Module 2_Topic 2

BANK RECONCILIATION

Ms. Daizy Marie P. Nicart, CPA

 Three Kinds of Bank Deposits
 Demand Deposits
 A current account or checking account or commercial deposit where deposits
are covered by deposit slips and where funds are withdrawable on demand
by drawing checks against the bank
 Noninterest bearing

 Saving deposit
 The depositor is given a passbook upon the initial deposit. The passbook is
required when making deposits and withdrawals.
 Interest bearing

 Time Deposit
 Is evidenced by a formal agreement embodied in an instrument called
certificate of deposit
 Interest bearing
 Bank Reconciliation

 Bank Reconciliation – a statement which brings into agreement the

cash balance per book and the cash balance per bank.

 Bank Statement - a monthly report of the bank to the depositor showing

the cash balance per bank at the beginning, the deposits acknowledged,
the checks paid, other charges and credits and the daily cash balance
per bank during the month.
 Reconciliation of Bank Balances

Reconciliation of Bank Balances

Schedule explaining any differences between the
bank’s and the company’s records of cash.
Reconciling Items:
1. Deposits in transit.
2. Outstanding checks.
3. Bank credit and debit memos. Time Lags

4. Bank or Depositor errors.

 Reconciling Items

Example:
An entity opens a checking account on December 27,
2016. The entity and the bank makes the following
entries:

Entity (Depositor) Bank

Cash In Bank 1,000 Cash on Hand 1,000
Cash on Hand 1,000 Deposit liability - depositor 1,000
 Reconciling Items

2. Deposit in Transit
The entity collects P200 from customers and places
the amount collected in an overnight depository on
December 31, 2016. The entries are as follows:
Entity (Depositor) Bank
Cash In Bank 200 No entry yet. Deposit will be received in January 2,
Accounts Receivable 200 2017

Diff : 200 (DIT)

 Reconciling Items

3. Credit Memo
The bank collects a P500 receivable on behalf of the
entity in January 5, 2017. The entry is as follows:
Entity (Depositor) Bank
No entry yet in January. The entity not aware Cash on Hand 500
yet of the collection. It will record the
Deposit liability - depositor 500
collection when it receives the January bank
statement on the first week of February

Diff : 500 (CM)

 Reconciling Items

4. Book error
The entity makes payment of P1,000 but erroneously
records it as P100 in February 14, 2017. The check
cleared in the bank at the correct amount of P1,000.
The entries are as follows:
Entity (Depositor) Bank
Accounts Payable 100 Deposit liability - depositor 1,000
Cash in Bank 100 Cash on Hand 1,000

Diff : 900 (error)

 Reconciling Items

5. Outstanding Checks
In March 4, 2017, the entity writes checks totaling
P400. Only P100 of those checks were encashed with
the bank during March. The entries are as follows:

Entity (Depositor) Bank

Accounts Payable 400 Deposit liability - depositor 100
Cash in Bank 400 Cash on Hand 100

Diff : 300 (error)

 Reconciliation of Bank Balances

Book Reconciling Bank Reconciling

Items Items

1. Credit Memos 1. Deposits in Transit

2. Debit Memos 2. Outstanding checks

3. Errors 3. Errors
Bank Reconciliation

Reconciliation Procedures

+ Deposit in Transit + Notes collected by bank

- Outstanding Checks - NSF (bounced) checks
+/- Bank Errors - Check printing or other
service charges
+/- Book Errors

CORRECT BALANCE CORRECT BALANCE

 Forms of Bank Reconciliation

A. ADJUSTED BALANCE METHOD

The book balance and bank balance are brought to a
correct cash balance that must appear on the BS
Book Balance XX
Add : Credit Memos XX
Total XX
Less : Debit Memos XX
Adjusted Book Balance XX

Bank Balance XX
Add : Deposits in Transit XX
Total XX
Less : Outstanding checks XX
Adjusted Bank Balance XX
 Forms of Bank Reconciliation

B. BOOK TO BANK METHOD

The book balance is reconciled with the bank balance
or book balance is adjusted to equal the bank balance

