Bank Reconciliation Statement
Depositor’s book Cash book Normal balance Debit,
Favorable for Depositor
Banker’s Book Pass Book Normal balance Credit
Favorable for Depositor
Who is responsible to prepare bank reconciliation statement?
The depositor is responsible to prepare the bank reconciliation statement for his/her
personal satisfaction?
Why there is a need to prepare a bank reconciliation statement?
The need to prepare the bank reconciliation originates at that point in time when a
difference exists between the balance computed by the depositor in cash book and the
balance shown by the bank in the bank statement.
Why a difference exists between the balance computed by the depositor and the
balance shown by the bank?
The difference exists due to the reason that some transactions are recorded in cash
book but not yet recorded in pass book. For instance
1. Outstanding checks/ Unpresented Checks/Checks issued but not yet
presented for payment:
Check issued by the depositor in order to make payment to other parties however these
checks are not yet presented in bank for payment
Cash book ……………… Cr
Pass book ……………………….Dr
2. Deposit in Transit
Cash book ……………… Dr
Pass book ……………………….Cr
3. Any error: Either the cash book is overstated or understated
If understated Cash book ………….. Dr
If overstated Cash book ……………. Cr
The difference exists due to the reason that some transactions are recorded in Pass
book but not yet recorded in Cash book. For instance
1. Bank charges/ Service charges (Debit memo)
Pass book ………….. Dr
Cash book ……………………… Cr
2. Profit/ Income on deposits
Pass book ………… Cr
Cash book ……………………. Dr
3. Check directly deposited by the customer in the bank account
Pass Book ………. Cr
Cash book ……………………. Dr
4. Error, pass book either can be understated or overstated
If understated Pass Book …………………Cr
If overstated Pass Book ………………….. Dr
Treatment of Dishonored Checks
There are two types of dishonored checks
1. Check issued by the depositor but dishonored due to any reason
Cash book …………. Cr
Cash book………………………. Dr
2. Check received and deposited in bank for collection but dishonored either due
to NSF or other reasons
Cash book ………………… Dr
Cash book ………………………… Cr
The July bank statement sent by the bank to the Parkview Company shows a balance of
$5,000.17. However, the Parkview’s own ledger shows a balance of 4,262.83. The employee
preparing bank reconciliation statement had identified the following reconciling items.
1. A deposit of $410.90 made after banking hours on July 31 does not appear in the
bank statement
2. Four checks issued in July have not yet been paid by the bank. These checks are: No.
801, $100; No. 888, $10.25; No. 890 $402.50; No. 891, $205.
3. Two credit memorandums amount $500 and $24.74 were included in the bank
statement indicating the collection of money from J. David (N/R) and interest on
average balance account during July.
4. Two debit memorandums accompanied by bank statement $5 (fee charged by bank
for handling collection of N/R) and $12 (service charged by the bank for the month
of July)
5. The check received from customer J. B. Ball deposited by Parkview Company to bank
charged back as NSF $50.25
6. Check No. 875 was issued on July 20 in the amount of $85 but was erroneously
recorded in the cash payment journal as $58.
Required: Prepare a two-part bank reconciliation statement at July 31 to determine the
adjusted balance of cash and prepare necessary journal entries to adjust the cash balance.
PASS BOOK
Date Description Debit Credit
July Balance 5,000.17
31
Deposit in Transit 410.90
Unpresented checks (Check No. 801, 717.75
$100; No. 888, $10.25; No. 890
$402.50; No. 891, $205
Adjusted Balance 4693.32
Total 5,411.07 5,411.07
CASH BOOK
Date Description Debit Credit
July Balance 4,262.83
31
Notes receivable 500.00
Interest on note 24.74
Collection charges 5.00
Services charges 12.00
Deposit Dis – J. B. Ball 50.25
Error - Understated payment 27.00
Adjusted Balance 4693.32
Total 4787.57 4787.57
Parkview Company
General Journal
For the month of July ……….. 2020
Date Description Post Debit Credit
Ref
July Cash 500
31 Notes receivable 500
Cash 24.74
Interest on notes receivable 24.74
Collection Charges 5.00
Cash 5.00
Services Charges 12.00
Cash 12.00
J. B. Ball (A/R) 500.00
Cash 500.00
Account payable 27.00
Cash 27.00
