BANK DEPOSITS

There are three kinds ofbank

saving deposit and time dep

Dem.and deposit

The demand deposit is the cu

or commercial deposit whert
slips and where funds are urt
CHAPTER 2 checks against the bank.

A demand deposit is usuall-r-

some banks allow a demand d
BANK RECONCILIATION
Sauing deposit

In a saving deposit, the depo,

initial deposit. The passbook
TECHNICAL KNOWLEDGE and withdrawals.

\\rithdrawals are made anlti

To understand the need for a banh reconciliation..
require notice of withdrawa-l
To hnow the reconciling items fficting the cash in banh per -{ saving deposit is interest
ledger.
Tinte deposit
To know the reconciling items affecting the cash in banh per
banlz statement The time deposit is similar t,
ir is interest bearing.
To be able to prepare a bank reconciliation.
-{ time deposit is evidenced.
To be able to prepq,re the necessary adjusting entries to embodied in an instrument c
reconcilethe cashinbank per ledger with the cashinbanh
p.er banh, statement.
Time deposit may be preterr
or after a certain period of tr

40
BANK DEPOSITS
lhere are three kinds of banl< deposits, namely demand deposit,
=:rrng deposit and time deposit.

-k,nond deposit
The demand deposit is the current account or checking account
: r' commercial deposit where deposits are covered by deposit

='ils and where funds are withdrawable on demand by drawing

-hecks against the bank.

'iemand deposit is usually noninterest bearing. However,

--r
=:ne banks allow a demand deposit account as interest bearing.
Sai ing deposit

-: a saving deposit, the depositor is given a passbook upon the

-::itial deposit. The passbook is required when making deposits
:-:rd rvithdrawals.
-'"-rrhdrawals
are made anytime but the bank sometimes may
:=quire notice of withdrawal.

-{ sar-ing deposit is interest bearing.

l'.nte deposit

lhe time deposit is similar to saving deposit in the sense that

-: is interest bearing.

-{ is evidenced, however, by a formal agreement

tr,me deposit
=inbodied in an instrument called certificate of deposit.

Iime deposit may be preterminated or withdrawn on demand

-r after a certain period of time agreed upon.

4L
What is a bank reconciliation? In practice, however, the a,
dem.ond deposit o.ccount but th
Before we arrswer the question, Iet us have a backgrotrnd on ledger of Company X.
the rnatter of opening a demand deposit or checking account.
\Vhen the bank credits the ac
Incidentally, of the three kinds of deposit, a bank reconciliation X, it recognizes its liability tc
is necessary oniy for a demand deposit or checking account.
lcgally, when a deposit is ma
Wherr an account is opened at the bank, the person authorized relationship between the bank
to draw checks against the account wiil be required to sign ihe de#tor, and tice depositor
cards furnished by the batrk, to show the specimen signatures
to be used on the checks.
i{ence, when the aeeount of th
These specimen signatures will be filed by the bank so that any
rs credited.
teller who may be unfamiliar with a depositor's signature can
test the authenticity of a check by comparing the depositor's i.et us assume further that C
signature on the card with the signature on the check. ,'heck for P30,000 im paymen
'cooks
of Company X, the jour
If the depositor is a corporation, the bank wil} request that the
Accounts payab*e
directors pass a resolution authorizing certain officers of the
Cash
corporation as signatories of checks and that a copy of this
resolution be filed rvith the bank. The journai entry on the bool
Let us now illustrate some fundamental transactions affecting Comphny X
the depositor and the bank. Cash

Assume that Company X (the depositor) collected P100,000 '"rlen a check is issued, the
from a customer in settiement of an account. The collection ::ie bank for payment.
is deposited at the First Bank
lhe depositor is actually ordt
The journal entry to record the collection and the subsequent :,r.it of its deposit in the banl<
deposit is:
Cash (or cash in bank) 100,000
lhis is the reason the bank de
Accounts receivable 100,000 :hereby reducing its liabilitl'

On the books of the bank, the journal entry is: 1hus, when the depositor's ac
debited.
Cash 100,000
Company X 100,000 -^: this point, when balances
The journal entry on the books of the bank shows the credit ::count on the depositor's boo
is Company X account. This is rnade, for our purpose, to ::e Company X account on the b
facilitate the illustration. ,: P70,000.

42
 In practice, however, the account ctedited by the bank is
dentand deposit o,ccount but the same is posted to the subsidiary
on .edger of Company X.
rt.
\\-hen the bank credits the account of the depositor, Company
ron \. it recognizes its liability to the depositor.
l-egally, when a deposit is made, there exists a debtor-creditor
red relationship betrveen the bank and the depositor, the bank being
o11
blJ
rhe de#tor, and the depositor being the creditor.
:US

Hence, when the aeoount of the depositor is increased the same

ll\
:s credited.
u"
IS .,et us assume further that Company X subsequently issued a
:heck for P30,000 im payrnent of an account payabie. On the
'iooks
of Company X; the journal entry is.
he
he payaHc
Accounts 30,000
11S
Cash 30,000

The journal entry on the books of the bank is:

no
l,b ComphnyX 30,000
Cash 30,000

00 \r,]ren a check is issued, the payee wili present the same to

on :he bank for payment.

