column of the bank statement . THIS WILL BECOME A RECONCILING ITEM. TAKE NOTE THAT IN THE EVENT THAT THE CHECK WAS NOT PRESENTED TO BANK, THIS WILL NOT BE A RECONCILING ITEM BUT JUST AN ERROR IN THE COMPANYS BOOK IF NOT UNCOVERED.
the above is the regular differences in the bank reconciliation especially during the first month of companys operation.
The following may also contribute to the difference in the book balance of cash inbank vis a vis the bank for the simple reason that the transactions emanates from the bank and which the company was not given due notice.
1. A CHECK DEPOSIT MADE BUT LATER ON FOUND OUT BY THE BANK THAT THE OWNER OF THE CHECK HAS NO SUFFICIENT FUND IN HIS BANK. THE BANK NOW WILL REFLECT AN AMOUNT ON THE WITHDRAWAL COLUMN OF THE BANK STATEMENT INDICATING A ( NSF) CODE AND A DEBIT NOTE IS GIVEN TO THE COMPANY. THERE IS A POSSIBILITY THAT THAT DEBIT NOTE MAY NOT REACHED THE COMPANY , HENCE , THE COMPANY MAY NOT BE ABLE TO MAKE A CREDIT ENTRY ON THE CASH IN BANK ACCOUNT. hence the withdrawal column of the bank statement is bigger than the credits of the book. The ending balance of the bank statment is smaller than the book balance. , HENCE A DEDUCTION TO THE BOOK BALANCE IS NEEDED as a reconciling item.
2. A CASH TRANSFER EFFECTED BY THE BANK FROM SAVINGS ACCOUNT TO CHECKING / CURRENT MAY NOT ALSO REACHED THE COMPANY , ALTHOUGH IF THE BANK STATEMENT REACH THE COMPANY BEFORE CLOSING OF THE BOOKS , THE ACCOUNTANT CAN MAKE AN ENTRY OF TRANSFERS USING THE TRANSFERS AMOUNT AS IT APPEARS ON ON THE BANK STATEMENT BOTH THE SAVINGS AND CHECKING ACCOUNT.
3. an interest earned by the companys deposit is credited in the bank statement but the credit note did not reached the company. this should be added to the book balance.
4. a loan application by the company from that bank was approved and was credited to the bank statement but a credit note was not also received by the company hence no entry was made debiting cash in bank account. this should be added to the book balance.
LET US GO NOW TO THE VARIOUS TYPES OF BANK RECONCILIATION.
1. THE RECONCILIATION OF BOOK CASH IN BANK BALANCE AGAINST THE BALANCE OF THE BANK STATEMENT. IN this reconciliation , the DEBIT AND THE CREDIT OF THE COMPANYS CASH IN BANK ACCOUNT IS NOT BEING RECONCILED WITH THE DEPOSITS AND WITHDRAWAL PER BANK STATEMENT , what is being reconciled is the ending balances.
Later we will discuss a bank reconciliation where the DEBITS TO CASH IN BANK, IS ALSO RECONCILED TO THE DEPOSITS COLUMN OF THE BANK STATEMENT, AND THE CREDITS TO CASH IN BANK IS RECONCILED WITH THE WITDRAWAL OF THE BANK STATEMENT.
A TYPICAL TYPE OF BANK RECONCILIATION:
PER BOOK PER BANK
UNADJUSTED BALANCES 181 155
reconciling items
1. returned check ( 3)
2. deposit in transit 3
3. less outstanding checks (16)
4. wrong deposit amount entered by bank
should be 90..00
recorded 9.00 81
5. wrong check amt
book entry 50.;00
bank actual amt. 5.00 45
ADJUSTED BALANCES 223 223
explanations:
1. the returned check was originally debited by book to cash in bank, then deposited to the bank, later on the bank after recording it as deposit has put it on the withdrawal column because it has no sufficient funds OR NSF , or try next clearing. the bank balance was reduced as a consequence, therefore the book should deduct on its balance to reconcile with the bank. DEBIT an certain applicalbe account credit cash in bank.
