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Chapter 9 Basic Reconcillation Statement

This document describes the process of preparing a bank reconciliation statement. It defines reconciling items like deposits in transit and outstanding checks that cause discrepancies between the bank and accounting balances. The document outlines the three methods for preparing a reconciliation and provides steps for adjusting both the bank and book balances to agree. The goal is to identify errors and ensure the correct cash amount is recorded.

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Ron louise Pereyra
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443 views11 pages

Chapter 9 Basic Reconcillation Statement

This document describes the process of preparing a bank reconciliation statement. It defines reconciling items like deposits in transit and outstanding checks that cause discrepancies between the bank and accounting balances. The document outlines the three methods for preparing a reconciliation and provides steps for adjusting both the bank and book balances to agree. The goal is to identify errors and ensure the correct cash amount is recorded.

Uploaded by

Ron louise Pereyra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Chapter 9

Basic Reconciliation Statement


Objectives

 Describe the nature of a bank reconciliation statement


 Identify common reconciling items and describe each
of them.
 Analyze the effects of the identified reconciling items.
 Prepare a a bank reconciliation statement
Laila J. Jawod
 
Nature of 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

 Time lags
Example: A bank statement that ends January 30, 2015 and then the
company were able to collect cash of P20,000 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 records of the company.
The two common causes of the discrepancy in figures

 Errors

Example: A check was issued to Meralco by the company


amounting to P1000. The company recorded this as P100.
When the check was presented, the bank paid Meralco P1,000.
In the records of the company it was P100 while in the records
of the bank it’s P1,000.
The importance of Bank Reconciliations are as follows:

 Helps in the identification of errors in the accounting records of the company or the
bank.
 Bank reconciliations provide the necessary control mechanism to help protect the
valuable resource through uncovering irregularities such as unauthorized bank
withdrawals.
 It provides added comfort that the bank transactions have been recorded correctly in
the company records.
 Monthly preparation of bank reconciliation assists in the regular monitoring of cash
flows of a business.
Three methods of preparing bank reconciliation
statement

 Adjusted Method wherein the balances per bank and per book
are separately determined.
 Book to Bank Method wherein the book balance is adjusted to
agree with the bank balance.
 Bank to Book Method wherein the bank balance is adjusted to
agree with book balance.
Common reconciling items

The key terms to be aware of when dealing with a bank reconciliation are:
 Deposits in transit are amounts already received and recorded by the company but are
not yet recorded by the bank.
 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. Checks written during the last few days of the month plus a few older checks
are likely to be among the outstanding checks.
 Bank service charges are fees deducted from the bank statement for the bank's
processing of the checking account activity
Steps in Preparing a bank reconciliation statement

 Step 1. Adjusting the Balance per Bank The first step is to adjust the balance on the bank
statement to the true, adjusted, or corrected balance. The items necessary for this step are
listed in the following schedule

Step 1 Balance per Bank Statement on Aug. 31, 2014


Adjustments:
Add: Deposits in Transit
Deduct: Outstanding checks
Add or Deduct: Bank errors
Adjusted/ corrected Balance per Bank
 Step 2. Adjusting the Balance per Books The second step of the bank reconciliation is to
adjust the balance in the company's Cash account so that it is the true, adjusted, or corrected
balance. Examples of the items involved are shown in the following schedule:

Step 2 Balance per Books on Aug. 31, 2014


Adjustments:
Deduct: Bank service charges
Deduct: NSF checks and fees
Deduct: Check printing charges
Add: Interest earned
Add: Notes Receivable collected by bank
Add or Deduct: Errors in company’s Cash account
Adjusted/ Corrected Balance per Books
 Step 3. Comparing the Adjusted Balances After adjusting the balance
per bank (Step 1) and after adjusting the balance per books (Step 2),
the two adjusted amounts should be equal. If they are not equal, you
must repeat the process until the balances are identical. The balances
should be the true, correct amount of cash as of the date of the bank
reconciliation.

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