The depositor is actuaily ordering the bank to pay the payee

rnt :ut of its deposit in the bank.
This is the reason the bank debits the account ofthe depositor
0 :hereby reducing its liability to the depositor.

Thus, when the depositor's account is decreased, the same is

debited.
o
-rt this point, when balances are extracted, th€ cash in barrk
lit account on the depositor's book has a balance of P70,000, and
to the Company X account on the book ofthe bank has also a baiance
:f P70,000.
43
 Explanation
Bank reconciliation
The two accounts have equal or the same balances because they
are reciprocal accounts. -\ bonh reconcilio,tion is a
ae-r'eement the cash balance pe
This means that when one account is debited, the other account
is credited or vice versa. --he reconciliation is usually pr
: rorjdes the depositor with tl
The reason for this is that the two accounts cover or reflect the :'.'8r]- mOnth.
same items or transactions.
-- bonk stateruent is a monthlr'
Thus, if no eruors are committed in recording, and the same .l lrving:
information has been recorded by both accounts, the two shouid
have equal or the same balances. The cash balance per banl

But very frequently, there are items on the depositor,s book The deposits made b-v the
which do not appear on the bank reeords as of the same date. the bank

For example, checks issued by the depositor are not yet The checks drawn by the.
presented for paymenr to the bank or deposits may have been
made after the bank records are sent out to the depositor. The daily cash balance pe.

And less frequently, there are items on the bank recolds which ,r-::ual[y, the bank statement:
do not appear on the depositor's book. =
iger in the records of the i
'',aen
For exarnple: the bank statement is r
r:::rsitor's canceled checks an
a. The bank may have charged the depositor's account with ;.--a: have affected the deposi'
service charges which the depositor may not know about
until a report is received from the bank. l::: canceled checks are the
,--i paid by the bank dunne t
b. Notes endorsed to the bank for collection have been
collected by the bank and credited to the depositor,s account -:=se are called canceled cl
but notice ofcollection is not yet received from the bank by -.::eled by stamping or punc)
the depositor. : ll.
In the iight of the foregoing, it becomes necessary to prepare a
bank reconciliation.

44
 Bank reconciliation

-\ bank reconcilio,tion is a statement which brings 'into

agreement the cash balance per book and cash balance per bank.
It
The reconcfiation is usually prepared monthly because the bank
provides the depositor with the bank statement at the end of
?\'ery month.
e

-\bonh statement is a monthly report of the bank to the depositor

;howing:
e
d
a. The cash balance per bank at the beginning

k
c. The deposits made by the depositor and acknowledged by
the bank

L
:. The checks drawn by the.depositor and paid by the bank
n
r. The daily cash balance per bank during the month

h
-\ctually, the bank statement is an exact copy of the depositor''s
-:dger in the records of the bank.

',\-hen the bank statement is received, attached thereto are the

iepositor's canceled checks and any debit or credit memoranda
h
:rat have affected the depositor's account.
.L
lhe canceled checks are the checks issued by the depositor
.nd paid by the bank during the month. .

l!
Inese are called canceled checks because they are literally
-anceled by stamping or punching to show that they have been
)' -..,1

45
Reeonciling iterns Debit memos
Debit ntemos refer to items r
At the end of every rnonth, comparison between the cash rvhich ate charged or dcbite
records of the depositor and the bank statement received from
depositor but not yet rer
the bank will yield the following reconciling items: disbursements. The debit me
bank balance.
1. Book reconciling iterns
T-"*pical exarnples of debit r
a) Credit memos
b) Debit memos a. l/SF or no sufficient fut
c) Errors returned by the bank b<
other name for NSF is f
2. Bank reconciling items fund".

a) Deposits in transit b. Tecltnically defectiue

b) Outstanding checks returned by the bank b
'

c) Errors absence of signature o

countersigned, mutil
Credit memos amount in words and a

Credit ntenlos refer to items not represehting deposits credited Banle seruice chorges i:
by the ban-l< to the account of the depositor but not yet recorded collection, checkbook ar
by the depositor as cash receipts.
i. Redu.ction of loan pertz
The credit memos have the effect of increasing the bank balance. cuuent acco".rnt of the d
the depositor o'*,es to
Tlpical examples of credit memos are: rnatured.

a. Notes receivable collected by bank in favor of the depositor Deposits in transit

and credited to the account of the depositor.
lteposits in tro.nsit are colleco
b. Proceeds of bank loan credited to the account of the :s cash receipts but not yet r
depositor
Deposits in transit include:
c. Matured time deposits transferred by the bank to the ?. Collections already forv
current account of the depositor. too late to appear in th
r. Undeposited coliections
depositor. In effect. th
delivery to the bank for

46
 Debit memos
L)ebit ntentos refer to items not representing checks paid by bank
ash ''r'hich a:le c.harged or d.ebited by the bank to the account of the
aom
Cepositor but not yet recorded by the depositor as cash
lrsbtu'sements. The debit memos have the effect of dncreasing the
oark balance.

