11 SENIOR HIGH SCHOOL

FABM 2
Quarter 4 - Module 2
Analyzing the Effects of
Reconciling Items
FABM 2 – Grade 11
Alternative Delivery Mode
Quarter 4 – Module 2: Analyzing the Effects of Reconciling Items
First Edition, 2020

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Published by the Department of Education

Secretary: Leonor Magtolis Briones
Undersecretary: Diosdado M. San Antonio

Development Team of the Module

Writer: Glenda B. Bernus

Editor: Chona V. Bontigao
Reviewer: Maria Acenith D. Pastor
Layout Artist: Helner D. Taghap
Management Team: Senen Priscillo P. Paulin, CESO V Elisa L. Baguio, EdD
Joeliza S. Miguel-Arcilla, EdD, CESE Rosela R. Abiera
Marcelo K. Palispis, JD, EdD Maricel S. Rasid
Nilita L. Ragay, EdD Elmar L. Cabrera

Printed in the Philippines by ________________________

Department of Education –Region VII Schools Division of Negros Oriental

Office Address: Kagawasan, Ave., Daro, Dumaguete City, Negros Oriental

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 11

FABM 2
Quarter 4 - Module 2
Analyzing the effects of
Reconciling Items
 I

This module for Fundamentals of Accountancy, Business and

Management 2 explores all concepts necessary in the Senior High
School Accountancy, Business and Management Strand.

This gives students a strong foundation which will be used

throughout their Accounting studies. It is aligned with the BEC of the
Department of Education following the prescribed MELCs (Most
Essential Learning Competencies).

It has features proven to be valuable aids to learning Accounting

even at home.

This module includes Analysis on the effects of Reconciling

Items to the cash per book and cash per bank of the company or
entity.

LEARNING COMPETENCY:

• Analyze the Effects of the Identified Reconciling Items

(ABM_FABM11-IV-2)

OBJECTIVES:

K: Analyze the effects of the identified reconciling items; in a

given problem
S: Calculate the adjusted book and bank balances with the
reconciling items;
A: Gain valuable insights on how to effectively analyze the
effects of the reconciling items in the company’s book and
bank balances.

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 I

PRETEST: Multiple Choice

Direction: Read each item carefully and select the best answer. Write your answer in a
separate sheet.

1. A statement which brings into agreement the cash balance per book and cash balance per
bank and is usually prepared monthly.
A. Statement of Accounts
B. Bank Reconciliation
C. Bank Statement
D. Statement of Operation
2. Is a monthly report of the bank to the depositor.
A. Statement of Accounts
B. Bank Reconciliation
C. Bank Statement
D. Statement of Operation
3. A Bank Statement shows the following, EXCEPT:
A. The cash balance per bank at the beginning.
B. The deposits made by the depositor and acknowledged by the bank.
C. The daily cash balance per book during the month.
D. The daily cash balance per bank during the month.
4. These are collections already recorded by the depositor as cash receipts but not yet
reflected on the bank statement.
A. Deposit in transit
B. Debit memos
C. Credit memos
D. Outstanding checks
5. ____________ are checks already recorded by the depositor as cash disbursements but not
yet reflected on the bank statement.
A. Deposit in transit
B. Debit memos
C. Credit memos
D. Outstanding checks
6. Evidenced by a formal agreement embodied in an instrument called certificate of deposit.
A. Demand Deposit
B. Savings Deposit
C. Time Deposit
D. Deposit in transit

