Fundamentals of Accountancy,

Business and Management 2

Quarter 2: Module 1
ABM . Fundamentals of Accountancy, Business and Management 2
Grade 12: Module 1
First Edition, 2020

Copyright © 2020
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any

form without written permission from the copyright owners.

Development Team of the Module

Author: Iren F. Abenes, T-II

Editor: SDO La Union, Learning Resource Quality Assurance Team

Illustrator: Ernesto F. Ramos Jr., P II

Management Team:

Atty. Donato D. Balderas, Jr.

Schools Division Superintendent
Vivian Luz S. Pagatpatan, Ph.D
Assistant Schools Division Superintendent

German E. Flora, Ph.D., CID Chief

Virgilio C. Boado, Ph.D, EPS in Charge of LRMS

Lorna O. Gaspar, EPS in Charge of ABM

Michael Jason D. Morales, PDO II
Claire P. Toluyen, Librarian II

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Fundamentals of Accountancy,
Business and Management 2
Quarter 2 Module 1

ii
 Target

In your previous lesson, you have learned what is a bank statement. As a part
of control, the bank statement received from the bank is compared with the
accounting records of the business. This process is called bank reconciliation. A bank
reconciliation statement is a document that matches the cash balance on a
company’s balance sheet to the corresponding amount on its bank statement.
Reconciling the two accounts helps determine if accounting changes are needed.
Bank reconciliations are completed at regular intervals to ensure that the company’s
cash records are correct. They also help detect fraudand any cash manipulations.

This module will provide you information and activities that will help you
understand what is a bank reconciliation.
After going through this module, you can attain the following objectives:

Learning Competency:

. Describe the nature of a bank reconciliation statement, (ABM_FABM12- IId-

10)

Subtasks:

1. Define bank reconciliation.

2. Explain the nature of bank reconciliation.

Before going on, check how much you know about the topic.
Answer the pretest on the next page in a separate sheet of paper.

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 Jumpstart

For you to understand the lesson well, do the following

activities. Have fun and good luck!

Activity I: IDENTIFICATION
Direction: Read and analyze carefully each item. Choose your answer from the
choices below. Use a separate sheet for your answers. Write only the letter of the best
answer for each test item.
A. Adjusted Method G. Outstanding Checks
B. Time Lags H. Commissions charged by the bank
C. Monthly I. Yearly
D. Deposit in Transit J. NSF
E. Bank Reconciliation K. Collections in favor of the depositor
F. Book to Bank Method L. Bank collections in favor of the
depositor
1. It is the collections made by the bank acting as an agent for the depositor.
2. This refers to the collections made by the bank acting as an agent for the
depositor?
3. What is the period of preparation of bank reconciliation assists in the regular
monitoring of cash flows of a business?
4. It is the amount of the checks issued by the depositor but not yet presented
for payment to the bank by the holders thereof?
5. It is a report which compares the bank balance as per company’s
accounting records with the balance stated in the bank statement.
6. What method of preparing bank reconciliation statement wherein the
balance per bank and per book are separately determined?
7. What common cause of discrepancy prevents one of the parties (company or
the bank) from recording the transaction in the same period as the other
party?
8. It is the amount deposited by the depositor at the end of the month which
was received by the bank too late to appear in the bank statement for the
same month?
9. This refers to the amount deducted by the bank from the depositor’s balance
representing the compensation charged by the bank from its services to the
depositor.
10. This refers to the amount of the checks accepted by the depositor from
customers in the course of business deposited at the bank, but returned by
the bank to the depositor due to the insufficiency of funds.

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Activity 2: ESSAY
Direction: Answer the questions briefly and accurately. Answer in a separate sheet
of paper.

1. What is a bank statemenT What are the contents and purpose of bank
statement? (10 pts)
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________

2. Upon receipt of the bank statement, what will the company do? (5pts)

_________________________________________________________________________________________________________
______________________________________________ .

Discover
BANK RECONCILIATION

Control features in every company is the monthly bank reconciliation. This done
to show that there is no discrepancy between the cash balance to book records and
the cash balance per bank. Due to timing differences and errors, the need for such
procedures arise.

. Deposit in Transit. Amount deposited by the depositor at the end of the

month which was received by the bank too late to appear in the bank
statement for the same month. It has been recorded by the depositor but
not recorded by the banks.
. Outstanding Checks. Amount of the checks issued by the depositor but
not yet presented for payment to the bank by the holders thereof. These
checks have been recorded by the depositor but not yet recorded by the bank.
. NSF Checks. Amount of the checks accepted by the depositor from
customers in the course of business deposited at the bank, but returned by
the bank to the depositor due to the insufficiency or lack of funds at the
drawee banks in the name of the drawers. These items have been debited by
the depositor while the book has credited the items at the same of deposit.
The amount of the Checks should be debited back to the customers.
. Bank collections in favor of the depositor. Collections made by the bank
acting as an agent for the depositor. The bank records the amount to the
credit of the depositor. This collection may not have been recorded by the
depositor. These are relayed to the depositor thru credit memos.

