Financial ing Chapter 8 3e6k4a

Financial ing Chapter 8 3 kinds of bank deposits 1. DEMAND DEPOSIT This is the current or checking or commercial deposit where deposits are covered by deposit slips and where funds are withdrawable on demand by drawing checks against the bank. It is noninterest bearing. 2. SAVING DEPOSIT The depositor is given a book upon initial deposit. The book is required when making deposits and withdrawals. It is interest bearing. 3. TIME DEPOSIT May be preterminated or withdrawn on demand or after a certain period of time agreed upon. It is evidenced by a formal agreement embodied in an instrument called certificate of deposit. It is interest bearing. BANK RECONCILATION Is a statement which brings into agreement the cash balance per book and cash balance per bank. Prepared Monthly.

Bank statement – a monthly report of the bank to the depositor showing: A. The cash balance per bank at the beginning. B. The deposits made by the depositor and acknowledged by the bank. C. The checks drawn by the depositor and paid by the bank. D. The daily cash balance per bank during the month. RECONCILING ITEMS 1. BOOK RECONCILING ITEMS A. CREDIT MEMOS Refer to items not representing deposits credited by the bank to the of the depositor but not yet recorded by the depositor as cash receipts. It increases the bank balance. Examples: 1. Notes receivable collected by bank in favor of the depositor and credited to the of the depositor. 2. Proceeds of bank loan credited to the of the depositor. 3. Matured time deposits transferred by the bank to the current amount of the depositor. B. DEBIT MEMOS Refer to items not representing checks paid by bank which are charged or debited by the bank to the of the depositor but not yet recorded by the

depositor as cash disbursements. It decreases the bank balance. Examples: 1. NSF or No sufficient Fund Checks/ DAIF or Drawn Against Insufficient Funds These are checks deposited but returned but the bank because of insufficiency of fund. 2. Technically Defective Checks These are checks deposited but returned by the bank because of technical defects such as absence of signature or countersignature, erasures not countersigned, mutilated checks, conflict between amount in words and amount in figures. 3. Bank Service Charge These include bank charges for interest, collection, checkbook and penalty. 4. Reduction of Loan This pertains to amount deducted from the current of the depositor in payment for loan which the depositors owe to the bank and which has already matured. C. ERRORS 2. BANK RECONCILING ITEMS A. DEPOSITS IN TRANSIT Collections already recorded by the depositor as cash receipts

but not yet reflected on the bank statement. INCLUDES: 1. Collections already forwarded to the bank for deposit but too late to appear in the bank statement. 2. Undeposited collections or those still in the hands of the depositor. B. OUTSTANDING CHECKS Checks already recorded by the depositor as cash disbursements but not yet reflected on the bank statement.

INCLUDES: 1. Checks draw and already given to payees but not yet presented for payments. 2. CERTIFIED CHECKS – one where the bank has a stamped on it’s face the word accepted or certified indicating sufficient of fund. C. ERRORS Forms of bank reconciliation A. Adjusted Balance Method The book balance and the bank balance are brought to a correct

cash balance that must appear on the balance sheet. B. Book to Bank Method The book balance is reconciled with the bank balance or the book balance is adjusted to equal the bank balance. C. Bank to Book Method The bank balance is reconciled with the book balance or the bank balance is adjusted to equal the book balance.