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7. A bank reconciliation is prepared for which of the following accounts?
A. Savings deposit account
B. Demand deposit account
C. Time deposit account
D. All of the above
8. Which of the following items must be added to the cash balance per ledger in preparing a
bank reconciliation which ends with the adjusted cash balance?
A. Notes receivable collected by bank in favor of the depositor.
B. NSF or DAIF customer check
C. Bank service charge
D. None of the above
9. It is the current 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.
A. Demand Deposit
B. Savings Deposit
C. Time Deposit
D. Deposit in transit
10. A certified check _____________________________________________________.
A. Is a liability of the bank certifying it.
B. Will be accepted by many persons who would not otherwise accept a personal
check.
C. Is one drawn by a bank against itself.
D. Both “a” and “b”
11. Which method of reconciliation is preferable?
A. Adjusted balance method
B. Book to bank method
C. Bank to book method
D. All of the above
12. Which of the following refers to items not representing checks paid by bank which are
charged or debited by the bank to the account of the depositor but not yet recorded as
cash disbursements?
A. Deposit in transit
B. Debit memos
C. Credit memos
D. Outstanding checks
13. Which of the following refers to items not representing deposits credited by the bank to
the account of the depositor but not yet recorded as cash receipts?
A. Deposit in transit
B. Debit memos
C. Credit memos
D. Outstanding checks

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14. Under this method, the book balance and the bank balance are brought to a correct cash
balance.
A. Adjusted balance method
B. Book to bank method
C. Bank to book method
D. None of the above
15. A written instrument signed by the depositor, ordering the bank to pay a specified sum of
money to the order of the designated person.
A. Check
B. Signature card
C. Deposit ticket
D. None of the above

’s In

We have learned that it is just normal for the company’s bank balance (per accounting
records) to differ from the balance per bank statement and necessary adjustments are made to
reconcile the records per book and per bank.

It is for this reason that a bank reconciliation statement that ends with the adjusted
cash balance is prepared to bring into agreement the two independent and separately kept
cash records of the company using the following identified book and bank reconciling items.

1. Book reconciling items:

A. Credit memos
B. Debit memos
C. Errors
2. Bank reconciling items:
A. Deposit in transit
B. Outstanding checks
C. Errors

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 ’s New

Task 1
Direction: Discuss briefly the importance of the reconciling items to the cash book balance
and bank statement balance by interpreting the picture below.

is It

When a current or checking account is opened by the depositor, a monthly statement

is being sent by the bank to the said depositor showing the amounts of deposits, withdrawals,
bank charges if any and the running amount balance of the account. This statement is called
“Bank Statement” and is usually sent after the end of each month.

The amount balance shown in the bank statement is basically the same amount of cash
balance in the “Cash in Bank” account in the book of the depositor. This is because
whenever cash is received by the depositor, it is deposited to the bank and the bank records
its deposit. Whenever cash payment is made by the depositor and the cash is presented to the
bank for encashment, the bank effects reduction of the deposit.

Instances wherein the records kept by the depositor will not coincide with the records
kept by the bank on specific date is always possible because of either or both of the
following: (1) delay in either party in recording transactions or time lags, and (2) errors by
either party in recording transactions.

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 Most commonly, there is a time lag of one day or more between the date the check is
issued and the date that it is presented to the bank for encashment or payment. It is also
probable that a time lag between the date of the deposit and the date that it is recorded by the
bank will occur.

The bank may debit or credit the depositor’s account for transactions which the
depositor will not be informed until later. Examples are service or collection fees charged by
the bank and the proceeds of notes receivable sent to the bank for collection.

The discrepancies in both records must be looked into or reconciled with the
identified reconciling items.

Reconciling Items
At the end of every month, comparison between the cash book balance of the
depositor and the bank statement received from the bank will bring forth the following
reconciling items:

1. Book reconciling items:

A. Credit memos B. Debit memos C. Errors

2. Bank reconciling items:

A. Deposit in transit B. Outstanding checks C. Errors
Credit Memos
Items not representing deposits credited by the bank to the account of the depositor
but not yet recorded by the depositor as cash receipts. Credit memos reflect additions for
such items as notes collected for the depositor by the bank and wire transfers of funds from
another bank in which the company sends funds to the home office bank.

The credit memos have the effect of increasing the bank balance.

Examples of credit memos:

1. Notes receivable collected by bank in favour of the depositor and credited to the account of
the depositor.
2. Proceeds of bank loan credited to the account of the depositor.
3. Matured time deposits transferred by the bank to the current account of the depositor.

