ASSIGNMENT:

Prepare a bank reconciliation statement.

Item 1: the bank statement for August 2014 shows an ending balance of P 3,490
Item 2: om august 31 the bank statement shows charges of P35 for the service charge
for maintaining the checking account.
Item 3: om August 28 the bank statement shows return item of P100 plus a related
bank fee P10. the return item is a customer’s check that was returned because of
insufficient funds.
Item 4: the bank statement shows a charge of p80 for check printing on August 20.
Item 5: the bank statement shows that P8 was added to the checking account on
august 31 for interest earned by the company during the month of august.
Step 6: the bank statement shows that a note receivable of
P1,000 was collected by the bank on August 29 and was
deposited into the company’s account. On the same day, the
bank withdraw P40 from the company’s account as a fee for
collecting the note receivable.
Step 7: the company’s cash account at the end of august shows
a balance of P967.
Item 8: during the month of August the company wrote checks
totaling more than P50,000. as of August 31 P3,021 of the
checks written in August had not yet cleared the bank and
P200 of checks written in June had not yet cleared the bank.
Item 9: the P1,450 of cash received by the company
on August 31 was recorded on the company’s books
as of august 31. however, the P1,450 of cash
receipts was deposited at the bank on the morning
of September 1.
Item 10: on august 29 the company’s cash account
shows cash sale of P145. the bank statement shows
the amount deposited was actually P154. the
company reviewed the transactions and found that
P154 was the correct amount.
 BASIC
RECONCILIATION
STATEMENTS
LEARNING OBJECTIVES
Describe the nature of a Bank reconciliation
statement
Identify common reconciling items and
describe each of them
To analyze the effects of the identified
reconciling items.
NATURE OF BANK
RECONCILIATION STATEMENT
It is normal for a company’s bank
balance as per bank statement. The
difference between these figures is the
reasons why companies prepare a
bank conciliation 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.
 TWO COMMON CAUSES OF
THE DISCREPANCY
1. Time lags that prevent one of
the parties (company or 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 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 its
is however recorded in accounting records
of the company.
2. Errors by either party in recording transactions
Example: a check was issued to Meralco by the
company amounting to P1,000. 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. There is in this case
an error that will cause the difference between the
company’s records of the company.
IMPORTANCE OF BANK
RECONCILIATION ARE AS
FOLLOWS:
Preparation of bank reconciliation
helps in the identification of errors in
the accounting records of the company
or the bank.
Cash is the most vulnerable asset of an 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.
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 that the
bank transactions have been recorded correctly
in the company records.
 Monthly preparation of bank reconciliation
assists in the regular monitoring of cash flow of
a business.
THREE METHODS OF
PREPARING BANK
RECONCILIATION STATEMENT
NAMELY:
A. adjusted method wherein the balances per bank
and peer book are separately determined.
B. book to bank method wherein the book balance
is adjusted to agree with the bank balance.
C. bank to book method wherein the bank balance
is adjusted to agree with book balance.
FORMAT OF A BANK RECONCILIATION STATEMENT
JUAN COMPANY
BANK RECONCILIATION STATEMENT
APRIL 30, 20xx