2. deposit intransit of 3. this is normally the collection at end of month debited by books but the bank received it next month, therefore the cash in bank balance per book is bigger, and the bank smaller hence added to the bank balance.
3. outstanding checks. ACTUALLY , how is this determined.
a. get your bank statement, compare the check no. and amount reflected on its withdrawal column as against the CHECK NO. AND AMOUNT IN YOUR CASH IN BANK CREDIT COLUMN AND THAT OF THE OUTSTANDING CHECKS END LISTING LAST MONTH. ANY CHECK NO AND ITS AMOUNT NOT FOUND IN THE BANK WITHDRAWAL COLUMN IS THE OUTSTANDING CHECKS AT THE END OF THE MONTH. since these checks are already deducted in the book balance and not yet reflected in the withdrawal column of the bank , the BANK BALANCE IS SMALLLER THAN THE BOOK BALANCE, HENCE THIS OUTSTANDING CHECKS ARE DEDUCTED FROM THE BANK BALANCE.
BUT AS A SHORT CUT , THESE OUTSTANDING CHECKS END CAN BE DETERMINED AS FF:
BEG. OUTSTANDING CHECKS 10,000
ADD: ISSUED CHECK BY BOOK 5,000
LESS: paid by the bank or shown on the
withdrawal column of the bank 3,000
EQUALS OUTSTANDING CHECKS 12,000 STILL NOT PRESENTED TO THE BANK
4. a wrong deposit of 81.00. the actual amount of the deposit is 90.00 as recorded by the book, but it was erroneously as 9.00 by the bank, therefore the bank balance gets smaller , hence it is added to its balance.
5. wrong check amount, the actual check amount is 5.00 but the b00k recorded it as 50.00, hence the book balance becomes smaller by 45.00 because it deducts more , hence it must be added to the book balance.
2. A BANK RECONCILIATION WHERE , IT IS PRESUMED THAT THE BANK BALANCE IS ACCURATE. OR THE BOOK BALANCE IS THE ONE ACCURATE.
EXAMPLE WHERE BOOK IS PRESUMED CORRECT.
THIS BANK TO BOOK RECONCILIATION
BANK BALANCE 155
add: deposit intransit 3
returned checks 3
outstanding checks ((16)
wrong deposit by bank
should be 90.00
per bank 9.00 81
wrong check amount by book
per bank 5.00
per book 50.00 (45)
BOOK BALANCE 181
explanations:
what ever happens it is presumed that the book is correct. though strange .
1. deposit in transit , it is self explanatory because the book is correct here.
2. returned check , although the bank is correct but as a presumption it must be added back to the bank balance because the book did not make an entry crediting cash in bank.
3. since outstanding checks are already credited to the cash in bank account per books , the banks should deduct this to its balance.
4. the wrong deposit made is an error of the bank , where its balance is short of 81.00 .
5. the 45.00, is deducted to the bank balance because the book is prsumed correct.
there is reverse situation where the BANK IS THE ONE PRESUMED CORRECT , SO THE RECONCILING ITEM AS SHOWN ABOVE WILL BE JUST A REVERSE.
3. THE LAST METHOD OF BANK RECONCILIATION IS THE PROOF OF CASH BANKRECONCILIATION where THE DEBITS OF CASH IN BANK IS RECONCILED WITH THE DEPOSITS OF THE BANK, AND CREDITS TO CASH IN BANK IS RECONCILED WITH THE WITHDRAWAL OF THE BANK STATEMENT. THIS WILL RESULT TO THE AUTOMATIC RECONCILIATION OF THE END BALANCES.
LET US FIRST ASSUME THAT THIS IS THE START OF THE BUSINESS FIRST MONTH.
as you are aware, any ending balances is a result of adding the beginning , add the debits and deduct the credits would equal to END BALANCE especially in an asset accounts.
