CHAPTER 3 (PROOF OF CASH) Deposits in transit – beginning of month xxx

▲ Two-date Bank Reconciliation Add: Cash receipts deposited during the month xxx
- The bank reconciliation is so-called “two-date” because it literally involves Total deposits to be acknowledge by bank xxx
two dates Less: Deposits acknowledge by bank during month xxx
- The procedures followed for a one-date reconciliation are the same for a Deposits in transit – end of month xxx
two-date reconciliation
- A two-date reconciliation becomes complicated only when certain facts or
▲ Computation of Outstanding Checks
data are omitted, hence the necessity for computing them
Outstanding checks – beginning of month xxx
- But if all the facts are available, then reconciliation statements will simply
be prepared as of the two dates required Add: Checks drawn by depositor during the month xxx
- Among others, the omitted information may be any one or a combination of Total checks to be paid by bank xxx
the following: Less: Checks paid by bank during the month xxx
a. Book balance – beginning and ending Outstanding checks – end of month xxx
b. Bank balance – beginning and ending
c. Deposits in transit – beginning and ending • Illustration
d. Outstanding checks – beginning and ending ■ Cash in bank per ledger
- If the ending balances are not given, the following formulas may help Balance, January 31 50,000
- If beginning balances are omitted, the formulas should simply be reversed or Book debits for February, including January CM
just work back
for note collected of Pl5,000 200,000
Book credits for February, including NSF check
▲ Computation of Book Balance
of P5,000 and service charge of
Balance per book – beginning of month xxx
P1,000 for January 180,000
Add: Book debits during the month xxx
Total xxx
■ Bank statement for February
Less: book credits during the month xxx
Balance, January 31 84,000
Balance per book – end of the month xxx
Bank credits for February, including CM for
note collected of P20,000 and January
• Book debits – refer to cash receipts or all items debited to the cash in bank
deposit in transit of P40,000
account
Bank debits for February, including NSF check of
• Book credits – refer to cash disbursement pr all items credited to the cash in
bank account P10,000 and January
outstanding check of P65,000
In a T-account form, the cash in bank may appear as follows:
The bank reconciliation for the month of January can easily be prepared
Cash in bank
because all the necessary data are available:
Balance – beginning xxx Book credits xxx
Book debits xxx Balance – ending xxx
Balance per book, January 31 50,000
Note collected by bank in January 15,000
▲ Computation of Bank Balance
Total 65,000
Balance per bank – beginning of month xxx
NSF check for January (5,000)
Add: Bank credits during the month xxx
Service charge tor January (1,000)
Total xxx
Adjusted book balance 59,000
Less: Bank debits during the month xxx
Balance per bank, January 31 84,000
Balance per bank – end of month xxx
Deposit in transit for January 40,000
Total 124,000
• Bank credits – refer to all items credited to the account of the depositor
Outstanding check for January (65,000)
which include deposits acknowledged by bank and credit memos
- In the absence of any statement to the contrary, bank credits are assumed to Adjusted bank balance 59,000
be deposits acknowledge by bank
• Bank debits – refer to all items debited to the account of the depositor - The bank reconciliation for the month of February requires computation of
which include checks paid by bank and debit memos balance per book, balance per bank, deposits in transit and outstanding
- In the absence of any statement to the contrary, bank debits are assumed to checks.
be checks paid by bank
■ Computation of Book Balance
In a T-account form, the depositor’s account, Company X, will appear as Balance per book - January 31 50,000
follows: Add: Book debits during February 200,000
Company X Total 250,000
Bank debits xxx Balance - beginning xxx Less: Book credits during February 180,000
Balance – ending xxx Bank credits xxx Balance per book- February 28 70,000

▲ Computation of Deposits in Transit ■ Computation of Bank Balance

Balance per bank - January 31 84,000 February 28
Add: Bank credits during February 170,000 Balance per book 70,000
Total 254,000 Note collected by bank in February 20,000
Less: Bank debits during February 130,000 Total 90,000
Balance per bank- February 28 124,000 NSF check for February (10,000)
Adjusted book balance 80,000
■ Computation of Deposits in Transit Balance per bank 124,000
Deposits in transit-January 31 Deposits in transit for February 75,000
Add: Cash receipts deposited during February: Total 199,000
Book debits Outstanding checks for February. (119,000)
Less: January CM for note collected Adjusted bank balance 80,000
Total
Less: Deposits acknowledged by bank in February: ▲ Proof of Cash – an expanded reconciliation in that it includes proof of
Bank credits receipts and disbursements.

Less: February CM for note collected - This approach may be useful in discovering possible discrepancies in
handling cash particularly when cash receipts have been recorded but have not
Deposits in transit- February 28
been deposited.

