Bank Reconciliation

Statement
 Objectives:
■ state the meaning of Bank Reconciliation
Statement;
■ value the importance of preparing a bank
reconciliation statement;
■ identify common reconciling items and
describe each of them;
■ prepare the Bank Reconciliation Statement.
 Review of previous lesson:

•What is current account?

∙ Who are the parties involved in the
issuance of a check?
∙ What is a bank statement?
∙ What are the contents of a bank
statement?
∙ What is the purpose of a bank statement?
Review of previous lesson:
Review of previous lesson:
Review of previous lesson:
Review of previous lesson:
Review of previous lesson:
Review of previous lesson:
 Motivation:
■ Upon receipt
of a bank
statement,
what will the
company do?”
Bank Reconciliation Statements

is a report which
compares the bank
balance as per company's
accounting records with
the balance stated in the
bank statement.
Two common causes of the
discrepancy in figures

Time
Errors
lags
Two common causes of the
discrepancy in figures
prevent one of
the parties
(company or the
Time bank) from
lags recording the
transaction in the
same period as
the other party.
 Two common causes of the
discrepancy in figures

A bank statement
that ends January
30, 2018 and then Time
the company were
able to collect lags
cash of P20,000 at
5:00 PM.
 Two common causes of the
discrepancy in figures

by either
party in
Errors
recording
transactions
 Two common causes of the
discrepancy in figures
a cheque payment
by a debtor had
been debited to the Errors
business account
by the bank, or a made
bank may make an
error in recording by the
the amount to be
debited or credited. bank
 Two common causes of the
discrepancy in figures

error in recording
the amount to be
debited or credited,
Errors
or transactions are made by
being debited to the
cash book instead
the
of being credited. business
Two common causes of the
discrepancy in figures

A check was issued

to SOCOTECO by
the company
Errors amounting to P1000.
The company
recorded this as
P100.
 Importance of Bank
Reconciliation
❖ helps in the identification of errors in
the accounting records of the
company or the bank
❖ provide the necessary control
mechanism to help protect the
valuable resource through
uncovering irregularities
 Importance of Bank
Reconciliation

❖ it provides added comfort that

the bank transactions have
been recorded correctly in the
company records

❖ assists in the regular monitoring

of cash flows of a business.
Methods of preparing bank
reconciliation statement

❖ Adjusted Method

❖ Book to Bank Method

❖ Bank to Book Method

 Methods of preparing bank
reconciliation statement

❖ Adjusted Method

wherein the balances per bank and

per book are separately determined
Common Format of a Bank
Reconciliation Statement
 Methods of preparing bank
reconciliation statement

❖ Book to Bank Method

❖ wherein the book balance is

adjusted to agree with the bank
balance
 Methods of preparing bank
reconciliation statement

❖ Bank to Book Method

❖ wherein the bank balance is

adjusted to agree with book
balance
Common Format of a Bank
Reconciliation Statement
 Common Reconciling Items

● Deposits in transit

are amounts already received

and recorded by the company, but
are not yet recorded by the bank
 Common Reconciling Items

● Deposits in transit
a retail store deposits its cash
receipts of August 31 into the
bank's night depository at 10:00
p.m. on August 31
Common Reconciling Items

● Deposits in transit

increase to the
balance per bank
Common Format of a Bank
Reconciliation Statement
 Common Reconciling Items

● Deposits in transit

A deposit in transit is on the

company's books, but it isn't
on the bank statement.
 Common Reconciling Items

● Outstanding checks
are checks that have been written and
recorded in the company's Cash
account but have not yet cleared the
bank account or presented to the
bank by the payee
 Common Reconciling Items

● Outstanding checks
are checks that have been written and
recorded in the company's Cash
account but have not yet cleared the
bank account or presented to the
bank by the payee
Common Reconciling Items

● Outstanding checks

decrease in the balance

per bank.
Common Format of a Bank
Reconciliation Statement
 Common Reconciling Items

● Outstanding checks
On January 29, 2020, Juan issued a
check to Maria amounting to P2,000.
Maria was able to visit the bank and
have it encashed on February 1, 2020
only
Common Reconciling Items