BEG DEPOSITS WITHDRAWAL END BALANCE
BANK BALANCES 0 216 61 155 ADD:collection end of month
not reflected this month in the bank
DEPOSIT INTRANSIT 3 3
less: checks issued but not
presented to the bank yet
OUTSTANDING CHECKS 16 ( 16)
wrong deposit entry by bank
should be 90.00
taken 9.00 81 81
wrong check amout by book
taken by book 50.00
actual 5.00 45 (45)
RETURNED CHECK (3) 3
BOOK\\\ BALANCE -0 300 119 181
As explained earlier , proof of cash is simply compare the totals of the DEPOSITS IN THE BANK STATEMENT AS AGAINST THE DEBITS OF CASH IN BANK IN THE COMPANYS BOOK. in the above example, the total of bank deposit is 216, whereas in the books it is 300, compose of 81 and 3.
IN ACTUAL PRACTICE, THIS DEPOSIT IN TRANSIT MUST BE QUANTIFIED AND IDENTIFIED AS TO OFFICIAL RECEIPT NOS.AND AMOUNTS.
the same is true with the WITHDRAWALS COLUMN of the bank statement where it is compared to the credits to CASH IN BANK in the company books. As explained earlier , the credits to CASH IN BANK are those checks covered by a disbursement vouchers, take note that it may not be automatically BE SHOWN ON THE WITHDRAWAL COLUMN OF THE BANK STATEMENT for the simply reason that the checks may be in the companys possession still, and in the hands of the payee but are not yet deposit by them to their individual banks.
that means the possible difference between the WITHDRAWAL OF THE BANK VIS A VIS THE CREDITS OF THE BOOK FOR THE CHECKS ISSUED are the checks issued by the company but not yet presented to the bank , hence it is not yet reflected on the bank statement but were already in the CREDIT TO CASH IN BANK ACCOUNT in the books of the company.
that is why in the above example , the book totals of the withdrawal is 119, and bank total is 61, the books is bigger by 58 because of the differences mentioned..
IN ACTUAL PRACTICE , these outstanding checks must be LISTED as to CHECK NO. AND AMOUNT and you can do that as explained above.
LET ME SHOW YOU THE ACTUAL PICTURE OF AN OFFICIAL RECEIPT, DEPOSIT SLIPS, CASH IN BANK LEDGER AND THE BANK STATEMENT .
OFFICIAL RECEIPT.
received from TONY the sum of 20,000 pesos
check no. 300202
received by: ---------------
journal entry: CASH IN BANK 20,000
CREDIT.................................
--------------------------------------------------------------------
DEPOSIT SLIPS.
name of bank check no. amount
tokyo bank 300202 20,000.00
name of depositor_____________-
______________________________________________________
CASH IN BANK LEDGER
DATE descriptions debit credit balance
BEG. BAL 21730.00
2.1 collection today 400.00
2.3 collection today 500.00
2.5 collection 30.00
2./15 collection 10.00
2.3 disbursement:
check no. 390 8.00
check no. 391 1.00
check 392 4.00
check 393 7.00
2.6 collection 40.00
2.9 collection 5.00
check 394 10.00
check 395 3.00
2.10 collection 5.00
check 396 5.00
check 397 11.00
2.24 collection 3.00
2.28 check 398 5.00
2.28 collection 12.00
totals 1005.00 54.00 22,681.00
__________________________________________________________________________
THE COPY OF A BANK STATEMENT
DATE DEPOSIT WITHDRAWAL BALANCE
BEG. BAL 21,130.00-
2.1 Deposit 1,000.00
deposit 400.00
deposit 500.00
deposit 30.00
check no. 389 200.00
check 388 100.00
check 386 10.00
deposit 10.00
depo 40.00
depo 5.00
check 390 8.00
check 356 4.00
check 391 1.00
392 4.00
393 7.00
2.27 deposit 1..00
depo 3.00
check 394 10.00
check 395 30.00
returned check 40.00
proceeds of loan 20,000.00
interest earned 30.00
cost of check books 30.00
totals 22,019.00 444.00 42,705.00
you should expect that the contents of the deposits of the bank statement would include the deposit in transit last month which is expected to be part of the deposits column this month . It may also include ,interest earned by the company out of that deposit and any proceeds of loan granted to the company by that bank.
also expect that the withdrawal column of the bank statement would include those outstanding checks as of last month that was not yet presented to the bank last month and which may be part of the withdrawal this month. It may also include bank charges for cost of check books,, cost any documentary tax , result of importation charges, may include charges due to importation of materials of course coursed thru the bank etc etc.