T1-pical examples of debit memos are:

a. l/SF or no sufficient fund checlzs are checks deposited but

returned by the bank because of insufficiency of fund. The
other name for NSF is DAIF or "drawn against insufficient
fund".

b. Tecltnically defectiue checks are checks deposited but

returned by the bankbecause oftechnical defects such as
absence of signature or countersignature, erasures not
countersigned, mutilated checks, conflict between
amount in words and amount in figures.

ted Bank seruice cha,rges include bank charges for interest,

led collection, checkbook and penalty.

,i. of loan pertains to amount deducted from the

Redu,cti,on
curent account of the depositor in payment for loan which
the depositor owes to the bank and which has already
matured.

Deposits in transit
Deposits in tro.nsit are collections already recorded by the depositor
r: c&sh receipts but not yet reflected on the bank statement.

Deposits in transit include:

a. Collections already forwarded to the bank for deposit but
too late to appear in the bank statement.
b. Undeposited collections or those still in the hands of the
depositor. In effect, these are cash on hand awaiting
delivery to the bank for deposit.

47

ffi
 Proforma reconciliati
Outstanding checks
Adjusted balance methor
Outstanding checksare checks already tecorded by the depositor
as cash disbursements but not yet reflected on the bank Bcck balance
statement. -{id: Ci'edrt memos
T-,41
Outstanding checks include: -ess: Debrt nenlos
i:,.rste d book balance
a. Checks drawn and already given to payees but not yet
-r.

presented for payment. 3an-li balance

-rd,i: Deposits in transit
b. Certifi.ed checks - A certifi-ed. check is one where the bank -----1
has stamped on its face the word "accepted" or "certified" - . :.i:
Outstanding check-.
indicating sufficiency of fund.
,i; rusted banli balance
When the bank certifi.es a check, t]re account of the depositor
is immediately debited or charged to insure the eventual lhe reconciling items of th
payment of the check. :remos and debit memos.

Certified checks should be deducted from the total \, details are shou,n to sir
outstanding checks (if included therein) because they are
no longer outstanding for bank reconcfiation purposes' -:r actual formal reconcihal

Forms of bank reconciliation l'loreover, errors are exciu,

:.ade whether these are tc
The foliowing formats may be used in reconciling the book
balance and the bank balance: :rLors will have to be anal

a. Ad.justed, balo,nce ntethod - Under this method, the book -- -lLt.eL',et', errors ol'€ f€cf"
balance and the bank balance are brought to a correct cash ,,tt nntted thent.
balance that must appear on the balance sheet.
-: ii-il1 be observed that ur
b. Booh to banh ntethod Under this method, the book balance
- :e credit melnos are alu't
is reconciled with the bank balance or the book balance is ::: debit memos are alu'ar
adjusted to equal the bank balance'
l,=posits in transit are alu'a,
c. Bo,nk to boolz nrcthod- Under this method, the bank balance -ri-.tandirtg checks are a1u'a
is reconciled with the book balance or the bank balance is
adjusted to equal the book balance.

The first method is preferred over the other two'

48
Proforma reconeiliation
Adjusted balance method

Book balance xx
Add: Cleditmemos xx
Total xx
Lesrq: Debit memos

-\d3usted book balance ,(x

Rank balance xx
-\dd: Deposits in transit xx
Totai xx
Less: Outstanding checks xx
-\Cjusted bank balance

The reconciling items of the book are simply termed as credit

nlemos and debit memos.

\o detaiis are shown to simplify the illustration.

ia actual formal reconciliation, details will have to be shown.

\loreover, errors are excluded because no definite rule can be
nade whether these are to be added or deducted.

Fllors will have to be analyzed for proper treatment.

iioueuer, ert'ors are reconcilirug itents of the porty which

:ontntitted thent.

l: ivil1 be observed that under the adjusted balance method,

::ie credit mernos are always added to the book balance and
::re debit memos are always deducted from the book balance.

lreposits in transit are always added to the bank balance and the
-r:-.tanding checks are always deducted from the bank balance.

