The financial accounting term bank credits refers to deposits made to an account such as interest income on a certificate of deposit, or the collection of notes payable. Bank credits are typically identified as part of the monthly bank account reconciliation process.
At the end of each accounting period, companies go through a bank statement reconciliation process to understand any differences between the company’s record of the account balance and that appearing on the statement issued by the bank.
The reconciliation process involves comparing the company’s account balance per the statement received from the bank versus the company’s record of cash in the account. Oftentimes the company will not be aware of bank deposits until a statement is received each month. The most common deposits of this type include those associated with interest bearing checking or savings accounts. There can also be electronic deposits of funds from trade partners or investments held by the company.
This reconciliation process is part of the accounting cycle, allowing the company to accurately report cash, a current asset, on its balance sheet.
Company A’s starting balance in its checking account was $154,300. Company A recorded $123,600 in cash deposits made to its general checking account in the month of September, and withdrawals of $110,500. When the September bank statement was received, it indicated $70 in bank deposits associated with interest earned on its high value checking account. Company A’s ending bank balance is calculated as follows:
|Bank Account Balance (Starting Balance)||$154,300|
|Add: Interest Income||$70|
|Bank Account Balance (Ending Balance)||$167,470|