WHAT IS THE PROCEDURE ON HOW TO RECONCILE THE BOOK AND BANK BALANCES.
1.. get the list of the deposits slips of the last day last month representing DEPOSIT IN TRANSIT LAST MONTH< . check if that amount is now reflected on the deposit column of the bank statement, see any difference , if there is any, then that is a reconciling item.
2. GO TO the CASH IN BANK LEDGER. compare the book entry of collection against the collection appearing on the bank statement , take note of any difference , that is a reconciling item.
3. check if there is an amount in the deposit column of the bank where it does not represent deposit but other name description. and not in the debit of the book. that is a reconciling item.
4. get the list of the outstanding checks last month, where it indicates the check no. and the amount. CHECK THE CHECK NO. AND AMOUNT IF IT IS REFLECTED ON THE BANK WITHDRAWAL COLUMN OF THIS MONTH. take note the bank statement indicates the check number and the amount. IF IT IS SEEN IN THE BANK WITHDRAWAL COLUMN OF THE BANK STATMENT , THOSE CHECKS ARE SAID TO BE " PAID CHECKS AND WILL NOT ANYMORE PART OF OUTSTANDING CHECK. , BUT THOSE CHECKS THAT ARE NOT REFLECTED\\\\\IN THE BANK STATEMENT IS STILL PART OF THE OUTSTANDING CHECKS END OF MONTH.
5. LOOK AT YOUR CREDIT ENTRIES ON YOUR CASH IN BANK LEDGER REPRESENTING ISSUED CHECKS . COMPARE THE CHECK NO. AND ITS AMOUNT AS WRITTEN IN THE CREDIT SIDE OF THE LEDGER AND COMPARE WITH THE CHECK NO. AND AMOUNT IN THE WITHDRAWAL SIDE OF THE BANK STATEMENT. ANY AMOUNT NOT IN THE WITHDRAWAL COLUMN OF THE BANK IS STILL OUTSTANDING CHECKS.
THEREFORE THERE ARE TWO SOURCES OF THE OUTSTANDING CHECKS AT THE END.
A. THOSE COMING FROM THE BEG. OUTSTANDING CHECKS THAT WERE NOT PRESENTED TO THE BANKYET AS OF THE CURRENT MONTH.
B. THOSE CURRENT CHECK ISSUED DURING THE MONTH BUT NOT YET SEEN IN THE WITHDRAWAL COLUMN OF THE BANK THIS MONTH.
Having known the above technique, you can now compute any unknown amount just in case . Let us say.
A. How much is the beginning outstanding checks if :
the outstanding checks at the end is.................................500.00
the checks issued by the company for the month 805.00
the amount of checks paid by the bank as it appears on
the withdrawal column//////..............................................600.00
OUTSTANDING END 500.00
ADD: CHECKS PAID BY BANK 600..00
less; CHECKS ISSUED BY BOOK 805.00
= OUTSTANDING BEG OF THE MONTH 295.00
B. how much is the amount of checks paid by the bank:
beg. outstanding 295.00
add: checks issued by book 805.00
less outstanding end 500.00
= paid checks 600.00
C . HOW MUCH WAS THE ISSUED CHECKS BY COMPANY DURING THE MONTH>
PAID CHECKS BY BANK 600
ADD: STILL UNPAID BY BANK 500
LESS: BEG OUSTANDING CHECKS 295
= CHECKS ISSUED BY THE COMPANY 805
Friday, June 13, 2014
WHAT ARE THE PRINCIPLES , CONCEPTS OR THEORIES IN BANK RECONCILIATION
CONCEPTS./ PROCEDURES:
Almost all businesses, self employed individuals or even company employed individual makes use of a BANKING INSTITUTION to deposit their cash collections and to withdraw cash to the bank where they have opened a bank account.