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 . Reduction of loan. Amount deducted from the depositor’s account in the
bank books as payment of loan due from the depositor. This charge may not
have been recorded by the depositor when he receives the bank statement
showing such deduction. The depositor is informed by means of notice or
debit memo.
. Interest credit by the bank. Amounts credited to the account of the
depositor by the bank for the interest due to on the deposit of the depositor.
These are relayed to the depositor by means of credit memo.
. Commissions charged by the bank. Amounts deducted by the bank from
the depositor’s balance representing the compensation charged by the bank
from its services to the depositor.

Nature of Bank Reconciliation

It is normal for a company’s bank balance as per accounting records to differ
from the balance as per bank statement. The difference between these figures is the
reasons why companies prepare a bank reconciliation statement. Bank reconciliation
statement is a report which compares the bank balance as per company’s accounting
records with the balance stated in the bank statement.

> The two common causes of the discrepancy in figures are:

1. Time lags that prevent one of the parties (company or the bank) from recording
the transaction in the same period as the other party.

Example: A bank statement that ends January 30,2015 and then the company were
able to collect cash of Php 20,000 at 5:00 PM. Bank usually closes at 3:00 PM
because of this, the cash collected will not be reflected in the bank as deposit but it
is however recorded in accounting record of the company.

2. Errors by other party in recording transactions

Example: A check was issued to Meralco by the company amounting to Php1,000

. The company recorded this as Php 100. When the check was presented, the
bank paid Meralco Php 1,000. In the records of the company, it was Php 100 while
in the records of the bank it’s Php 1,000. There is in this case an error that will
cause the difference between the company’s record and the bank records.

> Importance of Bank Reconciliation are as follows:

1. Preparation of bank reconciliation helps in the identification of errors in the

accounting records of the company or the bank.
2. Cash is the most vulnerable asset of the entity. Bank reconciliations provide
the necessary control mechanism to help protect the valuable resource
through uncovering irregularities such as unauthorized bank withdrawals.
However, in order for the control process to work effectively, it is necessary to
segregate the duties of persons responsible for accounting and authorizing of
bank transactions and those responsible for preparing and monitoring bank
reconciliation statements.

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 3. If the bank balance appearing in the accounting records can be confirmed to
be correct by comparing it with the bank statement balance, it provides added
comfort that the bank transactions have been recorded correctly in the
company records.
4. Monthly preparation of bank reconciliation assists in the regular monitoring
of cash flows of a business.

> The three methods of preparing bank reconciliation statement:

1. Adjusted Method wherein the balance per bank and per book are separately
determined.
2. Book to Bank Method where the book balance is adjusted to agree with the
bank balance.
3. Banks to Book Method where the bank balance is adjusted to agree with the
book balance.
The method you will be using in bank reconciliation statement is the adjusted
method as shown in Figure 1. This format facilitates the determination of the correct
cash balance. After considering all reconciling items, the adjusted bank balance will
equal the book balance.

I. Bank II. Books

Unadjusted balance Phpxxx Add: reconciling items Phpxxx
Add: reconciling items xxx Less: Reconciling items xxx
Less: Reconciling items xxx Adjusted balance xxx
Adjusted balance xxx Adjusted balance xxx

Figure 1: Bank Reconciliation format

Explore

Here are some enrichment activities for you to work on to master

and strengthen the basic concepts you have to learned from this
lesson.

Enrichment Activity 1:

Assessment 1
Direction: Understand the purpose of a bank reconciliation in the scenario below.
Read and understand the activity. Write your answer in a separate sheet of paper.

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 1. On January 1,2019, the company collected Php10,000 from its accounts
receivable. The collection was deposited to open savings account in ABC Bank.
What is the journal entry made to account for this transaction?

2. Let us assume that we left this deposit in the bank. There was no other
transaction on this cash account. On December 31,2019 the cash in bank -
ABC Bank will have a ledger balance of Php10,000. This is from the posted
entry on January 1,2020 . At the end of the year, we received the bank
statement from ABC Bank.

Per bank statement, the balance of the account is Php10,050. This gives a
problem. The accounting record shows a balance of Php10,000 .

Questions:
a. Do we conclude the bank made an error because we are sure there were no
movements in this cash account?

b. Perform a bank reconciliation by using the figure below. In this scenario, there
are no other transactions recorded on the ledger ledger account exept the
original entry. On the other hand, we noted that the bank statement shows
interest of Php50 earned by the savings account.

