GeeMizOne Stop Travel Blog

One important process in accounting is what you call bank reconciliation. This is to compare the cash transaction in your cash bank account and the cash balance in your own book. Actually this is a statement to be made monthly showing if the cash balance per ledger account and the cash balance per bank agrees.

Bank Reconciliation’s Reconciling Items

Book Reconciling Items

Credit Memos
Any item that is deposited by the bank to the depositors account but is not recorded in the depositor’s cash receipts is called a credit memo. The effect of this is an increase to bank balance.
Examples:
– Receivable collected by the bank in favor of the depositor
– Proceeds of bank loan credited to the depositors account
– Time deposits that are matured and being transferred to the account of the depositor

Debit Memos
These are items charged or debited by the bank to the account of the depositor but is not recorded in the disbursement of the depositors ledger account and this decreases the bank balance account.
Examples:
– No Sufficient Fund Checks (NSF). These are deposited checks but are returned by the bank because
there is no sufficient fund.
– Defective checks. These are checks with technical defects like absence of signature or
countersignature, erasures without countersigned, mutilated checks and conflict amount between
figures and words.
– Bank service charges. Any bank charge that also includes charges related to interest, loan, checkbook
and penalty.
– Loan Reduction. These are amounts deducted to the depositor’s amount for payment of loan to the
bank which already matured.

Book Errors
These are errors committed in the ledger account of the depositor.
Examples:
– Understatement of check drawn by the depositor. The error is deducted to the book balance.
– Understatement of cash receipts on the book. The error is added to the book balance.

Bank Reconciling Items

Deposits in Transit
These are collections already recorded at the book balance but is not recorded in the bank statement.
Examples:
– Collections already sent to the bank for deposit but too late to appear in the bank statement
– Cash on hand that is waiting for deposit.

Outstanding Checks
These are checks already recorded at the book as disbursement but is not reflected yet in the bank statement.
Example:
– Checks that is already given to payees but is not yet presented to the bank

Bank Error
These are error made by the bank to the bank statement of the depositor
Examples:
– Deposit of another entity credited to the depositors account. This is a deduction to the bank balance.
– Another entities check charged to the depositors account. The amount must be added back to the bank
balance.

Bank reconciliation is important to know if the cash in your statement of financial position is fairly and correctly stated. Bank reconciliation formulas are also available to calculate the adjusted balance of both book and bank account.

Meet geemiz

Geezelle Maningo - A Cebu based travel blogger and the other half of GeeMiz Travel blog. She has been traveling around the Philippines and Asia since 2010 with her husband. A casual trekker/hiker since 2017 and has been blogging since 2008. A digital marketer during workdays and a bookworm on lazy days - she co-founded Cebu Book Club.

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