49
Explanation Book to bank method
3-":,"i balance
The foregoing procedures can be explained as follows: --i:: Credit memos
Out-ctandrng checks
The adjusted'balance method means that the book balance and ----l
the bank balance ore odju,sted to equo,l the conect cash bolance. iss: Debitmemos
Deposit-. ul trarsl:
Credit memos already increased the bank balance but have no iau balance
effect on the book balance because the credit memos are not
yet recorded by the depositor. -."hen
the reconciliation sta
-..,'-:h
the bank balance. tht
Consequently, the book balance is und.erstated in relation to :r'.aied in the same mann€
the comect cash balance. :?'ance method". that is. i
:rimos al'e deducted.
Hence, credit memos are added to the book balance.
-1 lrlgr,gr, rvith resp€ct tr
Debit memos already decreased the bank balance but have no .:':atment is sirnpil, "revers€
effect on the book balance because th6 debit memos are rrot yet
recorded by the depositor. .l:us. srice the deposit rn n'a
:--',r' deducted from the bcc,l
Consequently, the bool< balance is overstated in relation to the :eck is deducted from the i
correct cash balance. -,-.,k balance.

Hence, debit memos are deducted from the book balance. Explanation of reversa
Deposits in transit already increased the book balance but have ::. book to bank method me
-
no effect on the bank balance because the deposits are not yet '- ,qual the bonh bolonce.
recorded by the bank.
-'=posits in transit ah'ead1- i
Consequently, the bank baiance is understated in relation to ,-. effect on the bank baLan
the correct cash balance. -'=:olded by the bank. Cc
,-.'=r'stated in relation to th
Hence, deposits in transit are added to the bank balance.
--.nce, deposits in transit e
Outstanding checks already decreased the book balance but
-,:n-ing the book to bank
have no effect on the bank balance because the checks are not
yet paid by the bank. :: the other hand, outstar
: -,k balance but have no t
Consequently, the bank balance is cverstated in relation to the .:= checks are not yet paid t
correct cash balance. -.-ance is understated rn rt
Hence, outstancling checks are deducted from the bank balance. --:=nce. outstanding check
-',rrving
- the book to bank

50
 Book to bank method
Book balance xx
Add: Creditmemos xx
, Outstanding checks xx xx
d
a
Total xx
l,ess: Debitmemos xx
Deposits in transit _xl _xl
IO
Bankbalance xx
)t
When the reconciliation Starts with the book balance and ends
rvith the bank baiance, the usual book reconciling items are
:C
treated in the same manner they are treated in the "adjusted
balance method", that is, credit memos are added and debit
memos are deducted.

ro
However, with respect to the bank reconciling items the
treatment is simply "reversed."
)r
Thus, since the deposit in transit is added to the bank balance, it is
now deducted from the book balance, and since the outstanding
re
check is deducted from the bank balance, it is now added to the
book balance.

Explanation of reversal rule

'e
The book to bank method means thot th,e booh balo,nce is odjusted
JL
to equo,l the bon k balonce.

Deposits in transit already increased the book balance but have

:o
no effect on the bank balance because the deposits are not yet
i'ecorded by the bank. Consequentiy, the book balance is
overstated in relation to the bank balance.
l{ence, deposits in transit are deducted from the book balance
lt fbllowing the book to bank method.
)f
On the other hand, outstanding checks already decreased the
cook balance but have no effect on the bank balance because
re
:he checks are not yet paid by the bank. Consequently, the book
:alance is understated in relation to the bank balance.
a
I{ence, outstanding checks are added to the book balance,
foliowing the book to bank method.

51
 Bank to book method Illustration
Bankbalance xx Ihe cash records of Compar
Add: Deposits in transit xx :f Janua4'.
Debitmemos xx xx
Total xx CASH RECEIPTS
Less: Outstandingchecks xx
xx xx :n. 5 6U.000
Creditmemos i3 20.000
Book balance _!_r 25 30.000
3r -10.000

When the reconciliation starts with the bank balance and ends 150.000
with the book balance, the usual bank reconciling items are
treated in the same manner they are treated in the "adjusted
balance method", that is, deposit in transit is added and
outstanfing check is deducted. lhe general ledger of the
However, with respect to the book reconciling items, the :.ccount for Januarl' as fo1

t-'
treatment is simply "revel'sed'.
Cash r::
Thus, since the credit rnemos are added to the book balance,
they are now deducted frorn the bank balance, and since the Jan.31 CR 150.C'(

d.ebit rnemos are deducted from the book balance, they are now
added to the bank balance. The balance of the cash in b

Explanation of reversal rule

The bank to book method ilLeons that the bank bo'lance ts
odjusted to equol tlrc boolz bolance.
Debit memos already decreased the bank balance but have no
effect on the book balance because they are not yet recorded by
the depositor.
Consequently, the bank balance is understated in relation to
the book balance. Hence, debit memos are added to the bank
balance.

