Can you help me to understand credit memo and debit memo in the bank reconciliation?
A bank credit memo is an item on a company’s bank statement that increases a company’s checking account balance. A bank debit memo is an item on the bank statement that reduces the company’s checking account balance. Since these items are already on the bank statement, the only adjustment that could be required is in the company’s accounting records. The old rule for the bank reconciliation “Put it where it isn’t” means that the bank’s credit memo amount must be added to the company’s accounting records, if it is not yet in the company’s accounts. Since the bank credit memo increased the checking account balance, the company’s Cash account will have to be debited and another account will need to be credited. For example, if the bank statement shows a credit memo for $100 for interest earned, the company will need to have a debit of $100 in its Cash account and will need a credit of $100 in Interest Revenue or Interest Income.
If the bank statement shows a debit memo of $25 for a service fee, the bank statement balance was decreased by $25. As part of the bank reconciliation process the following entry must be made if the item has not yet been recorded in the company’s records: debit Bank Fee Expense or Miscellaneous Expense $25 and credit Cash $25. The company’s Cash account needs to be credited because this company’s asset account decreased.
The reason the bank used “debit” to decrease the company’s checking account is that its customers’ checking account balances are liabilities for the bank. (The bank’s cash was debited when customers deposited money and the bank’s liability account Demand Deposits or Checking Account Deposits was credited.) When the bank pays a customer’s check, the bank’s cash is reduced and the bank’s liabilities are reduced. The bank records this with a credit to Cash and a debit to Demand Deposits.
Learn more about the bank’s debits and credits by reading Part 4 of Debits & Credits.
About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.
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please let me know how to balance a bank reconcilation in case of they transfer it to another bank, how can i balance it if some adjustment are in the first bank and the other in the another bank (transferee bank) please help me….? i’m willing to wait. thank you so much
is Photography fee earned considered Assets or Equity? I need a sample of General Journal Entries
Thx 4 putting up this valuable info.on the net..
if there is any format with example of bank recon. statement….& i think it would be better.
it is the best website for me…. THANKS
hi.. i need help… i am a bookkeeper in a trading company..
i am resposible in reconciling the book bal with the bank balance…
i need your help
Read the Explanation of Bank Reconciliation under the Topics Explained tab on the free website AccountingCoach.com.
Hi thanks a lot & it is the best guide for learner & all the aspects.
each topics are very much helpful, thanks for the idea
excellent work done by site…. i hope they will keep this spirit up & go further in detail make this site with more broader topic related to accounting……
hats of….
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