The bank statement refers to a monthly report or statement which the bank prepares for every depositor having a checking account. The items normally included in this statement are: deposits, withdrawals and service charges. Deposits consist of money placed in the bank mainly for safekeeping and possibly for interest earning. Deposits are usually in cash amounts; however, the bank also honors deposits in the form of negotiable instruments.
Deposits of checks issued to the depositor are sometimes not credited by the bank because the checks are not backed up by sufficient funds – meaning the account of the person who originallyissued the checks cannot cover the value of the check – these are classified as NSF (No Sufficient Funds) checks and returned to the depositor. It may also happen that deposits are made too late to be included in the monthly bank statement; these are identified as DIT (deposit in transit).
Withdrawals may be thought of as expenses. The depositor may withdraw cash amounts from his account by filling up a withdrawal slip or by issuing a check if he is a checking account depositor. A check is a written order or instrument made by the depositor directing his bank to pay a person, or a business firm or order a specified sum of money. Upon cashing the check, the bank either stamps or perforates it to show payment has been made and the check is thus considered a cancelled check. On the other hand, the check that has been issued but is still in the possession of the payee is called outstanding check.
The checkbook contains the depositor’s records of his transactions. Deposits increase the checkbook balance, withdrawals lessen it, issuance of checks likewise decreases it; and thus for every transaction a new checkbook balance results.
Reconciliation statements are called for when the depositor’s records do not agree with the bank statements. Necessary adjustments in both the bank statement and the checkbook entries are made in order to reconcile or tally both balances. The reconciliation statement is important in order to ascertain the actual cash balance one has in his checking account.
Below is an illustrative example for Bank Reconciliation Statement of ROY G. VIB
The bank statement of ROY G. VIB showed a balance of $662.30 on May 31, 2014. The checkbook balance on the same date showed $635.90. On comparing the
|Checkbook Balance||$635.90||Bank Statement Balance||$662.30|
|Add: Error||$1.80||Less: Outstanding Checks|
|Service Charge||$2.36||No. 70||$26.46||($49.56)|
|Adj/Corrected Ckbook Balance||$612.74||Corrected Bank Balance||$612.74|
Explanation: Check nos. 60, 68 and 70 were not yet presented at the bank for payment but these same checks were already deducted from the checkbook upon issuance; hence, they must be deducted from the bank balance. The check for 56.80 was deducted from the check stub as $58.60; hence the amount of $1.80 (difference between $56.60 and $58.80) more than the correct amount must be added to the checkbook balance. The service charge has been subtracted from the bankbook statement but not from the check stub. The canceled check was issued by the depositor but he neglected to deduct it from his checkbook balance.
Source of idea: my old notes back my college days