On the other hand, credit Inemos already increased the bank

balance but have no effect on the book balance beicause they are
not yet recorded bY the dePositor.
Conse(uently, the bank balance is overstated in relation to the
book balan"". Hutt"u, credit memos are deducted from the bank
balance.

52
Illustration
The cash records of Company X show the following for the month
of January.

CASH RECEIPTS CASH DISBURSEMENTS

Jan. 5 6U,000 Check No. 721 5,000
13 20,000 Check No. 722 10,000
25 30,000 Check No. 723 18,000
31 40,000 Check No. 724 2,000
_Eg!00 Check No. 725 37,000
Check No. 726 28,000

_199!00

The general ledger of the company shows the cash in bank

account for January as follows:

Cash in bank Bank

Jan.31 C,R 150,000 Jan.31 CD 100,000

The balance

odt
Bank statement General procedures in

The following is the bank statement for January received from Determine the balance r

the First Bank:

As mentioned earlier..
In account with: No. 775 book of the depositor h
Company X FIRST BA}.IK
Quezon City Manila, Philippines The bank balance is sh,
final item, P84,000.
Date Check No. Withdrawals Deposits Balance
Ti'ace the cash recerllts
Jan. 6 60,000 60,000
u'hether there are den,-
8 721 5,000 55,000
bank.
11 722 10,000 45,000
t2 723 18,000 27,000
14 20,000 47,000 In the illustrative pr.ot
1n
al 724 2,000 45,000 on January 31 does nc
26 30,000 75,000 This represents deposi
26 15,000 cM 90,000
30 5,000 RT 85,000 Trace the checks issued
30 1,000 sc 84,000 u'hether there are checl

Code: CM - Credit memo SC - Service charge In the illustrative prob

DM - Debit memo RT - Returned check andi26 fbr P2E,000 do r

These are outstanding

The following data are gathered in connection with the CM
and DM appearing on tire bank statement: i The bank staternent si
u,hether there are tranl
a. The CM of P15,000 on January 26 represents proceeds of recorded by the deposir,
note collected b;, the bank in favor of the company'
In the illustrative prc,b
b. The RT of P5,000 represents check of customer deposited DNI for returned cire :i;
previously but returned by the bank because of"no sufficient P1.000.
fund" or NSF.
Watch out for errors. AE,
the party w hich com mirre
there are no errors coml

lt this point, a formal recun

ail the reconciling items har

54
General procedures in preparing the reconciliation
Determine the balance per book and the balance per bank

-\s mentioned earlier, the cash in bank account on the

book of the depositor has a debit balance of Pb0,000.

The bank baiance is shown on the bank statement as the

:inal item, P84,000.

Ti'ace the cash receipts to the bank statement to ascertain

r','hether there are deposits not yet acknowledged by the
: ank.

In the illustrative problem, the cash receipt of P40,000

-n January 31 does not,appear in the bank statement.
Ihrs represents deposit in transit.

Tlace the checks issued to the bank statement to ascertain

ri'hether there are checks not yet presented for payment.

I:r tire iilustrative problem, Check Nos. T2b for p87,000

lnd 726 fbr P2E,000 do not appear in the bank statement.
These are outstanding checks.

The bank statement should be exarnined to determine

'.,.'hether there are
trank credits or bank debits not yet
,':corded by the depositor.

r the iilustrative problem there is CNI of P1b,000 ancl

l\I for returned checl< of Pb,000 and service charge ,ri'
?i c00.

I,i-atch out for errors. Again, errors are reconciling items

of
:he party r,vhich committed them. in the illustrative protrlem,
:nele are no errors committed.

- :ais point, a formal recunciliation may be prepared because

. - :ire reconciling items have already been deterrnined.

OD
Adjusted balance method Book to bank method
Balance per book 50,000
COM
Add; Note collected by bank 15,000
Bank Rt
Total 65,000 Jar
Less: NSF customer check 5,000
Service charge 1,000 6,000
3aiance per book
Adjustedbook baiance 59,000 :,id: Note collected
Outstanding checks No
Balance per bank 84,000 \o
Add: Deposit in transit 40,000
-:tal
Total i24,000
Less: Outstanding checks -ess: NSF check
Service charge
Check No. 725 37,000
Deposit in transit
Check No. 726 28,000 65,000
3alance per bank
r\djusted bank balance _5ep00
Preparation of adjusting ent;ies Bank to book method

Oniy the book reconciling items require adjusting entries

co]
Bank R,
on the book of depositor. This is but understandable. Jat
The adjustments are necessat:y to bring the cash in bank 3a-lance per bank
balance to its corlect balance for statement presenLation
purposes. -{,1d: Deposit in transit
NSF check
Service charge
a. To record the note coliected by bank:
--^-^l
, Lal
Cash in bapk f 5,000 -
ess: Outstandingchecks:
Notes receivable 15,000
No.725
No.726
b. To record the NSF cdstomer check: Note collected by bank
Accounts receivable 5,000
3aiance per book
Cash in bank ' 5,000

c. To record the bank service charge

Bank service charge 1,000
Cash in bank 1,000

In the preparation of adjustments, an item added to the book

balance is debited to cdsh and an item deducted from the
book balance is credited to cash.