- The January CM of P15,000 is deducted from the book debits of P200,000 • Three Forms of Proof of Cash
because this item is a cash receipt not representing deposit for the month of
February. ■ Adjusted balance method
- All items debited to the cash in bank account which do not represent deposits ■ Book to bank method
should be deducted from the book debits total to arrive at the cash receipts ■ Bank to book method
deposited:
- In the absence of any statement to the contrary, book debits are assumed to - In all the three forms, a four-column worksheet is necessary although under
be cash receipts deposited. the adjusted balance method, an 8-column worksheet may be required.
- The February CM of P20,000 for note collected is deducted from the bank
credits because this is not a deposit.
• Summary
- All items credited to the depositor's account which do not represent deposits
should be deducted from the bank credits to determine the deposits January 31 February 28
acknowledged by bank. Balance per book 50,000 70,000
- Bank credits are assumed to be deposits acknowledged by bank in the Balance per bank 84,000 124,000
absence of any statement to the contrary. Book debits 200,000
Book credits 180,000
■ Computation of Outstanding Checks Bank debits 130,000
Outstanding checks – January 31 65,000 Bank credits 170,000
Add: Checks drawn by depositor during February: 180,000 Deposits in transit 40,000 75,000
Book credits Outstanding checks 65,000 119,000
Less: January DMAs NSF check 5,000 10,000
Total Service charge 1,000 -
Less: Checks paid by bank during February: Note collected by bank 15,000 20,000
Bank debits
Less: February NSF - The book debits and credits, and the bank debits and credits for January are
Outstanding checks -February 28 not listed anymore because they are not necessary.
- The proof of cash pertains to the receipts and disbursements for the current
- The January DMs of P6,000 are deducted from the book credits, because month of February.
they are cash disbursements not representing checks.
- All items not representing checks credited to the cash in bank account should ■ Adjusted Balance Method
be deducted from the book credits total to arrive at the checks drawn by the
depositor.
- But as a rule, all book credits in the absence of any statement to the contrary
are assumed to be checks issued.
- The February DM for NSF of P10,000 is deducted from the bank debits
because this is not a bank disbursement representing a check paid.
- All items debited to the account of the depositor not representing checks
paid should be deducted from the bank debits total to arrive at the checks paid
by bank.
- But as a rule, all bank debits in the absence of any statement to the contrary
are assumed to be checks paid by bank.

Company X ◊ General comments

Bank Reconciliation
a. The January 31 and February 28 columns require no further explanation. because the outstanding checks of the previous month are paid only by the
They represent the usual reconciliation discussed earlier. bank during the current month.
b. The receipts and disbursements columns pertain to the current month of - Consequently, the bank disbursements for the current month are overstated
February. Actually, the proof of cash is a reconciliation of the receipts and in relation to the correct disbursements for the current month. Hence,
disbursements for the current period. outstanding checks of the previous month are deducted from the bank
c. The proof of cash, following the adjusted balance method means that the disbursements for the current month.
book receipts and disbursements, and the bank receipts and disbursements for - Thus, the January outstanding check of P65,000 is deducted from the
the current month are adjusted to equal the correct receipts and disbursements February bank disbursements.
for the current month. d. Outstanding checks of the current month increased the book disbursements
for the current month but have no effect on the bank disbursements for the
◊ Comments on the Book Items current month because the checks are not yet paid by the bank during the
current month.
a. Credit memos of the previous month do not affect the bank receipts for the
current month but increased the book receipts for the current month because - Consequently, the bank disbursements for the current month are understated
the credit memos for the previous month are recorded only by the depositor in relation to the correct disbursements for the current month. Hence,
during the current month. outstanding checks of the current month are added to the bank disbursements
for the current month.
- Consequently, the book receipts for the current month are overstated in
relation to the correct receipts for the current month. Hence, credit memos of - Thus, the February outstanding check of P119,000 is added to the February
the previous month are deducted from the book receipts for the current month. bank disbursements.

