If you keep a checking account at a bank, I assume you are familiar with bank reconciliation. You always receive a bank statement with attachments, don’t you? All checks issued and paid by the bank are enclosed with the canceled stamp. You will also find attached debit and credit notes that have affected your account balance. What do you call these articles? Did you notice that, as always, your cash balance based on your record does not match or does not match what is shown on the statement?
At the end of each month, the comparison of the depositor’s cash records with the bank statement received from the bank will yield the following reconciliation elements:
1. Post reconciliation items:
a) Credit notes
b) Notes debit
2. Bank reconciliation items:
a) Deposits in transit
b) Pending checks
What are credit notes? Credit notes have the effect of increasing the bank balance. They are items credited by the bank to the depositor’s account but that the depositor has not yet recorded as cash receipts.
A typical example of a credit note is a note collected by the bank in favor of the depositor and credited to the depositor’s account. Other good examples are past due time deposits transferred by the bank to the depositor’s checking account and bank loan funds credited to the depositor’s account.
What about debit notes? Debit notes have the effect of lowering the bank balance. They refer to items paid by the bank that are debited or debited by the bank from the depositor’s account, but that the depositor has not yet recorded as cash disbursements. Typical examples are as follows:
For. Checks with insufficient funds or insufficient funds: checks deposited but returned by the bank due to insufficient funds.
B. Technically defective checks: checks deposited but returned due to lack of signature or endorsement, erasure not countersigned, mutilated checks, or the amount in figures conflicts with the amount in words.
vs. Banking service charges: interest charges, collection, checkbook and penalties.
D. Reduction by loan- Decrease in the balance in the depositor’s checking account deducted by the bank in payment of the loan owed to the bank that has already matured.
The above are the reconciliation elements in the depositor’s book balance. These are items that require entry adjustments in the depositor’s book to bring the cash in the bank balance to its correct amount for balance purposes.
To proceed with bank reconciliation items, deposits in transit are collections already recorded by the depositor as cash receipts but not yet reflected in the bank statement.
Examples of deposit in transit are collections already sent to the bank for deposit, but too late to appear on the bank statement; and collections not deposited or those in cash waiting to be delivered to the bank for deposit.
Pending checks are checks already posted by the depositor as cash disbursements, but not yet reflected on the bank statement. They include checks that have been issued and already delivered to payees but have not yet been presented for payment to the bank.
Errors should be analyzed for proper treatment. These are conciliatory elements of the party that committed them.