Unadjusted Book Balance xxxx Unadjusted Bank balance xxxx

Deposit in Transit xxxx
Bank Debit Memo Outstanding Checks xxxx
NSF Check xxxx
Printing Charge xxxx
Bank Credit Memo
Collection xxxx
Errors
Adjusted Book Balance xxxx Adjusted Bank Balance xxxx
KEY TERMS:
Deposit in transit are amounts already received and
recorded by the company, but are not yet recorded by
the bank.
For example: a retail store deposit its cash receipts of
August 31 into the bank’s night depository at 10:00 pm
on August 31. The bank will process this deposit on the
morning of September 1. As of August 31 (the bank
statement date) this is a deposit in transit.
Because deposits in transit are already included in
the company’s Cash account, there is no need to
adjust the company’s records. However, deposits in
transit are not yet on the bank statement. Therefore,
they need to be listed on the bank reconciliation as
an increase to the balance per bank in order to
report the true amount of cash.
A deposit in transit is on the company’s books,, but
it isn’t on the bank statement.
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.
Because all checks that have been written are
immediately recorded in the company’s Cash
account, there is no need to adjust the
company’s records for the outstanding checks.
However, the outstanding checks have not yet
reached the bank and the bank statement.
Therefore, outstanding checks are listed on the
bank reconciliation as a decrease in the
balance per bank.
Illustration of an Outstanding Check: On January
29, 2015, Juan issued a check to Maria amounting
to P2,000. The checks was then recorded by Juan in
his books as a deduction to his cash. It so happen
that the bank was closed on that day and Maria was
able to visit the bank and have it encashed on
February 1, 2015 only. In the bank statement
received by Juan from his bank ending January 30,
2015. The P2,000 check is called an outstanding
check.
Bank Errors are mistakes made by the
bank. Bank errors could include the bank
recording an incorrect amount, entering an
amount that does not belong on a
company’s bank statement, or omitting an
amount from a company’s bank statement.
Company should notify the bank of its
errors. Depending on the error, the
correction could increase or decrease the
balance shown on the bank statement.
Since the company did not make error, the
company’s records are not changed.
Bank Service Charges are fees deducted
from the bank statement for the bank’s
processing of the checking account activity
Examples:
- accepting deposits,
- posting checks,
- mailing the bank statement
Other types of bank service charges
include the fee charged when a
company overdraws its checking
account and the bank fee for
processing a stop payment order on a
company’s check.
The bank might deduct these charges
or fees on the bank statement without
notifying the company. When the
occurs, the company usually learns of
the amounts only after receiving its
bank statement.
Because the bank service charges have
already been deducted on the bank statement,
there is no adjustment to the balance per bank.
However, the service charges will have to be
entered as an adjustment to the company’s
books. The company’s Cash account will need
to be decreased by the amount of the service
charges.
NSF Check 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. As a result, the check is
returned without being honored or
paid.
NSF is the acronym for not sufficient
funds. When the NSF check comes back
to the bank in which it was deposited, the
bank will decrease the checking account
that had deposited the check. The amount
charged will be amount of the check plus
a bank fee.
Because the NSF check and the related bank
fee have already been deducted on the bank
statement, there is no need to adjust the
balance per the bank. However, if the
company has not yet decreased its cash
account balance for the returned check and the
bank fee, the company must decrease the
balance per books in order to reconcile.
Check printing charges occur when a
company arranges for its bank to handle
the reordering of its checks. The cost of
the printed checks will automatically be
deducted from the company’s checking
account.
Because the check printing charges have
already been deducted on the bank
statement, there is no adjustment to the
balance per bank. However, the check
printing charges need to be an adjustment
on the company’s books. They will be a
deduction to the company’s Cash account.
Interest earned will appear on the bank statement
when a bank gives a company interest on its
account balances. The amount is added to the
checking account balance and is automatically on
the bank statement. Hence there is no need to
adjust the balance per the bank statement.
However, the amount of interest earned will
increase the balance in the company’s Cash
account on its books.
Notes Receivable are assets of a company. When
notes come due, the company might ask its bank to
collect the notes receivable. For this service the bank
will charge a fee. The bank will increase the
company’s checking account for the amount it
collected (principal and interest) and will decrease
the account by the collection fee it charges. Since
these amounts are already on the bank statement, the
company must be certain that the amounts appear on
the company’s books in its Cash Account.
Errors in the company’s Cash account
result from 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. Since the company made these
errors, the correction of the error will be
either an increase or a decrease to the
balance in the cash account on the
company’s books.
THE BANK RECONCILIATION
PROCESS:
Step 1: adjusting the balance per bank
The first step is to adjust the balance on
the bank statement to the true, adjusted, or
collected 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:
Step2: balance per Books on Aug. 31, 2014 adjustments
deduct: bank service charges
deduct: NSF checks 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 (step1) and
after adjusting the balance per books (step2), 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. The adjusted cash balance
will appear as the cash in bank in the statement of
financial position (balance sheet).
PRACTICE SET 1
Instruction: Identify checks outstanding as of end of May 2016
For the month of May 2016, tope Company issued the following
checks as recorded in its Cash Disbursement Journal:

Check date Check No. Payee Amount

5/2/2016 1256 Jane 2,000
5/10/2016 1257 May 300
5/15/2016 1528 Nicole 4,500
5/18/2016 1259 Kathy 8,700
5/30/2016 1260 Perry 1,200
 As per the bank statement received by tope, the following
checks were presented and paid by the bank:
Check No. Payee Amount

1256 Jane 2,000

1259 Kathy 8,700

1260 Perry 1,200

Check 1257 issued to May for P300 and check

1528 issued to Nicole for P 4,500