- Thus, the January note collected amounting to P15,000, is deducted from the
February book receipts. ■ Book to Bank Method
b. Credit memos of the current month already increased the bank receipts for
the current month but have no effect on the book receipts for the current
month because the credit memos of the current month are not yet recorded by
the depositor during the current month.
- Consequently, the book receipts for the current month are understated in
relation to the correct receipts for the current month. Hence, credit memos of
the current month are added to the book receipts for the current month.
- Thus, the February note collected, amounting to P20,000, is added to the
February book receipts.
c. Debit memos of the previous month do not affect the bank disbursements
for the current month but increased the book disbursements for the current
month because the debit memos of the previous month are recorded only by
the depositor during the current month.
- Consequently, the book disbursements for the current month are overstated
in relation to the correct disbursements for the current month. Hence, debit
memos of the previous month are deducted from the book disbursements for
the current month.
- Thus, the January NSF of P5,000 and January service charge of P1,000 are
deducted from the February book disbursements.
◊ Comments
d. Debit memos of the current month already increased bank disbursements
for the current month but have no effect on the book disbursements for the a. The book reconciling items-note collected, NSF and service charge are
current month because the debit memos of the current month are not yet treated in the same manner following the adjusted balance method.
recorded by the depositor. b. The bank reconciling items deposit in transit and outstanding check - are
- Consequently, the book disbursements for the current month are understated treated in the "reverse."
in relation to the correct disbursements for the current month. Hence, debit c. The book to bank proof of cash means that the book receipts and
memos of the current month are added to the book disbursements for the disbursements are adjusted to equal the bank receipts and disbursements.
current month. d. Deposits in transit of previous month do not affect the book receipts for the
- Thus, the February NSF of P10,000 is added to the February book current month but increased the bank receipts for the current month.
disbursements. - Consequently, the book receipts for the current month are understated in
relation to the bank receipts for the current month. Hence, deposits in transit
◊ Comments on the Bank Items of the previous month are added to the book receipts for the current month.
- Thus, the January deposit in transit of P40,000 is added to the February book
a. Deposits in transit of previous month do not affect book receipts for the
current month but increased bank receipts for the current month because the receipts.
deposits are recorded only by the bank during the current month. e. Deposits in transit of the current month increased the book receipts for the
- Consequently, bank receipts for the current month are overstated in relation current month but have no effect on the bank receipts for the current month.
to the correct receipts for the current month. Hence, deposits in transit of the - Consequently, the book receipts for the current month are overstated in
previous month are deducted from the bank, receipts for the current month. relation to the bank receipts for the current month. Hence, deposits in transit
- Thus, January deposit in transit of P40,000 is deducted from the February of the current month are deducted from the book receipts for the current
bank receipts. month.

b. Deposits in transit of the current month already increased book receipts but - Thus, the February deposit in transit of P75,000 is deducted from the
have no effect on the bank receipts for the current month because the deposits February book receipts.
are not yet recorded by the bank during the current month. f. Outstanding checks of the previous month do not affect the book
- Consequently, the bank receipts for the current month a understated in disbursements for the current month but increased the bank disbursements for
relation to the correct receipts for the current month. Hence, deposits in transit the current month. Consequently, the book disbursements for the current
of the current month are added to the bank receipts of the current month month are understated in relation to the bank disbursements for the current
month. Hence, outstanding checks of the previous month are added to the
- Thus, the February deposit in transit of P75,000 is added to the February book disbursements for the current month.
bank receipts.
- Thus, the January outstanding check of P65,000 is added to the February
book disbursements.
g. Outstanding checks of the current month increased the book disbursements
c. Outstanding checks of the previous month do not affect the book for the current month but have no effect yet on the bank disbursements for the
disbursements but increased the bank disbursements for the current month current month.
- Consequently, the book disbursements for the current month are overstated
in relation to the bank disbursements for the current month. Hence,
outstanding checks of the current month are deducted from the book
disbursements for the current month.
- Thus, the February outstanding check of P119,000 is deducted from the
February book disbursements.

■ Bank to Book Method

◊ Comments
a. The bank reconciling' items - deposit in transit and outstanding check – are
treated in the same manner following the adjusted balance method.
b. The book reconciling items - note collected, NSF and service charge – are
treated in the "reverse".
c. The bank to book proof of cash means that the bank receipts and
disbursements for the current month are adjusted to equal the book receipts
and disbursements for the current month
d. Credit memos of previous month do not affect the bank receipts for the
current month but increased the book receipts for the current month.
Consequently, the bank receipts for the current month are understated in
relation to the book receipts for the current month.
- Hence, the credit memos of the previous month are added to the bank
receipts for the current month.
- Thus, the January note collected of P15,000 is added to the February bank
receipts.
e. Credit memos of the current month increased the bank receipts tor the
current month but have no effect yet on the book receipts for the current
month.
- Consequently, the bank receipts of the current month are overstated in
relation to the book receipts of the current month. Hence, the credit memos of
the current month are deducted from the bank receipts for the current month.
- Thus, the February note collected of P20,000 is deducted from the February
bank receipts.
f. Debit memos of previous month do not affect the bank disbursements for
the current month but increased the book disbursements for the current month.
- Consequently, the bank disbursements for the current month are understated
in the relation to the book disbursements for the current month. Hence, the
debit memos of previous month are added to the bank disbursements for the
current month.
- Thus, the January NSF of P5,000 and the January service charge of P1,000
are added to the February bank disbursements.
g. Debit memos of current month increased the bank disbursements for the
current month but have no effect yet on the book disbursements for the current
month.
- Consequently, the bank disbursements for the current month are overstated
in relation to the book disbursements for the current month. Hence, the debit
memos of current month are deducted from the bank disbursements for the
current month.
- Thus, the February NSF of P10,000 is deducted from the February bank
disbursements for the current month.