Debit Memos

Items not representing checks paid by bank which are charged or debited by the bank
to the account of the depositor but not yet recorded by the depositor as cash disbursements.
Debit memos reflect deductions for such items as service charges, NSF checks, safe-deposit
box rent, and notes paid by the bank for the depositor.

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The debit memos have the effect of decreasing the bank balance.

Examples of debit memos:

1. NSF (no sufficient fund checks) or DAIF (drawn against insufficient fund) – These are
checks deposited but returned by the bank due to insufficiency of fund.
2. Technically defective checks – These are checks returned by the bank because of technical
defects such as absence of signature or countersignature, erasures not countersigned,
mutilated checks, conflict between amount in words and amount in figures.
3. Bank service charges – These include bank charges for interest, collection, checkbook and
penalty.
4. Reduction of Loan – Pertains to amount deducted from the current account of the depositor
in payment for loan which the depositor owes to the bank and which has already matured.

Book Errors

A common error by depositors is recording a check in the accounting records or cash

book at an amount that differs from the actual amount. For example, a ₱1,500 check may be
recorded as ₱5,100. Although the check clears the bank at the amount written on the check
₱1,500, the depositor frequently does not notice the error until reviewing the bank statement
or canceled checks.

No definite rule can be made whether these book errors can be added or deducted.
It will have to be analyzed for proper treatment. Errors are reconciling items of the party
committed them.

Deposit in transit

Are collections already recorded by the depositor as cash receipts but not yet reflected
on the bank statement. The most common deposits in transit are the cash receipts deposited
on the last business day of the month. These are cash on hand awaiting delivery to the bank
for deposit.
Since deposits in transit have already been recorded in the company’s books as cash
receipts, they must be added to the bank statement balance.

Examples of deposit in transit:

1. Collections already forwarded to the bank for deposit but too late to appear in the bank
statement.
2. Undeposited collections or those still in the hands of the depositor.

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Outstanding checks

Are checks already recorded by the depositor as cash disbursements but not yet
reflected on the bank statement. This will cause the bank statement balance to overstate the
company’s actual cash balance.

Since outstanding checks have already been recorded in the company’s books as cash
disbursements, they must be subtracted from the bank statement balance.

Examples of outstanding checks:

1. Checks drawn and already given to payees but not yet presented for payment.
2. Certified checks – a certified check is one where the bank has stamped on its face the word
“accepted” or “certified” indicating sufficiency of fund. When the bank
certifies a check, the account of the depositor is immediately debited or
charged to insure the eventual payment of the check. It carries a
guarantee from the bank that the recipient will receive the full-face
value of the check from the issuing person’s or company’s bank
account.
Bank Errors

Sometimes banks make errors by depositing or taking money out of the depositor’s
account in error. In this case, the company will have to contact the bank to correct the error
but will not record any entry in the company’s records because it is unrelated to the
company’s records.
For this lesson, the Adjusted balance method format is used in reconciling the book
balance and the bank balance.
Analyzing the Effects of The Reconciling Items
Example 1:
XYZ Company is closing its books and must prepare a bank reconciliation for the following
items:
1. Bank statement contains an ending balance of ₱300,000 on October 31, 2020, whereas the
company’s general ledger (Cash in bank) shows an ending balance of ₱263,500.
2. Bank statement contains ₱100 service charge for operating the account.
3. Bank statement contains interest income of ₱3,000
4. XYZ issued checks of ₱50,000 that have not been cleared by the bank.
5. XYZ deposited ₱20,000 but this did not appear on the bank statement.
6. A check for the amount of ₱4,700 issued to the office supplier was misreported in the cash
payments journal as ₱3,700.
7. A note receivable of ₱9,800 was collected by the bank.
8. A check of ₱5,200 deposited by the company has been charged back as NSF.

