FABM TOPIC 1

Bank reconciliation

analyzes the items and amounts that differ between the cash balancereported in the bank statement and the balance of the cash in bank account in the ledger.

Timing differences

happen when certain transactions are recorded by the company but notyet by the bank, or vice versa

errors

are usually due to original entry error, duplication, oromission.

Original Entry

occurs when the wrong amount is entered or posted in anaccount or when the correct amount is entered in the wrongaccount

Duplication

happens when an accounting entry is posted twice; thus,duplication occurs

Omission

occurs when a transaction was not recorded in the books

Bank Section

starts with the cash balance according to the bankstatement and ends with the adjusted or reconciled balance

Book Section

starts with the cash balance according to the company’s records and ends with the adjustedbalance.

Types of Bank Reconciliation Statement

Single-Date Balance Reconciliation and Four-Column Reconciliation

Single-Date Balance Reconciliation

the balance per bank and per company's recordsare reconciled at the end of the period. It reconciles the records' ending balances as stated inthe books and the bank statement

Four-Column Reconciliation

Under this type, four columns are assigned for the beginning reconciliation, deposits orreceipts, withdrawals or disbursements, and ending reconciliation. Therefore, not only theending balances are being matched but also the beginning balances. It is also known asproof of cash.

Forms of Bank Reconciliation Statement

Adjusted Balance Method, Bank-to-Book Method, and Book-to-Bank Method

Adjusted Balance Method

both bank and book balances are reconciled to match their balances.

Bank-to-Book Method

This form is used whenever the balance per bank statement is given, and the accountantshall determine the balance per book.

Book-to-Bank Method

This form starts with the unadjusted cash balance per book. It records the transactionsincluded in the bank statement, which are not yet reflected in the company’s ledger. It endswith the balance per bank.

Deposits in Transit

Those cash received and recorded in the company's books but are not yet reflected in the bank statement because they did not reach the cutoff time or are not yet deposited at the bank statement date

Outstanding Checks

The disbursements already recorded in the company's books but are not yet reflected in the bank's statement because they have not yet been presented to the bank for payment

Bank Errors

Those wrong amounts recorded by the bank due to original entry error, duplication, or omission

Credit Memos

the deposits or receipts shown in the bank statement but are not yet recorded in the books

Debit Memos

the withdrawals or disbursements reflected in the bank statements but are not yet recorded in the books

Book Errors

Those wrong amounts recorded by the company due to original entry error, duplication, or omission