Formula and computation

1. CHAPTER 3
PROOF OF CASH

2. TECHNICAL KNOWLEDGE
• TO BE ABLE TO PREPARE A TWO-DATE BANK RECONCILIATION.
• TO KNOW THE COMPUTATION OF DEPOSITS IN TRANSITS 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
LEDGER WITH CASH DISBURSEMENTS PER BANK STATEMENT.
• TO UNDERSTAND THE NATURE OF PROOF OF CASH.
• TO BE ABLE TO PREPARE A RECONCILIATION SHOWING PROOF OF
CASH.

3. TWO-DATE BANK RECONCILIATION
THE BANK RECONCILIATION IS SO CALLED “TWO-
DATE” BECAUSE IT LITERALLY INVOLVES TWO
DATES.
TWO-DATE RECONCILIATION BECOMES
COMPLICATED ONLY WHEN A CERTAIN FACTS OR
DATA ARE OMITTED. BUT IF ALL FACTS ARE
AVAILABLE, THE RECONCILIATION STATEMENTS
WILL SIMPLY BE PREPARED AS OF THE TWO DATES
REQUIRED.

4. THE OMITTED INFORMATION MAY BE ANY ONE OR
A COMBINATION OF THE FOLLOWING:
A.BOOK BALANCE- BEGINNING AND ENDING
B.BANK BALANCE- BEGINNING AND ENDING
C.DEPOSITS IN TRANSIT- BEGINNING AND ENDING
D.OUTSTANDING CHECKS- BEGINNING AND
ENDING

5. COMPUTATION OF BOOK BALANCE
BALANCE PER BOOK- BEGINNING OF THE MONTH XX
ADD: BOOK DEBITS DURING THE MONTH XX
TOTAL XX
LESS: BOOK CREDITS DURING THE MONTH XX
BALANCE PER BOOK- END OF THE MONTH XX
T-ACCOUNT CASH IN BANK
BALANCE- BEGINNING XX BOOK CREDITS XX
BOOK DEBITS XX BALANCE- ENDING XX

6. BOOK DEBITS- CASH RECEIPTS OR ALL ITEMS
DEBITED TO THE CASH IN BANK ACCOUNT.
BOOK CREDITS- CASH DISBURSEMENT OR ALL
ITEMS CREDITED TO THE CASH IN THE BANK
ACCOUNT.

7. COMPUTATION OF BANK BALANCE
BALANCE PER BANK- BEGINNING OF THE MONTH XX
ADD: BANK CREDITS DURING THE MONTH XX
TOTAL XX
LESS: BANK DEBITS DURING THE MONTH XX
BALANCE PER BANK- END OF THE MONTH XX
T-ACCOUNT COMPANY X XX
• BOOK CREDITS XX
• BOOK DEBITS XX
• BALANCE- ENDING XX
BANK DEBITS XX BALANCE- BEGINNING XX
BALANCE- ENDING XX BANK CREDITS XX

8. BANK CREDITS- ALL ITEMS CREDITED TO THE
ACCOUNT OF THE DEPOSITOR WHICH INCLUDE
DEPOSITS ACKNOWLEDGE BY BANK AND
CREDIT MEMOS.
BANK DEBITS- ALL ITEMS DEBITED TO THE
ACCOUNT OF THE DEPOSITOR WHICH INCLUDE
CHECKS PAID BY BANK AND DEBIT MEMOS.

9. COMPUTATION OF DEPOSITS IN TRANSIT
AND OUTSTANDING CHECKS
DEPOSITS IN TRANSIT
DEPOSITS IN TRANSIT- BEGINNING OF MONTH XX
ADD:CASH RECEIPTS DEPOSIT DURING THE MONTH XX
TOTAL DEPOSITS TO BE ACKNOWLEDGE BY BANK XX
LESS: DEPOSITS ACKNOWLEDGE BY BANK DURING MONTH XX
DEPOSITS IN TRANSIT- END OF MONTH XX
OUTSTANDING CHECKS
OUTSTANDING CHECKS- BEGINNING OF MONTH XX
ADD:CHECKS DRAWN BY DEPOSITOR DURING THE MONTH XX
TOTAL CHECKS PAID TO BY BANK XX
LESS: CHECKS PAID BY BANK DURING MONTH XX
OUTSTANDING CHECKS- END OF MONTH XX