Db
 Snok to bank method
COMPANY X
Bank Reconciliation
January 31
50,000
- .-r:::: per bOOk
-- r: \ote collected 15,000
Oucstanding checks No. 725 37.000
No.726 28,000 65.000 80,000

130,000
::i \SF check 5,000
Service charge 1,000
)eposit in transit 40,000 46,000

..
- : :-:e per bank 84.000

tsank to book method

COMPANY X
Bank Reconciliation
January 31

.'.-:-::perbank 84,000
-. -: !eposit in transit 40,000
\SF check 5,000
Sei'vice charge 1,000 46,000

-u 130,000
.-::l Outstandingchecks:
No.725 37,000
No.726 28,000- 65,000
\ore collected by bank 15,000 80,000

: :.:. 1-i Per bOOk

=g94qa

51

--
Some errors and their correction QrirsrroNs
a. Understatement of cash receipts on the book of depositor
i Explain the three kinds t
For example, the collection frorn customer whirch is deposited
amounts to P10,000 but recorded in the book only as P1,000. l. \lhat is a bank reconcilit
There is an understatement of cash receipt of P9,000. The error I \\hat is a bank statepen
is added to the book balance and adjusted as follows:
I Erplain credit memos.
Cash in bank 9,000
Accounts receivable 9,000 5 Explain debit memos.

b. Understatement of checks drawn by depositor

i Erplain deposits in tran:
F or example, a check in payment of account payable - Explain outstanding che
amounting to P20,000 is recorded in the book as P2,000.
:. Define a certified check.
There is an understatement of cash disbursement and a
consequent overstatement of book balance in the amount of
Ptr8,000. The error is deducled from the book balance and
:r Erplain the treatmen
leconciliation purposes.
adjusted, as follows:
Erplain the three forrns
Accounts payable 18,000
Cash in bank 18,000

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

account of the depositor.

This is a deduction from the bank balance because it

erroneously increased the account baiance of the depositor
in the bank. No adjustment is necessary on the book of the
depositor.

d. Check of another entity charged to the account of the

depositor.

This is an addition to the bank balance because it

erroneously decreased the account balance of the depositor
in the bank. No adjustment is necessary on the book of the
depositor.

58
QrJ0srIoNS

1. Explain the three kjnds of bank deposits.

2. What is a bank reconciliation?

3. What is a bank statement?

4. Explain credit memos.

5. Explain debit memos.

6. Explain deposits in transit.

7. Explain outstanding checls.

8. Define a certified check.

9. Explain the treatment of certified check for bank

reconciliation purposes.

10. Explain the three forms of bank reconciliation.

59
 Problem 2-2 (IAA)
PROBLEMS Sensible Company provided
:ash in bank maintained rvit
Problem 2-1 (IAA) SEC(
1 Balance 100,000
Apathy Company provided the following information: 6 Deposit 30,000
12 Deposit 40.000
Apathy CampanY 2-1 Deposit 50.000
31 Deposit 60.000
Date Check No. Withdrawal DePosits Balance
Dec. 2 100,000 100,000
18 104 10,000 90,000
20 101 5,000 85,000
-, = i;rllorving bank starem.
22 106 25,000 60,000
.-::s b1. Sensible Companr-
27 50,000 110,000
29 10,000 120,000
29 103 40,000
. 80,000 ale Checks
29 CI\4 30,000 110,000 Balance
31 Servicecharge DM 2,000 108,000 Check No. 76E
;;l
FIRST BANK ;;2
a i;3
Dec. 1 Deposit 100,000 Dec. 4 Check No. 101 5,000
-i 771
2L Deposit 50,000 6 Check No. 102 15,000 _l i76
27 Deposit 10,000 8 CheckNo.103 40,000
1012
31 Deposit 80,000 8 CheckNo. 104 10,000 \SF check
10 Check No. 105 30,000
-:
-i
Serr-ice charge
74 Check Nb. roo 25,000
28 Check No. 107 50,000

The cred"it rnade by the bank on December 29 represents the

proceeds of a note received from a customer which was given
lo the bank for collection by the entity on December 26'

Required:
a. Prepare a bank reconciliation usi"ng adjusted balance
method.
b. Prepare adjusting entries.

