Three Kinds:

Demand deposit - current or checking account or

commercial deposit where deposits are covered
by deposit slips; funds are withdrawable by
drawing checks against the bank
Saving deposit – depositor is given a passbook
upon the initial deposit; passbook is required
when making deposits and withdrawals
Time deposit – similar to saving deposit as interest
bearing; evidenced by a formal agreement called
certificate of deposit
 Depositor Bank
Collection of P100,000 from a customer in settlement of an account

Cash in bank 100,000 Cash 100,000

Accounts receivable 100,000 Company X 100,000

Issued check for P30,000 in payment of an account payable

Account payable 30,000 Company X 30,000

Cash 30,000 Cash 30,000
 Depositor (creditor) Bank (debtor)
Recording of collection

Cash in bank xx Cash xx

Accounts Receivable xx Company X xx

Issuing check by depositor and presentment of check to bank

Accounts payable xx Company X xx

Cash in bank xx Cash xx
 Reciprocal accounts
 If there are no errors, the two will have equal
balances
 But very frequently, there are items on the
depositor’s book which do not appear on the
bank records as of the same date such as:
a. checks not yet presented to bank
b. deposits made after bank records are sent
out to depositor
 Less frequently, there are items on the bank
records which do not appear on the
depositor’s book
a. Services charges
b. Notes endorsed to the bank for collection
have been collected
 A statement which brings into agreement the
cash balance per book and cash balance per
bank
 Usually prepare monthly (bank provides the
bank statement at the end of every month)
 A monthly report of the bank to the depositor
showing:
a. Cash balance per bank at the beginning
b. Deposits made by the depositor and
acknowledged by the bank
c. Checks drawn by the depositor and paid by
the bank
d. Daily cash balance per bank during the
month
exact copy of depositor’s ledger in the records of the bank
 Attached thereto are
a. Depositor’s canceled checks (paid by the
bank, stamped and punched)
b. Debit memo
c. Credit memo
Book reconciling items
a. Credit memo
b. Debit memo
c. Errors

Bank reconciling items

a. Deposits in transit
b. Outstanding checks
c. Errors
Book reconciling items
Credit memo – received by bank by not yet
recorded by the depositor as cash receipts
Ex. Notes receivable collected by bank; bank
loan proceeds; matured time deposits
Debit memo – items not representing checks
paid by bank but are charged or debited by
the bank to the account of the depositor
Ex. NSF/DAIF; defective checks; bank service
charges; payment for loan
Bank reconciling items
Deposits in transit – collections already collected by the
depositor but not yet reflected on the bank
statement
Ex. collections already forwarded to the bank but too
late to appear in the bank statement; cash on hand
for deposit
Outstanding checks – already recorded by the
depositor as cash disbursement but not yet
reflected on the bank statement
Ex. checks drawn not yet presented

certified checks (deduct from total outstanding checks

if included)
a. Adjusted balance method – book balance
and bank balance are brought to a correct
cash balance that must appear on the
balance sheet
b. Book to bank method – book balance is
adjusted to equal bank balance
c. Bank to book method – bank balance is
adjusted to equal book balance
Book balance xx Bank balance xx
Add: CM xx Add: DIT xx
Total xx Total xx
Less: OC (xx)
Less: DM (xx)
Adjusted bank bal. xx
Adjusted book bal. xx

Adjusted book balance Adjusted bank balance

Book balance xx Bank balance xx
Add: CM xx Add: DIT xx
OC xx xx DM xx xx
Total xx
Total xx
Less: OC xx
Less: DM xx CM xx (xx)
DIT xx (xx) Book balance xx
Bank balance xx

Book to bank method Bank to book method

Book