There are possibly two types of bank accounts that can be opened:
1. the SAVINGS ACCOUNT DEPOSIT = this is where you can deposits all of your collections whether in the form of cash or in the form of CHECKS from your clients, your own checks or any check for that matter for as long as you are the payee.
A passbook is issued to you by the bank , WHERE YOU SAVINGS ACCOUNT NUMBER IS WRITTEN, and where it would show the individual DEPOSIT SLIPS you make and the individual withdrawal you make on the basis the WITHDRAWAL SLIPS slips ( NOT THRU A PREPARED CHECK ) you have prepared and the finally the BALANCE OF CASH DEPOSIT. TAKE note that the deposit slips and withdrawal are not pre numbered.
In opening of your savings account , you will be given a SIGNATURES CARD for you to have your signature be written for purposes of verifying the signatures appearing on the withdrawal slip is genuine or not.
In this type of deposit, basically you can withdraw by way of preparing a WITHDRAWAL SLIPS or any other form as designated by the bank. The issuance of your check is not basically allowed to be withdrawn from this savings account .
However, in a much bigger companies, there arrangement to the bank as far as this SAVINGS ACCOUNT is concern is to use this account for purposes of depositing their collection only, NO WITHDRAWAL is allowed , but, based on arrangement with the bank, there will be an AUTOMATIC CASH TRANSFER OF DEPOSIT to another type of deposit with the same bank called , CURRENT OR CHECKING ACCOUNT deposit which was also opened to that bank.
this is normally called ONE WAY DEPOSIT ARRANGEMENT .
This savings deposit generally entitled to earn interest and is normally credited to the your savings account.
2. THE CURRENT OR CHECKING ACCOUNT DEPOSIT TYPE - This type of deposit allows you also to make a deposit similar with the saving account, however, a withdrawal slips cannot be used to withdrawal from this account. When you opened a CHECKING account, the bank will give you your checking account number and a check booklet containing many individual pages of checks. You will also be requested to write your signature in a SIGNATURES CARD implying that you are the authorized check signatory for that account.
The following are the information or the contents of that piece of check"
a. on the upper right side is the date
b. on the upper top is your CHECKING ACCOUNT NO.
c. the check number of that check itself
d. the name of your company or even your name
e. a space provided where the name of the payee will be written
f. a space for the amount of check to be written
g. the blank space where the signature of the authorized signatories are to be placed.
There is a possibility that a company may not anymore issue a CHECK , instead they have an arrangement with the bank that whenever the company wants to pay a certain companys , individual HAVING ALSO THEIR BANK SAME BANK WITH YOU , they will just prepare a list of the name of the payees and their account number maintain in that same bank and debit to your account is made.
Every end of the month, the month your bank will give you a copy of your bank statement that would show the following infomation
SAVINGS ACCOUNT :
DATE POSTING REFERENCE DEPOSIT WITHDRAWAL BALANCE
JAN 3 DEPOSIT SLIPS 100 100
JAN 9 WSLIPS 4 96
JAN 12 RETURNED CHECK 4 92
JAN 30 INTEREST 3 95
jAN 30 TRANSFERS 93 2
JAN 30 BANK CHARGES 1 1
JAN 30 PROCEEDS OF LOAN 30 31
YOUR CHECKING ACCOUNT APPEARS LIKE THIS :
DATE REFERENCE DEPOSIT WITHDRAW BALANCE
BEG BALANCE 399
JAN 3 DEPOSITS SLIPS 400
JAN 5 CHECK NO.33O3O 30
8 CHECK NO.33035 20
20 TRANSFER FROM 93 842
======================================================================
WE GO NOW DIRECTLY HOW YOUR OWN CASH BALANCES IN YOUR LEDGERS INTERACTS WITH THE BANK LEDGER OR BANK STATEMENT.