60

L
 Problem 2-2 (IAA)
S:nsible Company provided the following ledger account of the
:ash in bank maintained with Second Bank:
SECOND BANK
Dec. 1 Balance 100,000 Dec. 1 Check No 77L 20,000
t7t7.)
6 Deposit 30,000 4 5,000
12 Deposit 40,000 6 n4D
lto 35,000
?/+ Deposit 50,000 10 774 15,000
lnce 31 Deposit 60,000 74 775 30,000
).000 18 776 25,000
).000 24 40,000

'.000
i.000 ,:e follorving bank statement was received from the Second
).000 :..nli b1, Sensible Company.
,|.000
).000 Date Checks Deposits Balance
-
).000 =:. 1 Balance 130,000
i 000 Check No. 768 10,000
1 771 20,000
l 772 5,000
6 35,000 30,000
;.000
12 774 15,000 40,000
;.000
t2 776 52,000
).000
21 t042 8,000 50,000
).000
23 NSF check 10,000 45,000 cM
).000
18 Service charge 5,000
; 000
i.000

s the
flven
l

.ance
 Other information Problem 2-3 (IAA)

1. Sensible Company reconciled its bank balance on -', ..rthous Company provider
November 30 with two checks, No. 768 for P10,000 and :r ianuary 31 of the currenl
No. 770 for P20,000 outstanding.
i:nI balance
2. Check No. 1042 was drawn bv Sensitive Cornpany -::i Deposit in transit
- _:a-1
The bank char:ged it in error to the account of Sensible - = iuct Outstanding checks:
\o. 114
Companv. 115
116
3. Check No. ?76 was correctly drawn for P52,000 in payment
--*-:sted bank balance
of account.

The amount P25,000 was entered in the books of original

-- r'eceipts of cash are depos
- .:ement for the rnonth of
entry.
THI
4. The bank credit on Decembet 28 represents the proceeds (lhecks Deposit
of a P50,000 note, Iess a collection fee of P5,000 coilected
by the bank and credited to the account. Balance fors'ar,
t-10.000 600.000
2.000.000
5. The NSF check was received from a customer in payment ri 0.000
of account. :t-r0.000 400,000
-'10.c)00
Required: 1,000,000
i 0.000
1,200,000
a. Prepare a bank reconciliation statement on December 31' 1,300,000
1ul.000
;.000 sc
-- tr.000 550,C00
>:0.000 270.000 c

-:= following information r

- ::bruary 28:
, = -: of the note
-- :-r:st on the note
l.::rit1'r,alue
-.:tion of the note
charge
.'=
t-:t to your account

62

l>
Problem 2-3 (IAA)

\anthous Company provided the foilowing bank reconciliation

:,n January 31 of the current year:

Bank balance 300,000

-\dd Deposit in transit 600,000
Total 900,000
D educt Outstanding checks:
No. 114 240,000
115 r 60,000
116 60,000 460,000

-{i3 r-rsted bank balance _eq999

-\11receipts of cash are deposited in the bank account. The bank
:iatement for the month of February is presented below.

THiRD BANK
Checks Deposit Date Balance
Balance forwarded Jan. 31 300,000
210.000 600,000 Feb. 1 660,000
2,000,000 ,l 2,660,000
200.000 5 2,460.000
900,000 400,000 7 1.960,000
160,000 I 1,800,000
1,000,000 10 2,800,000
500,000 13 2,300,000
1,200,000 16 3,500,000
1,300,000 27 4,800,000
550.000 23 4,250,000
5.000 sc 24 4,245,000
- ',r00.000 550,C00 27 3,795,000
Str0.000 270,000 cM 28 3,265,000

- re following information was taken from the credit memo

: February 28:
- ::e ofthe note 250,000
-.-:tlest on the note 30,000
,-.:urity value of the note 280,000
,'ectioncharge _lq!g0
-= irt to your account 270,000

63
The following data were taken from the cash journals of Problern 2-4 (IAA)
Xanthous Company:
Chivalry Company prepared
Cash Receipt Journal Cash Disbursement Journal
-n \4arch 31:
Date Debit Cash Check No. Credit Cash
Feb. 2 2,000,000 1t7 200,000 3cok balance
6 400,000 118 900,000 l.id: March 31 deposit
I 800,000 119 800,000 Collection of note
10 200,000 120 500,000 Interest on note
15 1,200,000 72t 550,000
1,300,000 1r, 180,000
l:iai
20
24 550,000 723 1,000,000 -ess: Cavalry Company's depos
120,000 account
28 450,000 L24
Bank service charge
t25 250,000
...- ij r-rsted book balance
is${99 999{qq
-.-nk baiance
Required: ' .--1i; Error on check No. 175
--*^l
a. Prepare bank reconciliation on February 28, showing the
book balances before and after adjustment.
,a -i-i: Frea uthorized pa;,,rne ni i:
iight and r*'ater'
NSF check
b. Prepare journal entries to record the adjustments that are Cutstanding check..
indicated by the bank reconciliation.
-- i usreri bankbalance:

:eck No. 175 was made fc,

--- oaYment of account.

