CHAPTER 3 PROOF OF CASH TECHNICAL KNOWLEDGE To be able to prepare a two-date bank reconciliation, To know the computation of deposits in transit and outstanding checks. To know the reconciliation of cash receipts per ledger with cash receipts per bank statement. To know the reconciliation of cash disbursements per ledge with cash disbursements per bank statement. To understand the nature of proof of cash. To beable to prepare a reconciliation showing proof of ost 18qwo-date bank reconciliation ne bank reconciliation is so-called “two-date” soll involves two dates. because it dures followed for a one-date iliati ee hee dies iateae reconciliation are the A two-date reconciliation becomes complicated only hen certain ds or data are omitted, hence the necessity for computing them: put if all the facts are available, then reconciliation statements wil simply be prepared as of the two dates required. Among others, the omitted information may be any one or a combination of the following: a Book balance — beginning and ending ». Bank balance — beginning and ending c. Deposits in transit — beginning and ending d. Outstanding checks — beginning and ending Ifthe ending balances are not given, the following formulas may help. Ifbeginning balances are omitted, the formulas should simply reversed or just work back. 719Computation of book balance per book - beginning of month ‘ada Book debits during the month Teal jook credits during the month Balance per book —end of month fe x fee Iz b Book debits refer to cash receipts or all items debited t, cash in bank account. & Book credits refer to cash disbursements or all items credj to the cash in bank account. ited Ina T-account form, the cash in bank may appear as follows Cash in bank Balance —beginning xX Book credits Book debits x Balance — ending ae Computation of bank balance Balance per bank — beginning of month xX Add: Bank credits during the month a ‘Total xx Less: Bank debits during the month eb Balance per bank—end of month ae Bank credits refer to all items eredited to the account of the depositor which inch i db: and att acne include deposits acknowledged by In the absence of any statement to the contrary, bank cred are assumed to be deposits acknowledged by bank. Bank debits refer to all i of the Sean items debited to the accoun tor which include checks paid by bank and debit me™™ In the absence of nk debit tate’ , bal are assumed to been aay to the contrary, 80the deposi 4 qaccount forms lepositor’s account, Company X, will west as follows: a Company X debi xX Balance. ginning bask ce -ending xz Bank credits : : pala computation of deposits in transit its in transit - beginning of month a add: Cash receipts deposited during the month e Ie qutal deposits to be acknowledged by bank xe Less: Deposits acknowledged by bank during month xx Deposits in transit—end of month xx Computation of outstanding checks Outstanding checks — beginning of month Xx Add: Checks drawn by depositor during the month XX Total checks to be paid by bank xx Less: Checks paid by bank during the month XX xx Outstanding checks -end of month 81INustration Cash in bank per ledger Balance, January 31 i . Book debits for February, including January CM 7 for note collected of P16,000 ny credits for February, including NSF check “ny of P5,000 and service charge of P1,000 for January Bank statement for F ‘ebruary Balance, January 31 Bank credits for February, including CM for Hoy note colleted of P20,000 and January deposit in transit of P40,000 Bank debits for February, including NSF check of 100) 10,000 and January outstanding check of P65,000 ‘an The bank reconciliation for the month of January can ¢ be prepared because all the necessary data are available Balance per book, January 31 50,000 Note collected by bank in January 15am Total NSF check for January ( yo Service charge for January 1,000) Adjusted book balance 59,000 Balance per bank, January 31 3400 Deposit in transit for January ca Total ; 124000 Outstanding check for January (6308 Adjusted bank balance se ake reconciliation for the month of February requ i putation of balance per book, ce per bank, 42 transit and outstanding chec pee 82computation of book balance book —January 31 pa bie during February S Book credits during February palance Pe?’ book - February 28 Computation of bank balance per bank —January 31 Add: Bank credits during February ie Bank debits during February Balance per bank - February 28 83 Beee 70,000 84,000 170,000 254,000 130,000 124,000Computation of deposits in transit ' it- January 31 Degets pa deposited during February: 4009 Book debits te collected om Less: January CM for note col 15,000 2889 iS Deposits acknowledged by bank in February: 225,009 Bank credits 170,000 Less: February CM for note collected 20,000 2500 jtsin transit - February 28 Deposits in 5.00 ‘The January CM of P15,000 is deducted from the book is of P200,000 because this item is a cash receipt _ representing deposit for the month of February. ot All items debited to the cash in bank account which do represent deposits should be deducted from the book ake total to arrive at the cash receipts deposited. In the absence of any statement to the contrary, book debits are assumed to be cash receipts deposited. The February CM of P20,000 for note collected is deducted from the bank credits because this is not a deposit. All items credited to the depositor’s account which do not represent deposits should be deducted from the bank credits to determine the deposits acknowledged by bank. Bank credits are assumed to be deposits acknowledged by bank in the absence of any statement to the contrary. 