Bank Reconciliation Flashcards
What are the three kinds of bank deposits?
- Demand deposit
- Saving deposit
- Time deposit
Define demand deposit.
It is the current account or checking account 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 usually non-interest bearing.
Are demand deposits always non-interest bearing?
No, some banks allow a demand deposit account as interest bearing.
Define saving deposit.
In a saving deposit, the depositor is given a PASSBOOK upon the initial deposit. The passbook is required when making deposits and withdrawals.
Withdrawals are made ANYTIME, but the bank sometimes requires NOTICE OF WITHDRAWAL.
A saving deposit is interest bearing.
Compare and contrast demand deposit and saving deposit.
Deposits are covered by deposit slips for demand deposits, while banks require passbooks when making deposits and withdrawals in a saving deposit.
Both demand deposit and saving deposit can withdraw anytime on demand.
Demand deposits are usually noninterest bearing while saving deposits are interest bearing.
What are other names for demand deposits?
- Current account
- Checking account
- Commercial deposit
How is a time deposit similar to a saving deposit?
They’re both interest bearing.
Define time deposits.
A time deposit is evidenced by a formal agreement embodied in an instrument called CERTIFICATE OF DEPOSIT.
It may be preterminated or withdrawn on demand or after a certain period of time agreed upon.
What type of bank deposit is a bank reconciliation only necessary for?
Demand deposit
What happens when a demand deposit account is opened at the bank?
The person authorized to draw checks or write a check against the account will be required to sign cards supplied by the bank to file the specimen signature that will be cross-checked by the teller of the bank unfamiliar with the depositor’s signature to compare that signature on the card with the signature on the check.
What happens if the depositor of a demand deposit account is a corporation?
The bank will request that (1) the directors pass a resolution authorizing certain officers of the corporation as signatories of checks, and that (2) a copy of this resolution be filed with the bank.
Assume that Company X (the depositor) collected P100,000 from a customer in settlement of an account. The collection is deposited at the First Bank.
Write the journal entry to record the collection and the subsequent deposit in the depositor’s books.
Write the corresponding journal entry in the bank’s books.
Books:
Cash (or cash in bank) 100,000
Accounts receivable 100,000
Bank:
Cash 100,000
Company X 100,000
How would this bank book entry be actually recorded in practice?
Cash 100,000
Company X 100,000
The account credited by bank would be “demand deposit” account.
What does the bank recognize in this bank entry?
Cash 100,000
Company X 100,000
The bank recognizes its liability to Company X.
What is the legal relationship between bank and depositor?
Bank becomes the debtor and depositor becomes the creditor.
It is an increase on the account of the depositor if it is credited or debited?
Credited
Assume that Company X (the depositor) issued a check for P30,000 in payment of an account payable.
Write the journal entry to the payment of an account payable.
Write the corresponding journal entry in the bank’s books.
Book:
Accounts payable 30,000
Cash 100,000
Bank:
Company X 30,000
Cash 30,000
What should the payee of the check do if the depositor issued the check to him?
He should present the same to the bank.
What does the depositor’s drawing of the check mean for the bank?
The bank is being ordered by the depositor to pay a certain payee out of the depositor’s deposit in the bank.
What does the bank recognize in this bank entry?
Company X 30,000
Cash 30,000
Bank recognizes its reduction in liability to Company X.
It is a decrease on the account of the depositor if it is credited or debited?
Debited
What is a bank reconciliation?
It is a statement which brings into agreement the cash balance per book and cash balance per bank.
How often is the bank reconciliation prepared? Why?
They are prepared monthly because the bank provides the depositor with the bank statement at the end of every month.
What does the bank statement, a monthly report of the bank, show?
- The cash balance per bank at the beginning
- The deposits made by the depositor and acknowledged by the bank.
- The checks drawn by the depositor and paid by the bank.
- The daily cash balance per bank during the month.
What are bank statements in terms of the depositor’s ledger in the records of the bank?
Bank statements are exact copies of the depositors’ ledgers.
What are the attachments to the bank statement?
- Depositor’s canceled checks
- Debit or credit memoranda that have affected the depositor’s account
What are canceled checks?
They are checks issued by the depositor and paid by the bank during the month.
Why are canceled checks called that way?
They are called that way because they are literally canceled by stamping or punching to show that they have been paid.
What are book reconciling items?
- Credit memos
- Debit memos
- Errors
What are bank reconciling items?
- Deposits in transit
- Outstanding checks
- Errors
What do credit memos mean?
They refer to items representing deposits already credited by the bank but not yet recorded by the depositor as cash receipts.
What is the effect of credit memos?
They increase the bank balance.
Give three typical examples of credit memos?
- Notes receivable collectedly bank in favor of the depositor and credited to the account of the depositor
- Proceeds of bank loan credited to the account of the depositor
- Matured time deposits transferred by the bank to the current account of the depositor.
What are debit memos?
They refer to items representing checks already paid by the bank, which are charged or debited by the bank to the account of the depositor, but not yet recorded by the depositor as cash disbursements.
What is the effect of debit memos?
They decrease the bank balance.
Give me four typical examples of debit memos.
- No sufficient fund checks or NSF
- Technically defective checks
- Bank service charges
- Reduction of loan
What are NSF checks?
Also known as “drawn against insufficient fund” checks of DAIF, these are checks deposited but returned by the bank because of insufficiency of fund.
Why are NSF checks and technically defective checks debit memo items?
They are debit memo items because they cause the bank to decrease the depositor’s (supplier) bank balance. So should the depositor decrease their cash balance per book after having increased its balance for presuming it would be able to make a cash collection from the check.
What are technically defective checks?
They are also checks deposited but returned by the bank because of technical defects.
What are the possible technical defects of a check?
- Absence of signature or countersignature
- Erasures not countersigned
- Mutilation
- Conflict between amount in words and figures
What are bank service charges?
They include bank charges for interest, collection, checkbook, and penalty.
What are deposits in transit?