Book Balance XX
Add : Credit Memos XX
Outstanding checks XX XX
Total XX
Less: Debit Memos XX
Deposits in Transit XX XX
Bank Balance XX
 Forms of Bank Reconciliation

C. BANK TO BOOK METHOD

The bank balance is reconciled with the book balance
or the bank balance is adjusted to equal the book
balance

Bank Balance XX
Add : Deposits in Transit XX
Debit Memos XX XX
Total XX
Less: Outstanding checks XX
Credit Memos XX XX
Book Balance XX
 General Procedures in preparing the
reconciliation

1. Determine the balance per book and the balance

per bank.
2. Trace the cash receipts to the bank statement to
ascertain whether there are deposits not yet
acknowledged by the bank.
3. Trace the checks issued to the bank statement to
ascertain whether there are checks not yet
presented for payment.
4. The bank statement should be examined to
determine whether there are bank credits or bank
debits not yet recorded by the depositor.
5. Watch out for errors.
 Typical Errors and Their Correction
 Understatement of cash receipts on the book of depositor
Cash In Bank xx
Accounts Receivable xx

 Understatement of check drawn by depositor

Accounts Payable xx
Cash In Bank xx

 Deposit of another entity is credited by the bank to the

account of the depositor
No adjustment
 Check of another entity charged to the account of the
depositor
No adjustment
BANK RECONCILIATION

PROBLEM EXERCISES
PROBLEM NO. 1
 PROBLEM NO. 1

Your Company
Bank Reconciliation
Book Bank
Unadjusted Balances P 85,000 P 130,350
Bank Service Charge (2,000)
Deposits in transit 49,000
Outstanding checks (17,650)
Collection of note 136,000
Erroneous bank debit 54,600
Transposition error (16,358 - 13,658) (2,700)
Adjusted Balances 216,300 216,300
PROBLEM NO. 2
 PROBLEM NO. 2

Per Book Per Bank

Balance, October 31 17,056.48 21,209.45
Item A (1,143.00) -
Item B (3,050.83) -
Item C 100.00 -
Item D (18.00) -
296.10 -
Item E (39.43) -
Item F 2,550.00 -
Item G - 6,850.00
Outstanding checks - (12,308.13)
Adjusted cash balance 15,751.32 15,751.32
 PROBLEM NO. 2
Lovely Inc.
Bank Reconciliation
Balance per books, October 31 17,056.48
Add : Error in recording custom er's check
check for P725 recorded as 625 100.00 ©
Error in check record - check No. 652 for
32.90 entered as 329.00 296.10 (d)
Collection of M. Sin's note by bank not yet
recorded, P2,562.50 less collection charge
P12.50 2,550.00 (f) 2,946.10
20,002.58

Deduct: Custom er's check found to be uncollectible 1,143.00 (a)

Dishonored note, interes t, and protest fee 3,050.83 (b)
Error in check record - check No. 661 for
P1,242.50 entered as P1,224.50 18.00 (d)
Bank service charges 39.43 e 4,251.26
Corrected book balance 15,751.32
PROBLEM NO. 3
 PROBLEM NO. 3
MANILA'S SERVICE, INC.
Balance per bank s tatem ent, Decem ber 31, 2014 P 547,800
Add : Depos its in trans it P 134,250
Bank error - depos it not recorded 6,000 140,250
Total 688,050
Les s : Outs tanding checks 98,850
Adjus ted bank balance, Decem ber 31, 2014 589,200

Balance per books , Decem ber 31, 2014 687,570

Add : Book error - Check No. 748 15,000
Cus tom er note collected by bank 46,290 61,290
Total 748,860
Les s : Dis honored note 142,650
Book error-im properly recorded depos it 1,950
NSF check 12,960
Bank s ervice charges 2,100 159,660
Adjus ted book balance, Decem ber 31, 2014 589,200

Unadjus ted balance per books , Decem ber 31, 2014 P 687,570
Adjus ted book balance, Decem ber 31, 2014 589,200
Net adjus tm ent to cas h - credit 98,370