BANK RECONCILIATION TERMINOLOGY Tutorial Reference Sheet Bank statement: A document provided by the bank, generally monthly, that summarizes the depositor's banking activities. Debits and credits: In reconciling a bank statement, debits and credits appear to be "backwards" from an accounting perspective. To the bank, an amount on deposit in a customer's account is money owed by the bank to the customer; therefore it is a liability. When anything is deposited to a customer's account it is said to be a credit, an increase in what the bank owes the customer, or an increase in a liability. When anything is deducted from a customer's account it is a debit, as it is a reduction in the bank's liability to the customer. Bank reconciliation: A means of determining the actual cash position by comparing the balance and contents shown on the bank statement with the depositor's record. Cancelled cheques: Cheques paid by the bank, deducted from the customer's bank account, and stamped to show they have been paid. Outstanding cheques: Cheques written by the depositor, deducted in the cash records, but not yet processed by the bank. Deposit in transit: Cash or cheques entered to company records and sent to the bank for deposit, but not yet processed by the bank. Electronic funds transfer: The transfer of cash from one location to another by way of computer or telephone. Post dated cheque: A cheque that is written and presented to the payee, but dated at some time in the future. Stale dated cheque: A cheque that us dated at least six months prior to being presented at the bank for payment. Generally it is no longer honoured. NSF cheque: Means nonsufficient funds. A customer's cheque is returned by the bank and charged back to your account due to lack of funds in the account on which the cheque was written. Bank service charge: An amount charged by the bank for services provided. It is usually charged on a specific date each month and the amount must be adjusted as a debit to bank service charge and a credit to your cash account when the bank reconciliation is done. Interest earned: Some bank accounts earn interest on the amount that is on deposit. This amount is reported on the monthly bank statement.
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