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Solution: Table 1
Adjustment to
Amount Effects
Books
Ending Bank Balance 300,000.00
Reconciling Items:
deduction from the
Less: Uncleared Checks
balance per bank none
(outstanding checks) 50,000.00
statement
Add: Deposit that did not appear in addition to the
the bank statement (Deposit in balance per bank none
20,000.00
transit) statement
Adjusted Bank Balance 270,000.00
Ending Book Balance 263,500.00
deduction to the debit Expense
Less: Service Charge (Debit memo) balance per book (service charge),
100.00
of XYZ credit cash
Add: Interest income (Credit addition to the debit cash, credit
memo) 3,000.00 balance per book interest income
deduction to the
Less: Error on check with a debit expense,
balance per book
difference of ₱1,000 1,000.00 credit cash
of XYZ
Add: Notes Receivable (Credit addition to the debit cash, credit
memo) 9,800.00 balance per book notes receivable
deduction to the debit accounts
Less: NSF (Debit memo) balance per book receivable, credit
5,200.00
of XYZ cash
Adjusted Book Balance 270,000.00

Explanation:

The adjusted balance method means that the book balance and the bank balance are
adjusted to equal the correct cash balance.

Uncleared checks or outstanding checks are deducted from the bank balance to
correct the overstated bank balance because the checks are not yet paid by the bank.
Adjustment per book (journal entry) is not needed.

Ending Bank Balance 300,000.00

deduction from the
Less: Uncleared Checks
50,000.00 balance per bank none
(outstanding checks)
statement

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 Deposit in transit is added to the bank balance to correct the understated bank balance
because the deposit is not yet recorded by the bank. Adjustment per book (journal entry) is
not needed.

Ending Bank Balance 300,000.00

Deposit that did not
appear in the bank addition to the balance
none
statement (Deposit in 20,000.00 per bank statement
transit)

Credit memos are added to the book balance to correct the understated cash book
balance due to unrecorded Interest Income and Notes Receivable of the company.

Ending Book Balance 263,500.00

Add: Interest income (Credit addition to the balance debit cash, credit
memo) 3,000.00 per book interest income
Add: Notes Receivable (Credit addition to the balance debit cash, credit
memo) 9,800.00 per book notes receivable

Debit memos are deducted from the book balance to correct the overstated cash book
balance due to unrecorded Service Charge and NSF.

Ending Book Balance 263,500.00

deduction to the debit Expense
Less: Service Charge (Debit
balance per book of (service charge),
memo) 100.00
XYZ credit cash
deduction to the debit accounts
Less: NSF (Debit Memo) balance per book of receivable, credit
5,200.00
XYZ cash

Book Error. The ₱1,000 amount difference in check payment is considered as

reconciling item on the part of the company (the one who committed the error). Hence, it is
deducted to the book balance to correct the understated payment.

Ending Book Balance 263,500.00

deduction to the
Less: Error on check with a debit expense,
1,000.00 balance per book of
difference of ₱1,000 credit cash
XYZ

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 ’s More

Identify whether the following independent transaction is a book or a bank

reconciling. In addition, determine the amount of the error and state whether the amount will
be added or deducted in the preparation of the bank reconciliation (use adjusted method):

1. ABC Repairs received ₱1,500 from Jane. The bookkeeper recorded the amount as
₱500.
2. XYZ Bank collected from the customer of ABC the sum of ₱5,000 representing
payment of the said customer to ABC. No entry was made in the books of ABC.
3. The bank teller deducted JB001 for ₱3,500 from the account of ABC. The said check
was issued by ABC Company a different depositor of the bank.

I Have Learned

Task 2

Direction: Complete the following:

1. As an ABM student, I have learned that the reconciling items are

___________________________________________________________________________
___________________________________________________________________________

2. As an ABM student, I have realized that in analyzing the effects of the reconciling items, it
is important to ____________________________________________________________
________________________________________________________________________

3. As an ABM student, I can be more effective in accomplishing my task by

________________________________________________________________________
________________________________________________________________________

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 I Can Do

Task 3

Direction: Analyze each of the following transactions listed below as to its effects on the
balance per bank statement and balance per book of the depositor. Use the table
provided below for your answer.