PROCEDURE IN DEPOSITING COLLECTIONS TO THE BANK
1. WHEN THE COMPANY COLLECTS MONEY, CASH OR CHECKS ,IT IS OR IT MUST BE COVERED BY AN OFFICIAL RECEIPT ISSUED BY THE YOUR COMPANY THAT WOULD SHOW THE NAME FROM WHOM IT WAS RECEIVED.
2. THOSE OFFICIAL RECEIPTS DURING THE DAYS ARE SUMMARIZED AN AN ENTRY IS MADE DEBITING CASH ON HAND OR CASH IN BANK, THAT GOES TO THE DEBIT SIDE OF YOUR CASH IN BANK ACCOUNT OF THAT BANK IN YOUR SUBSIDIARY LEDGER..
3. AS A GENERAL RULE, ALL COLLECTIONS SHOULD BE DEPOSITED TO THE BANK THE FOLLOWING DAY. HOWEVER THAT COLLECTIONS ARE RECORDED IN YOUR CASH LEDGER ACCOUNT DURING THE DAY. THAT MEANS YOUR CASH IN BANK DEBIT DURING THE DAY MUST EQUAL TO THE BANK DEPOSIT SIDE OF THE BANK STATEMENT.
4. ALL YOUR COLLECTIONS DURING THE DAY IS COVERED BY A DEPOSIT SLIPS OF THAT BANK , OR OF OTHER DIFFERENT BANK WHERE THE COMPANY HAS A BANK ACCOUNT.
5. THAT MEANS YOUR DEPOSIT SLIPS DURING THE DAY SHOULD BE EQUAL TO WAS DEBITED TO YOUR CASH IN BANK ACCOUNT OF THAT PARTICULAR BANK WHERE THE DEPOSIT WAS MADE. TAKE NOTE THAT IF THERE ARE SEVERAL BANK ACCOUNTS, THERE WILL BE MANY CASH IN BANK SUBSIDIARY LEDGER ACCOUNTS FOR EVERY BANK IN YOUR SUBSIDIARY LEDGERS.
WHAT ARE THE POSSIBLE DIFFERENCES OF YOUR CASH IN BANK ACCOUNT DEBIT SIDE OF YOUR LEDGER VERSUS THE BANK DEPOSIT ENTRIES IN THE BANK STATEMENT OF THE BANK REPRESENTING DEPOSITS
WHAT ARE THE COLUMNAR HEADING OF YOUR CASH IN BANK - SAVINGS ACCOUNT IN YOUR LEDGERS.
ACCOUNT NAME CASH IN BANK-savings
SUBSIDIARY NAME; SECURITY BANK
DATE DEBIT CREDIT BALANCE
XXXXX XXXXXXXXXX XXXXXXX XXXXXXX
WHAT WOULD APPEAR ON THE DEBIT SIDE.
1. On this debit side all your collections made shall appear on the debit side, even the interest earned by your savings as informed you by your bank thru a credit memo, shall be entered in the debit side.
2. if you obtain a loan especially on this bank shall also appear on the debit side after you have received a copy of that credit memo for that loan..
3. on the debit side , it may also include a previously wrong credit entry made that was later on debit for the correction of that wrong entry.
WHAT WOULD APPEAR ON THE CREDIT SIDE.
1. if the company has an automatic transfer agreement, using the transfer note from the bank, saying that they have transferred this amount from the SAVINGS ACCOUNT TO THE CURRENT OR CHECKING ACCOUNT , a corresponding entry has to made by the company to CREDIT CASH IN BANK SAVINGS AND DEBIT CASH IN BANK CURRENT. ACCOUNT.
2. If and when a previously deposit check has bounced and it was not redeposited since it was returned to the owner of the check for him to replace it. A ENTRY HAS TO BE MADE CREDITING CASH IN BANKS SAVINGS ACCOUNT.