84computation of outstanding checks ding checks —January 31 we Checks drawn by depositor during February: 85,000 Book credits 180,000 Less: January DMe 6,000 indi to cnecks paid by bank during February: 239,000 Bank debits 130,000 Less: February NSF 10,000 Outstanding checks — February 28 the January DMs of P6,000 are deducted from the book credits, because they are cash disbursements not representing checks. All items not representing checks credited to the cash in bank account should 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 tothe contrary are assumed to be checks issued. The February DM for-NSF of P10,000 is deducted from the tank debits because this is not a bank disbursement representing a check paid. Allitems 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 tothe contrary are assumed to be checks paid by bank.Company X Bank Reconciliation February 28 Balance per book Note iced by bank in February “0 Total ~2gy NSF check for February ; ay Adjusted book balance 0.049, oy road Lxaee for Feb: 1240, Deposits in transit for February “Ain Total on Outstanding checks for February cat oy (sighs oy Proof of cash ciconvscrv atl A_proof of cash is an expanded reconciliation in that i includes proof of receipts and disbursements. This approach may be useful in discovering possibls discrepancies in handling cash particularly when cash receipts have been recorded but have not been deposited cas ceughy Wre pe ctanded bd fae wh oan Apes There are three forms of proof of cash, namely: Agate aoa & hein ea Wok fat eed c. Bank to book method pat. fo vk wel In al the three forma, « four-column worksheet is necesstt although under the adjusted balance method, an S-cxlut worksheet may be required. For our illustration, let us summarize the data used in two-date reconciliation,cynmal Y se January 31 February 28 vance per book 50,000 ‘erance EP bank 84,000 132.000 a 200,000 its 19, set 130,000 on 8 R$ ts in transit 40,000 17000 ustanding checks i 119,000 whee 6,900 10,000 service cha ‘ . my we Qo vei,yiy Disburse- January $1 Receipts ments February 28 Balance per hook 50,000 200,000 180,000 70,000 it collected: january 15,000 —-( 16,000) February 20:00 20,000 “GF check: Januai Et 6000) February {6:000) (5500 10,000) charge: January (1,000) ————— 1,000) ig\ Adjusted, 0 184,000 book balance 59,000 205,000 184,07" fin per bank 84,000 170,000 180,000 124,000 ack in transit: 40,000) ry 5 owkebruary 40,000 O00 75,000 Mutanding’ checks: Mom nus : February (5,000) 119,000 (119,000) Aitad bank balance $9,000 206,000 18400080000 87General comments 1 and February 28 columns req tie They represent the usual recone ttthe, a. The January 3 ‘ Ciliation, explanation. discussed earlier. tn el ipts and disbursements columns pertain és Te month of February. Actually, the proof of cme the reconciliation of the receipts and disbursemenys for ue pet of cash, following the adjusted balance i c. means that the book receipts and disbursements, and tt bank receipts and disbursements for the current ot are adjusted to equal the correct receipts and disbursements for the current month. Comments on the book items On (t Credit memos of the previous month do not affect the . receipts for the current month but increased the book mee for the current month because the credit memos for the previous month are recorded only by the depositor during 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 the previous month are deducted from the book receipts for the current month ‘Thus, the January note collected amounting to P15,000, is deducted from the February book receipts. b. Credit memos of the current month already increased the bank receipts for the current month but have no effet 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 # understated in relation to the camneat receipts for OY Ment. month. » credit memos of the current mom! are added to the book receipts for the current month. Thus, the February : 20,000, 8 added to the Pebrumsy Gone amounting to P'. f the previo bit memos O} us month do not : Mepursements for the current month but eee bank disbursements for the current month because nt the ‘mos of the previous month are recorded only ty et \e) . Ne during the current month. depositor Consequently, the book disbursements for the o nth are overstated in relation to the carbene disbursements for the current month. Hence, debit memos of the previous month are deducted from the book gisbursements for the current month. ‘Thus, the January NSF of P6,000 and Janu i of P1,000 are deducted from the February Ba donaeneae Debit memos of the current month already increased bank disbursements for the current month but have no effect on the book disbursements for the current month because the debit memos of the current month are not yet recorded by the depositor. Consequently, the book disbursements for the current month are understated in relation to the correct disbursements for the current month. Hence, debit memos of the current month are added to the book disbursements for the current month. ‘Thus, the February NSF of P10,000 is added to the February book disbursements. Comments on the bank items ious month do not affect book receipts for the current month but increased bank receipts for the current month because the deposits are recorded only by the bank during the current month. Consequently, bank receipts for the current month are overstated in relation to the correct receipts for the current month. Hence, deposits in transit of the previous mont ; are deducted from the bank receipts for the current month, a, Deposits in transit of previ Thus, January deposit in transit of 40,000 is deducted from the February bank receipts. 