1. Customer’s check returned by the bank marked “DAIF” or Drawn Against Insufficient
Funds.
2. Note collected by the bank in behalf of the depositor.
3. Deposit in transit.
4. Outstanding checks.
5. Proceeds of loan granted by the bank.
6. Bank debit memo for cost of printed checks.
7. Checks drawn for ₱5,000 but inadvertently recorded by the depositor as ₱500.
8. Bank Credit memo in the amount of ₱650
9. Matured time deposit transferred by the bank to the current account of the depositor.

Effects of the reconciling items on the book balance

ADDITION TO THE BALANCE PER ADDITION TO THE BALANCE PER BANK
BANK

DEDUCTION FROM THE BALANCE PER DEDUCTION TO THE BALANCE PER

BANK BOOK

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 SCORING RUBRIC

No Needs
Poor Proficient (4 Advanced (5
CRITERIA Submission Improvement
(2 points) points) points)
(0 point) (3 points)
Correct and
Incomplete Correct and
Has complete with few
presentation with no errors
Presentation No Solution presentation minor errors
of solution in the
of Solution submitted of solution but in the
and with presentation
with errors presentation
major errors of solution
of solution
Effects of
Students does
the
not
reconciling Preparation of Preparation of
demonstrate Preparation of
items on the No Solution solution solution is
an solution has
book submitted contains many correct with
understanding minor errors
balance and errors no errors
of the
bank
problem
balance

Shows 25% Shows 50% Shows 75% 100% well-

Clarity of ideas/response
developed developed developed developed
answers not evident
ideas/response ideas/response ideas/response ideas/response

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Multiple Choice: Answer the questions below by choosing the letter of the correct answer.
Write your answer in your notebook.

Problem 1-2
In preparing the October 31 bank reconciliation, ABC Company provided the
following data:

Balance per bank statement ₱ 3,800,000

Deposit in transit 520,000
Amount erroneously credited by bank to entity’s account 40,000
Bank service charge for the current month 5,000
Outstanding checks ₱ 675,000

1. What is the adjusted cash in bank?

A. 3,685,000 C. 3,605,000
B. 3,600,000 D. 3,645,000
2. What is the unadjusted cash in bank balance per book?
A. 3,550,000 C. 3,610,000
B. 3,660,000 D. 3,655,000

Problem 3-4

XYZ Company kept all cash in a checking account. An examination of the

accounting records and bank statement for the month of August revealed the following
information:
➢ The cash balance per book on August 31 is ₱8,500,000.
➢ A deposit of ₱1,000,000 that was placed in the bank’s night depository on
August 31 does not appear on the bank statement.
➢ The bank statement shows on August 31, the bank collected note for XYZ
Company and credited the proceeds of ₱950,000 to the company’s
account.
➢ Checks outstanding on August 31 amount to ₱300,000
➢ XYZ Company discovered that a check written in August for ₱200,000 in
payment of an account payable had been recorded in the company’s
records as ₱20,000.
➢ Included with the August bank statement was NSF check for ₱250,000
that XYZ Company had received from a customer on August 26.
➢ The bank statement shows a ₱20,000 service charge for August.

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3. What is the cash in bank to be reported on August 31?
A. 9,180,000 C. 9,000,000
B. 9,360,000 D. 3,300,000
4. What is the net adjustment to cash in bank on August 31.
A. 950,000 C. 500,000
B. 450,000 D. 860,000
5. Bank Statements provide information about all of the following, except:
A. Checks cleared during the period C. Bank charges for the period
B. NSF Checks D. Errors made by the depositor
6. In preparing a monthly bank reconciliation, which of the following items would be added
to the balance per bank statement to arrive at the correct cash balance?
A. Outstanding checks
B. Bank service charge
C. Deposit in transit
D. A customer’s note collected by the bank on behalf of the depositor or company.
7. When preparing a bank reconciliation, bank credits are______________-
A. Added to the bank statement balance.
B. Deducted from the bank statement balance.
C. Added to the balance per book.
D. Deducted from the balance per book.
8. Which of the following reconciling items must be added to the cash balance per book in
preparing a bank reconciliation which ends with adjusted cash balance?
A. Note receivable collected by bank in favor of the company and credited to the
account of the company.
B. NSF customer check
C. Service charge
D. Erroneous bank debit
9. If the balance shown on the company’s bank statement is less than the correct cash balance
and neither the company nor the bank has made any errors, there must be_____________.
A. Deposits credited by the bank but not yet recorded in the company’s books.
B. Outstanding checks
C. Deposits in transit
D. Bank charges not yet recorded in the company’s books.
10. If the cash balance shown on the company’s accounting records is less than the correct
cash balance and neither the entity nor the bank has made any errors, there must
be_______________.
A. Deposits credited by the bank but not yet recorded in the company’s books
B. Deposits in transit
C. Outstanding checks
D. Bank charges not yet recorded in the company’s books.

