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Nature of Bank

• Generally, I will be able to describe the nature of a
bank reconciliation statement.
• Specifically, I will be able to:
-Identify and understand the contents of a bank
-Determine the nature of bank reconciliation
-Specify the importance of bank reconciliations.

•What is current account?

•Who are the parties involved in the
issuance of a check?

“Upon receipt of a bank

statement, what will the
company do?”
contents of a bank statement
• At the end of every month, the bank furnishes a
statement to the depositor showing the movement of
the account. It contain all the withdrawals, deposits
and balance of your account after every transaction.
It may also indicate bank charges that were deducted
by the bank automatically. Also, interest earned by
the account is likewise reflected.
Sample of a Bank Statement
Columns in the Bank Statement
• The date column indicate the date the transaction was made.
• The check number indicates the details of the check paid by the
• The transaction code is normally a bank code for the transactions.
• The Debit column represents all charges or deduction made by the
bank to your account.
• The Credit column represents the deposits or additions to your
account that was made by the bank.
• The Balance column is the running balance after considering the
effect of the transaction to your account.
Samples of Debit transaction
• Bank service charge - monthly fee charged by the bank for
its services (Ex. 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” because of insufficient funds. Nowadays bank
refer to this as DAIF (Drawn Against Insufficient Fund) or
DAUD (Drawn Against Uncleared Deposits)
Samples of Credit transactions

•Collection of cash proceeds from notes

•Interest income earned by the deposit.
Bank reconciliation

•The process of comparing the bank

statement received from the bank
with the accounting records of the
Bank reconciliation statement

•Bank reconciliation statement is a report

which compares the bank balance as per
company's accounting records with the
balance stated in the bank statement.
- It is normal for a company's bank balance as per accounting
records to differ from the balance as per bank statement. The
difference between these figures is the reasons why companies
prepare a bank reconciliation statement.
two common causes of the
discrepancy in figures
1. Time lags
- This prevents one of the parties (company or the bank) from recording the
transaction in the same period as the other party.
Example: A bank statement that ends January 30, 2015 and then the company were able to collect
cash of P20,000 at 5:00 PM. Bank usually closes at 3:00 PM because of this, the cash collected
will not be reflected in the bank as deposit but it is however recorded in accounting records of the
2. Errors
- This is incurred by either party in recording transactions.
Example: A check was issued to Meralco by the company amounting to P1000. The company
recorded this as P100. When the check was presented, the bank paid Meralco P1,000. In the
records of the company it was P100 while in the records of the bank it’s P1,000. There is in
this case an error that will cause the difference between the company’s records and the bank
The importance of Bank
• Preparation of bank reconciliation helps in the identification of
errors in the accounting records of the company or the bank.
• Cash is the most vulnerable asset of an entity. Bank reconciliations
provide the necessary control mechanism to help protect the
valuable resource through uncovering irregularities such as
unauthorized bank withdrawals. However, in order for the control
process to work effectively, it is necessary to segregate the duties of
persons responsible for accounting and authorizing of bank
transactions and those responsible for preparing and monitoring
bank reconciliation statements.
The importance of Bank
• If the bank balance appearing in the accounting records can
be confirmed to be correct by comparing it with the bank
statement balance, it provides added comfort that the bank
transactions have been recorded correctly in the company
• Monthly preparation of bank reconciliation assists in the
regular monitoring of cash flows of a business.
three methods of preparing
bank reconciliation statement
a. Adjusted Method wherein the balances per
bank and per book are separately determined.
b. Book to Bank Method wherein the book
balance is adjusted to agree with the bank
c. Bank to Book Method wherein the bank
balance is adjusted to agree with book balance.