89. Outstanding checks of the previous month hs it of the current m, sits in transit 0 enth al, book receipts but have no effect On the @dy Le the current month because the depots ban wo by the bank during the current monty ™® fo tly, the bank receipts for the current ote d in relation to the correct recej, ce current month. Hence, deposits in transit of the ..” the month are added to the bank receipts of the current a a ‘onth, Thus, the February deposit in transit of P75,000 ig ad the February bank receipts. fet Depo! Mont! i do not aftr, the book disbursements but increased the ba disbursements for the current month outstanding checks of the previous month by the bank during the current month. because the are paid only Consequently, the bank disbursements for the current month are overstated in relation to the correct disbursements for the current month. Hence, outstanding checks of the previous month are deducted from the bank disbursements for the current month. Thus, the January outstanding check of P65,000 is deducted from the February bank disbursements. . Outstanding checks of the current month increased the book disbursements for the current month but have noeflet on the bank disbursements for the current month becau® the coos are not yet paid by the bank during the curres! month. Consequently, the bank disbursements for the curt month are understated in relation to the cor disbursements for the current month. Hence, outs ok checks of the current month are added to the b bursements for the current month. ‘hs the February outstanding check of P119,00018#0 to the February bank disbamesten: 9040 pank method COMPANY X PROOF OF CASH For the month of February AYAIL Disburse- moy $1 Receipts ments February 28 per book 50,000 200,000 180,000 70,000 pected: ("\ gut 15,000. ( 15,000) J 20,000 20,000 (5,000) (5,000) pebruary 10,000 ——_( 10,000) ; January (1,000) (1,000) January 65,000 65,000 (119,000) Bilance per bank 84,000 170,000 130,000 Comments. 2. The book reconciling items — note collected, NSF and service charge — are treated in the same manner following the adjusted balance method. \. The bank reconciling items — deposit in transit and outstanding check — are treated in the “reverse.” : ‘ The book to bank proof of cash means that the book receipts and disbursements are adjusted to equal the bank receipts and disbursements. month do not affect the book & Depoad Posits i q i aera ae h but increased the bank "eeipts for the current mont! "sctipts for the current month. 91book receipts for the current m, Consequently, se CHO to the ban rectipia for het are deposits in transit of the previous Nt month. Hence, book receipts for the current month deposit in transit of P40,000 ig ada, Thus, the January led to the February book receipts. ts in transit of the current month increased the : Os fit the current month but have no effect a. bank receipts for the current month. Consequently, the bene receipts for the current month are overstated in relation to the bank receipts for the current month, Hence, deposits in transit of the current month are deducted from the book receipts for.the current month. Thus, the February deposit in transit of P75,000 is deducted from the February book receipts. Outstanding checks of the previous month do not affect the book disbursements for the current month but increased the bank disbursements for the current month. Consequently, the book disbursements for the current month are understated in relation to the bank disbursements for the current month. Hence, outstanding checks of the previous month are added to the book disbursements for the current month. ‘Thus, the January outstanding check of P65,000 is added to the February book disbursements. . Outstanding checks of the current month increased the book disbursements for the current month but have no effect yet on the bank disbursements for the current month. Consequently, the book disbursements for the currett month are overstated in relation to the bank disbursemen™* for the current month. Hence, outatanding checks of ti current month are deducted from the book disbursem@™* for the current month. Thus, the February outstandi 9,000 i dado anding check of P119 ducted from the February book disbursements:go book method COMPANY X PROOF OF CASH For the month of February Disbu: January 31 Receipts maw Fé ie poarer baat 84.000 170,000 190.000 124.000 war) 40,000 ( 40,000) ferasry 75,000 vnsoaing cocks: : 7,000 ory (65,000) (65,000) aban 119,000 (119,000) Jenuary (16,000) 15,000 ee cH (a oe 5,000 5,000 ry (10,000) 10,000 co 1000 ____1,000 falence per book 000 _200,000 _180,000 “70,000 Comments 1 The bank reconciling items - deposit in transit and outstanding check — are treated in the same manner following the adjusted balance method. | a z i feceipts for the current month. Consequenty,. parte for the current month are understated in the book receipta for the current month.to pook method rm Be COMPANY x PROOF OF CASH For the month of February Disburse- January 81 Receipts ments February 28 erbank 84,000 170,000 130,000 sn transit: a eat 40,000 ( 40,000) i. 75,000 75,000 ow swianding che : ust (65,000) ( 65,000) 7 A 119,000 (119,000) co ies ‘ (16,000) 15,000 oanry ( 20,000) ( 20,000) sF Check: January 5,060 oon Reuary ( 10,000) 10,000 Service charge: iuary ee ce fulance per book. 280000 Comments « The bank reconciling items — deposit in transit and outstanding check — are treated in the same manner following the adjusted balance method. . The book reconciling items — note collected, NSF and service charge — are treated in the “reverse”. © The bank to book proof of cash means that the bank receipts nd disbursements for the current month are adjusted to equal the book receipts and disbursements for the current month. & Credit memos of previous month do not affect the bank teeeipta for the current month but increased the book Yeeeipts for the current month. Consequently, the ba Teceipte for the current month are understated in relation book receipts for the current month. 93