CONCEPTS./ PROCEDURES:
Almost all businesses, self employed individuals or even company employed individual makes use of a BANKING INSTITUTION to deposit their cash collections and to withdraw cash to the bank where they have opened a bank account.
There are possibly two types of bank accounts that can be opened:
1. the SAVINGS ACCOUNT DEPOSIT = this is where you can deposits all of your collections whether in the form of cash or in the form of CHECKS from your clients, your own checks or any check for that matter for as long as you are the payee.
A passbook is issued to you by the bank , WHERE YOU SAVINGS ACCOUNT NUMBER IS WRITTEN, and where it would show the individual DEPOSIT SLIPS you make and the individual withdrawal you make on the basis the WITHDRAWAL SLIPS slips ( NOT THRU A PREPARED CHECK ) you have prepared and the finally the BALANCE OF CASH DEPOSIT. TAKE note that the deposit slips and withdrawal are not pre numbered.
In opening of your savings account , you will be given a SIGNATURES CARD for you to have your signature be written for purposes of verifying the signatures appearing on the withdrawal slip is genuine or not.
In this type of deposit, basically you can withdraw by way of preparing a WITHDRAWAL SLIPS or any other form as designated by the bank. The issuance of your check is not basically allowed to be withdrawn from this savings account .
However, in a much bigger companies, there arrangement to the bank as far as this SAVINGS ACCOUNT is concern is to use this account for purposes of depositing their collection only, NO WITHDRAWAL is allowed , but, based on arrangement with the bank, there will be an AUTOMATIC CASH TRANSFER OF DEPOSIT to another type of deposit with the same bank called , CURRENT OR CHECKING ACCOUNT deposit which was also opened to that bank.
this is normally called ONE WAY DEPOSIT ARRANGEMENT .
This savings deposit generally entitled to earn interest and is normally credited to the your savings account.
2. THE CURRENT OR CHECKING ACCOUNT DEPOSIT TYPE - This type of deposit allows you also to make a deposit similar with the saving account, however, a withdrawal slips cannot be used to withdrawal from this account. When you opened a CHECKING account, the bank will give you your checking account number and a check booklet containing many individual pages of checks. You will also be requested to write your signature in a SIGNATURES CARD implying that you are the authorized check signatory for that account.
The following are the information or the contents of that piece of check"
a. on the upper right side is the date
b. on the upper top is your CHECKING ACCOUNT NO.
c. the check number of that check itself
d. the name of your company or even your name
e. a space provided where the name of the payee will be written
f. a space for the amount of check to be written
g. the blank space where the signature of the authorized signatories are to be placed.
There is a possibility that a company may not anymore issue a CHECK , instead they have an arrangement with the bank that whenever the company wants to pay a certain companys , individual HAVING ALSO THEIR BANK SAME BANK WITH YOU , they will just prepare a list of the name of the payees and their account number maintain in that same bank and debit to your account is made.
Every end of the month, the month your bank will give you a copy of your bank statement that would show the following infomation
SAVINGS ACCOUNT :
DATE POSTING REFERENCE DEPOSIT WITHDRAWAL BALANCE
JAN 3 DEPOSIT SLIPS 100 100
JAN 9 WSLIPS 4 96
JAN 12 RETURNED CHECK 4 92
JAN 30 INTEREST 3 95
jAN 30 TRANSFERS 93 2
JAN 30 BANK CHARGES 1 1
JAN 30 PROCEEDS OF LOAN 30 31
YOUR CHECKING ACCOUNT APPEARS LIKE THIS :
DATE REFERENCE DEPOSIT WITHDRAW BALANCE
BEG BALANCE 399
JAN 3 DEPOSITS SLIPS 400
JAN 5 CHECK NO.33O3O 30
8 CHECK NO.33035 20
20 TRANSFER FROM 93 842
======================================================================
WE GO NOW DIRECTLY HOW YOUR OWN CASH BALANCES IN YOUR LEDGERS INTERACTS WITH THE BANK LEDGER OR BANK STATEMENT.