● Bank errors

are mistakes made by

the bank
 Common Reconciling Items

● Bank errors
The bank usually issue a credit
memo to inform the client of
any additions made to the
account of the client.
 Common Reconciling Items

● Bank errors

A debit memo is issued by the

bank to inform the client that
the account was deducted
 Common Reconciling Items

● Bank errors

Since the company did not

make the error, the company's
records are not changed
 Common Reconciling Items

● Bank service charges

are fees deducted from the
bank statement for the bank's
processing of the checking
account activity
Common Reconciling Items

● Bank service charges

- accepting deposits,
-posting checks,
- mailing the bank statement,
 Common Reconciling Items

● Bank service charges

- fee charged when a
company overdraws its checking
account
- bank fee for processing a stop
payment order on a company's check.
 Common Reconciling Items

● Bank service charges

the service charges will have

to be entered as an adjustment
to the company's books
 Common Reconciling Items

● Bank service charges

The company's Cash account
will need to be decreased by
the amount of the service
charges.
Common Format of a Bank
Reconciliation Statement
 Common Reconciling Items
NSF check
(Not Sufficient Funds)
is a check that was not honored by
the bank of the person or company
writing the check because that
account did not have a sufficient
balance.
Common Reconciling Items
NSF check
(Not Sufficient Funds)

decrease the balance

per books in order to
reconcile
Common Format of a Bank
Reconciliation Statement
 Common Reconciling Items

Check printing charges

occur when a company

arranges for its bank to handle
the reordering of its checks
 Common Reconciling Items

Check printing charges

deduction to the
company's Cash
account
 Common Reconciling Items

Interest earned
will appear on the bank
statement when a bank gives a
company interest on its
account balances
Common Reconciling Items

Interest earned
increase the balance in
the company's Cash
account on its books
Common Format of a Bank
Reconciliation Statement
 Common Reconciling Items

Notes Receivable

are assets of a company

Common Reconciling Items

Notes Receivable
amounts appear on the
company's books in its
Cash account
Common Format of a Bank
Reconciliation Statement
Common Reconciling Items

Errors
amounts appear on the
company's books in its
Cash account
 Common Reconciling Items

Errors
the company entering an incorrect
amount, entering a transaction that
does not belong in the account, or
omitting a transaction that should be
in the account
 Common Reconciling Items

Errors

A check was issued to SOCOTECO

by the company amounting to P1000.
The company recorded this as P100.
Common Format of a Bank
Reconciliation Statement
 identify the cause of difference on the
basis of time gap or errors made by
business firm/bank

Cheque amounting to Rs.

Cheques
Interest
5,000 issued
credited
issued
Cheque to to customers
by
M/s.
deposited the
XYZ
into bank
but
the
butbankBank
not charges
presented fordebited
payment to
but yet
recorded
butnot recorded
not
as Rs.
yet 500 inthe
theby
collected
in
firm’s current account by the
cash
cash book
thebank.
book.
bank.
 Bank Reconciliation Process

Step 1
Find the differences by ticking off all
the matching items in the bank
statement and bank account and
circle the items for which there is no
match
Bank Reconciliation Process-
Step 1
Finding the differences
 Bank Reconciliation Process-
Step 2
Adjusting the Balance per Bank
 Bank Reconciliation Process-
Step 3
Adjusting the Balance per Books
 Bank Reconciliation Process-
Step 4
Comparing the Adjusted Balances

the two adjusted

amounts should
be equal
 Bank Reconciliation Example

In the bank statement, Check No. 12300 in the amount of P13,000 is a check issued by the Quarantino
Trading erroneously recorded by the bank under the account of Covidio Merchandising.
The May 2 deposit in the amount of P5,000 and May 3 deposit in the amount of P14,000 are not deposits
made in May per cash receipts book. They are deposits made last April.
 Bank Reconciliation Example

In the bank statement, Check No. 12300 in the amount of P13,000 is a check issued by the Quarantino
Trading erroneously recorded by the bank under the account of Covidio Merchandising.
The May 2 deposit in the amount of P5,000 and May 3 deposit in the amount of P14,000 are not deposits
made in May per cash receipts book. They are deposits made last April.
Bank Reconciliation Example