10. ILLUSTRATION
CASH IN BANK PER LEDGER
BALANCE, JANUARY 31 50,000
BOOK DEBITS FOR FEB., INCLUDING JAN. CM
for NOTE COLLECTED of 15,000 200,000
BOOK CREDITS FOR FEB., INCLUDING NSF CHECK
of 5,000 and SERVICE CHARGE of 1,000 for JAN. 180,000

11. BANK STATEMENT FOR FEBRUARY
BALANCE, JANUARY 31 84,000
BANK CREDITS FOR FEB., INCLUDING CM FOR
NOTE COLLECTED OF 20,000 AND JANUARY
DEPOSIT IN TRANSIT OF 40,000 170,000
BANK DEBITS FOR FEB., INCLUDING NSF CHECK OF
10,000 AND JANUARY OUTSTANDING CHECK OF 65,000 130,000

12. BALANCE PER BOOK, JANUARY 31 50,000
NOTE COLLECTED BY BANK IN JANUARY 15,000
TOTAL 65,000
NSF CHECK FOR JANUARY (5,000)
SERVICE CHARGE FOR JANUARY (1,000)
ADJUSTED BOOK BALANCE 59,000
BALANCE PER BANK, JANUARY 31 84,000
DEPOSIT IN TRANSIT FOR JANUARY 40,000
TOTAL 124,000
OUTSTANDING CHECK FOR JANUARY (65,000)
ADJUSTED BANK BALANCE 59,000

13. COMPUTATION OF BOOK AND BANK BALANCE
BOOK BALANCE
BALANCE PER BOOK- JANUARY 31 50,000
ADD: BOOK DEBITS DURING FEBRUARY 200,000
TOTAL 250,000
LESS: BOOK CREDITS DURING FEBRUARY 180,000
BALANCE PER BOOK- FEBRUARY 29 70,000
BANK BALANCE
BALANCE PER BANK- JANUARY 31 84,000
ADD: BANK CREDITS DURING FEBRUARY 170,000
TOTAL 254,000
LESS: BANK DEBITS DURING FEBRUARY 130,000
BALANCE PER BANK- FEBRUARY 28 124,000

14. COMPUTATION OF DEPOSIT IN TRANSITS
DEPOSITS IN TRANSIT- JANUARY 31. 40,000
ADD: CASH RECEIPTS DEPOSITED DURING FEBRUARY
BOOK DEBITS 200,000
LESS: JANUARY CM FOR NOTE COLLECTED 15,000 185,000
TOTAL 225,000
LESS: DEPOSITS ACKNOWLEDGED BY BANK IN FEBRUARY
BANK DEPOSITS 17O,000
LESS: FEBRUARY CM FOR NOTE COLLECTED 20,000
150,000
DEPOSITS IN TRANSIT- FEBRUARY 28 75,000

15. COMPUTATION OF OUTSTANDING CHECKS
OUTSTANDING CHECKS- JANUARY 31 65,000
ADD: CHECKS DRAWN BY DEPOSITOR DURING FEBRUARY:
BOOK CREDITS 180,000
LESS: JANUARY DMs 6,000 174,000
TOTAL 239,000
LESS: CHECK PAID BY BANK DURING FEBRUARY
BANK DEBITS 130,000
LESS: FEBRUARY NSF 10,000 120,000
OUTSTANDING CHECKS- FEBRUARY 28 119,000

16. COMPANY X
BANK RECONCILIATION
FEBRUARY 27
BALANCE PER BOOK 70,000
NOTE COLLECTED BY BANK IN FEBRUARY 20,000
TOTAL 90,000
NSF CHECK FOR FEBRUARY (10,000)
ADJUSTED BOOK BALANCE 80,000
BALANCE PER BANK 124,000
DEPOSITS IN TRANSIT FOR FEBRUARY 75,000
TOTAL 199,000
OUTSTANDING CHECKS FOR FEBRUARY (119,000)
ADJUSTED BOOK BALANCE 80,000

17. PROOF OF CASH
-INCLUDES PROOF OF RECEIPTS AND
DISBURSEMENTS.
-IT IS USEFUL IN DISCOVERING POSSIBLE
DISCREPANCIES IN HANDLING CASH
PARTICULARLY WHEN CASH RECEIPTS HAVE BEEN
RECORDED BUT HAVE NOT BEEN DEPOSITED.

18. 3 FORMS OF PROOF OF CASH
A.ADJUSTED BALANCE METHOD
B.BOOK TO BANK METHOD
C.BANK TO BOOK METHOD