I. Bank
II. Books
Unadjusted balance Php
Unadjusted balance Php
Add:
Reconciling items _______________
Adjusted balance Php
Adjusted balance Php
Figure 2: Bank Reconciliation Cash in Bank - ABC

c. From the bank reconciliation, prepare a journal entry to adjust for interest
income.

d. Why there is no adjusting journal are prepared for the bank side?

_________________________________________________________________________________________________________

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 Deepen

At this point, apply the new knowledge or skills you’ve learned about bank
reconciliation.

A. TRUE OR FALSE
Direction: Read and understand the following statements carefully. Write TRUE if
the statetement is correct and FALSE if the satatement is incorrect. Use separate
sheet of paper for your answer.

1. Preparation of bank reconciliation helps in identification

of errors in the accounting records of the company or the bank.
2. Errors by other party in recording transactions prevent
one of the parties (company or the bank) from recording the transaction in the same
period as the other party.
3. It is normal for a company’s bank balance as per
accounting records to differ from the balance as per bank statement.
4. Book to Bank Method wherein the balance per bank and
per book are separately determined.
5. Adjusted Method where the bank balance is adjusted to
agree with the book balance.
6. Interest credit by the bank is the amount deducted from
the depositor’s account in the bank books as payment of loan due from the depositor.
7. NSF Checks should not be debited back to the
customers.
8. Outstanding Checks have been recorded by the bank but
not yet recorded by the depositor.
9. Another reason why the balance per book will not tally
with the balance per bank is when errors are committed by either party.

10. It is normal for a company’s bank balance as per

accounting records to differ from the balance of as per bank statement.

B: Essay
Answer the following questions briefly but accurately. (Use a separate paper for your
answers) .

1. What is a bank reconciliation statement? (5pts)

2. How important a bank reconciliation to the company and bank? (5pts)

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 3. What are the two common causes of the discrepancy in figures? Explain your
answer by giving example. (5 pts)
_____________________________________________________________________________________________________
_____________________________________________________________________________________________________
_____________________________________________________________________________________________________
_____________________________________________________________________________________________________

4. What is the purpose of bank reconciliation?( 5pts)

Gauge

I. Directions: Read carefully each item. Use a separate sheet for your answers. Write
only the letter of the best answer for each test item.

1. It is a report which compares the bank balance as per company’s

accounting records with the balance stated in the bank statement.
A. Bank reconciliation statement C. Deposit Slip
B. Bank statement D. Withdrawal slip
2. What is the most vulnerable asset of the entity?
A. Building B. Cash C. Equipment D. Supplies
3. Every what period is the preparation of bank reconciliation to assists in
the regular monitoring of cash flows of a business?
A. Annually B. Monthly C. Quarterly D.Semi-annually
4. What method of preparing bank reconciliation statement wherein the
balance per bank and per book are separately determined?
A. Adjusted Method C. Book to Bank Method
B. Banks to Book D. Both B & C
5. What word makes the statement incorrect – “Time lags that prevent
both of the parties from recording the transaction in the same period as the other
party?”
A. Both C. Recording
B. Prevent D. Same period

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 6. Collections made by the bank acting as an agent for the depositor.
A. Bank collections in favor of the depositor
B. Commissions charged by the bank
C. Deposit in Transit
D. Interest credit by the bank

7. These are amounts already received and recorded by the company but
are not yet recorded by the bank.
A. Company Checks
B. Deposit in Transit
C. NSF Checks
D. Outstanding Checks
8. These are checks that that have been written in the company’s Cash
account but have not yet cleared in the bank account or presented to the bank by
the people.
A. Company Checks
B. Deposit in Transit
C. NSF Checks
D. Outstanding Checks
9. A check that was not honored by the bank of the person or company
writing the check because the account did not have sufficient balance.
A. Deposit in Transit
B. Manager’s Check
C. NSF Checks
D. Outstanding Checks
10. What makes the sentence incorrect – “Preparation of bank state ment
helps in the identification of errors in the accounting records of the company or the
bank?”
A. Accounting
B. Bank Statement
C. Identification
D. Records

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KEY ANSWER
Jumpstart

Activity 1: Identification

1. K 2. L 3. C 4. G 5. E 6. A 7. B 8. D 9. H 10. J

Activity 2: Essay
1. A bank statement is a statement issued (usually monthly) by a bank describing the ac

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 14

A bank statement contains the following contents;

a. Depositor’s deposit for a particular period.
b. Depositor’s Withdrawals or payments of cheques from his/her account by
the bank for a particular period.
c. Deductions from depositor’s bank account during a particular period such
as service charge, NSF (Not sufficient fund,) safe deposit box rent, printing
cost of cheques, etc.
d. Cheque deposit direct into depositor’s bank account, a deposit of a
collection of notes receivable including interest and deposit of average
interest on the deposits.