PROCEDURE IN DEPOSITING COLLECTIONS TO THE BANK
1. WHEN THE COMPANY COLLECTS MONEY, CASH OR CHECKS ,IT IS OR IT MUST BE COVERED BY AN OFFICIAL RECEIPT ISSUED BY THE YOUR COMPANY THAT WOULD SHOW THE NAME FROM WHOM IT WAS RECEIVED.
2. THOSE OFFICIAL RECEIPTS DURING THE DAYS ARE SUMMARIZED AN AN ENTRY IS MADE DEBITING CASH ON HAND OR CASH IN BANK, THAT GOES TO THE DEBIT SIDE OF YOUR CASH IN BANK ACCOUNT OF THAT BANK IN YOUR SUBSIDIARY LEDGER..
3. AS A GENERAL RULE, ALL COLLECTIONS SHOULD BE DEPOSITED TO THE BANK THE FOLLOWING DAY. HOWEVER THAT COLLECTIONS ARE RECORDED IN YOUR CASH LEDGER ACCOUNT DURING THE DAY. THAT MEANS YOUR CASH IN BANK DEBIT DURING THE DAY MUST EQUAL TO THE BANK DEPOSIT SIDE OF THE BANK STATEMENT.
4. ALL YOUR COLLECTIONS DURING THE DAY IS COVERED BY A DEPOSIT SLIPS OF THAT BANK , OR OF OTHER DIFFERENT BANK WHERE THE COMPANY HAS A BANK ACCOUNT.
5. THAT MEANS YOUR DEPOSIT SLIPS DURING THE DAY SHOULD BE EQUAL TO WAS DEBITED TO YOUR CASH IN BANK ACCOUNT OF THAT PARTICULAR BANK WHERE THE DEPOSIT WAS MADE. TAKE NOTE THAT IF THERE ARE SEVERAL BANK ACCOUNTS, THERE WILL BE MANY CASH IN BANK SUBSIDIARY LEDGER ACCOUNTS FOR EVERY BANK IN YOUR SUBSIDIARY LEDGERS.
WHAT ARE THE POSSIBLE DIFFERENCES OF YOUR CASH IN BANK ACCOUNT DEBIT SIDE OF YOUR LEDGER VERSUS THE BANK DEPOSIT ENTRIES IN THE BANK STATEMENT OF THE BANK REPRESENTING DEPOSITS
WHAT ARE THE COLUMNAR HEADING OF YOUR CASH IN BANK - SAVINGS ACCOUNT IN YOUR LEDGERS.
ACCOUNT NAME CASH IN BANK-savings
SUBSIDIARY NAME; SECURITY BANK
DATE DEBIT CREDIT BALANCE
XXXXX XXXXXXXXXX XXXXXXX XXXXXXX
WHAT WOULD APPEAR ON THE DEBIT SIDE.
1. On this debit side all your collections made shall appear on the debit side, even the interest earned by your savings as informed you by your bank thru a credit memo, shall be entered in the debit side.
2. if you obtain a loan especially on this bank shall also appear on the debit side after you have received a copy of that credit memo for that loan..
3. on the debit side , it may also include a previously wrong credit entry made that was later on debit for the correction of that wrong entry.
WHAT WOULD APPEAR ON THE CREDIT SIDE.
1. if the company has an automatic transfer agreement, using the transfer note from the bank, saying that they have transferred this amount from the SAVINGS ACCOUNT TO THE CURRENT OR CHECKING ACCOUNT , a corresponding entry has to made by the company to CREDIT CASH IN BANK SAVINGS AND DEBIT CASH IN BANK CURRENT. ACCOUNT.
2. If and when a previously deposit check has bounced and it was not redeposited since it was returned to the owner of the check for him to replace it. A ENTRY HAS TO BE MADE CREDITING CASH IN BANKS SAVINGS ACCOUNT.
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