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 Ambitious Company is closing its books for the month ended April 30. The
company’s bookkeeper must prepare a bank reconciliation based on the following
information:

1. Bank statement contains an ending bank balance of ₱320,000

2. Book Balance shows ₱344,000
3. Bank statement contains ₱5,000 check printing charge for new checks that the company
ordered.
4. The bank statement contains ₱1,500 service charge for operating the bank account.
5. The bank statement rejects a deposit of ₱5,000 due to not sufficient funds, and charges the
company ₱500 fee associated with the rejection.
6. The bank statement contains interest income of ₱3,000.
7. Ambitious Company issued ₱10,000 of checks that have not yet cleared by the bank.
8. Ambitious Company deposited ₱25,000 of checks at month-end that were not deposited
in time to appear on the bank statement.

Instruction: Prepare an adjusted book and bank balance using the given information and the
template provided below (10pts).

Effects
Amount
(Deduction/Addition)
Ending Bank Balance
Reconciling Items:

Adjusted Bank Balance

Ending Book Balance

Adjusted Book Balance

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 18
What I know Assessment
1. B 6. C 11. A 1. C 6. C
2. C 7. B 12. D 2. C 7. C
3. C 8. A 13. A 3. C 8. A
4. A 9. A 14. A 4. C 9. C
5. D 10. D 15. A 5. D 10. A
What’s More
1. Book. ₱1,000 will be added to the
books.
What’s New 2. Book. ₱5,000 will be added to the
books.
Answers may 3. Bank. ₱3,500 will be added to bank
records.
Additional Activities
Amount Effects
Ending Bank Balance 320,000.00
Reconciling Items:
Less: Uncleared Checks (outstanding checks) 10,000.00 deduction from the balance per
bank
Add: Deposit in transit 25,000.00 addition to the balance per bank
Adjusted Bank Balance 335,000.00
Ending Book Balance 344,000.00
Less: Printing charge (debit memo) 5,000.00 deduction from the balance per
book
Service charge (debit memo) 1,500.00 deduction from the balance per
book
NSF 5,000.00 deduction from the balance per
book
NSF charge 500.00 deduction from the balance per
book
Add: Interest income (credit memo) 3,000.00 addition to the balance per book
Adjusted Book Balance 335,000.00
References

Lopez, Rafael, Jr. M., Fundamentals of Accounting (Simplified Procedural Approach). Pp

359-360. Published by Holy Cross Press of the Archdiocese of Davao, Inc.

The Commision on Higher Education in collaboration with the Philippine Normal University.
Teaching Guide for Senior High School Fundamentals of Accountancy, Business, and
Management 2. Pp 124-128.

Valix, Conrado T.,et.al. 2017. Financial Accounting, Volume 1. Pp 224-266. Published by

GIC Enterprises & Co., Inc.

https://www.youtube.com/watch?v=Ww5cMOSRHvA&feature=share, Reconciling Items

https://courses.lumenlearning.com/sac-finaccounting/chapter/preparing-a-bank-
reconciliation/.

https://accountingtools.com/articles/2017/5/17/bank-reconciliation.-reconciliation/

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