One of the primary purposes of your bank statement is to provide a means of

reconciling your check register. This process involves comparing your records
to the bank's records to make sure they match.

2. Possible answers:
a. Review the Bank Statement
b. Check and compare with the records
c. File the Bank StatementExplore
Enrichment Activity 1
Assessment 1
1. Cah in Bank Php 10,000
Accounts Receivable Php10,000

2. a.) No, we do not make such conclusion without careful analysis of facts.
b.)
I. Bank II. Books
Unadjusted balance Php10,500 Unadjusted balance Php 10,000
Add:
Reconciling items 50
Adjusted balance Php10,500 Adjusted balance Php 10,500

Figure 2: Bank Reconciliation Cash in Bank – ABC

c.) Cash Php 50

Interest Income Php50

d.) The reason is, we are only responsiple for maintaining the books of the company not
the records of the bank. We are limited to notifying the bank of their errors that were
discovered during the reconciliation process.
 15

Deepen
A. TRUE or FALSE
1. TRUE 3. TRUE 5. FALSE 7. FALSE 9. TRUE
2.FALSE 4.FALSE 6. FALSE 8. FALSE 10. TRUE

B. ESSAY

1. A bank reconciliation statement is a document that matches the cash

balance on a company’s balance sheet to the corresponding amount on its bank
statement. Reconciling the two accounts helps determine if accounting changes
are needed. Bank reconciliations are completed at regular intervals to ensure that
the company’s cash records are correct. They also help detect fraud and any cash
manipulations.

2.
a. Preparation of bank reconciliation helps in the identification of errors in
the accounting records of the company or the bank.
b. Cash is the most vulnerable asset of the entity. Bank reconciliations
provide the necessary control mechanism to help protect the valuable
resource through uncovering irregularities such as unauthorized bank
withdrawals. However, in order for the control process to work effectively,
it is necessary to segregate the duties of persons responsible for accounting
and authorizing of bank transactions and those responsible for preparing
and monitoring bank reconciliation statements.
c. If the bank balance appearing in the accounting records can be
confirmed to be correct by comparing it with the bank statement balance,
it provides added comfort that the bank transactions have been recorded
correctly in the company records.
d. Monthly preparation of bank reconciliation assists in the regular
monitoring of cash flows of a business.

3. The two common causes of the discrepancy in figures are:

a. Time lags that prevent one of the parties (company or the bank) from
recordingthe transaction in the same period as the other party.
b. Errors by other party in recording transactions

4. The bank reconciliation is an internal document that verifies the

accuracy of records maintained by the depositor and the financial
institution. The balance on the bank statement is adjusted for outstanding
checks and uncleared deposits. The record balance is adjusted for service
charges and interest earned.

GAUGE

1. A 2. B 3. B 4. A 5. A 6. A 7. B 8. D 9. C 10. B
References:
A. BOOKS:

1. Chairperson: Patricia B. Licuanan, Ph.D, 2016 Fundamentals of

A c c o u n t a n c y , B u s i n e s s a n d M a n a g e m e n t 2, T e a c he r’s Gui de , 4 t h Floor,
Commission on Higher Education, C.P. Garcia Ave., Diliman, Quezon
D City, Commission on Higher Education
O
# 2. Dani Rose C. Salazar, Fundamentals of Accountancy, Business and
3 Management 2, 2017, 856 Nicanor Reyes Sr. St, Sampaloc, Manila, Rex
Book Store, Inc.
0
, B. LINKS
s 1. https://www.iedunote.com/bank-statement
. 2. https://opentextbc.ca/principlesofaccountingv1openstax/chapter/defi
2 ne-the-purpose-of-a-bank-reconciliation-and-prepare-a-bank-
0 reconciliation-and-its-associated-journal -entries/

1 3. https://www.google.com/search?sxsrf=ALeKk00zV8oCxi6BHNk _OJ_lZ
9 3 NCUaqwrQ% 3 A 1 6 0 1 7 7 6 8 4 8 6 6 8 & ei= 0 Cx5 X 7 qzKKXomAXCwLzQAg& q
=bank+statement+purpose&oq=bank+statement+purpose&gs_lcp=CgZ
wc3ktYWIQARgAMgIIADICCAAyBggAEBYQHjIGCAAQFhAeMgYIABAWE
B4yBggAEBYQHjIGCAAQFhAeMgYIABAWE B4yBggAEBYQHjIGCAAQF
hAeOgQIABBHOgUIABCLA zoHCAAQQxCLAzoHCAAQFBCHAjoICC4Qx
wEQrwE6CAgAEBYQChAeUN 80WK5eYOB6aABwAngAgAGTAYgBnQeS
AQMwLjeYAQCgAQGq

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