::-ivever the check \\ras enl

ulnal as P29,1.000.

,'rlvalry Company authonz

,. iight and water bills as
I Required:
. Prtpare a corrected banl

: Prepare adjusting entries

64
Problern 2-4 (IAA)
Chivairy Company prepared the following bank reconciUation
rn March 31:

Bcok balance 1,405,000

-rid: March 31 deposit 750,000
Collection of note 2,500,000
Interest on note 150,000 3,400,000
-=:-
. LdI 4,805.000
Cavalry Company's deposit to our
account 1,100.000
Bank service charge 5,000 1,105,000

-- -1i,,Lsteii i-look balance

3gery
: :rt traiance 5,630,000
-i,:1: Erro.r on check No. 175 45,000

l:tai 5,675,000
-:ss: Preauthorized payrnent for
iight and w.ater 245,000
NSF check 220,000
Outstanding checks
ljru00_ _2,115,000
.-. . usucci bank balance
!fs!,09!
:eck No. 175 was made for the proper amount of P249,000
:-.pa)'ment of account.

--r,ivever the cireck was entered in the cash disbursements

' rlnal as P294,000.

lnr..'alry Company authorizecl the bank to auLornatically pay

:. hght and water bills as subrnitted directly to the bank.
Required:
- PrApare a corrected bank reconciliation.

: Prepare adjusting entries on March 31.

65
 Problem 2-5 (IAA) Problem 2-7 (IAA)
Zodiac Company providecl the follorving information:
Balance per book, March 31 Rancor Company provided
800,000
Cash receipts for April .r,100,000 month of December:
Cash disbu rsemen is for ,\p ri I 3,800,000
Outstanding checks as of Aplil 30 of Balance per bank statement
which No. 1333 had been certified:
No. 1331 Balance per cash book
40,000
No. 1332 30,000 Outstandingchecks
No. 1333 50.000 Deposit in transit
No. 1331 60,000 Service charge
No. 1335 10,000 Proceeds of bank loan, Decemk
April debit nlemos were:
For: bank service charge
discounted for 6 months at
5,000
For NSF check 25,000 recorded on company books
April credit lnemo for note collected Customer's check charged back
-by bank in the name of Zodiac Company 60,000 for absence ofcounter signa
Undeposited collections 270,000 Deposit of P100,000 incorrectly
Balance pel bank, April 30 1,000,000 Chechof Rancid Company chaq
agaiRst Rancor Company ac
Required: Customer's note collected by bar
Prepare a bank reconciiiation on April B0 following the book Face
to bank approach and prepare adjusting entries. Interest
Problern 2-6 (IAA) Total
C,ollection fee
R-adiant Company provided the following data for the month
of January: Erroneous debit memo of Deceu
to charge company's accpur
Balance per bank statement, January B1 3,500,000 settlement of bank loan
Collections on January 31 but undeposited 550,000
NSF check received from a customer Deposit of Rancid Company cre(
returned by the bank on Februarv S
with the January bank statemeni 50,000 Required:
Checks outstanding on January 31 650,000
Bank debit memo fdr safety defosit box
rental not recorded by depositor 5,000 a. Prepare a bank reconcil
A creditor's check for P30,000 was incorrectly approach.
recorded in the depositor's book as s00,000
A customer's check for P200,000 u,as
recorded by the depositor as 80,000
b. Prepare adjusting entri
The depositor neglected to make an entry in
its books for a check drawrr in pavment
ofan account payable 135,000
Required:
Compute the balance in the cash account before corrections
and prepare adjusting entries.

66
 Problem 2-7 (IAA)
Rancor Company provided the following information for the
i. 000
). 000 month of Decernber:
). 000

3alance per bank statement 4,000;000

3alance per cash booh 2,700,000
),000
).000 checks
-r'.rt-ctanding 600,000
i 000 Deposit intransit 4?b,000
).000 ::rvice charge 10,000
| 000 ?roceeds ofbank loan, December 1,
,.000
discounted for 6 months at lZYo, not
' cr00
recordedoncompanybooks 940,000
'lustomer's check charged back by bank
1.000 frir absence of counter signature 50,000
r.000
,000
)=posit of P100,000 inccrrectly recorded by bank as 10,000
'neck of Rancid Company pharged by bank
against Rancor Company account ib0,000
ilustomer's note collected by bank in favor of Rancor Company.
book Face 400,000
Interest 40,000
Total 440.000
Collection fe" U,rOO 48b,000
onth : rroneous debit memo of December 28,
to charge eompany's account with
,000
,m0
settlement of bank loan 200,000
-t:posit of Rancid Company credited to Rancor account 800,000

m0 Required:
000

000 Prepare a bank reconciliation using the adjusted balance

approach.
000

000 : Prepare adjusting ontriee on Decotnber 31,

000

;ions

,67
Problem 2-8 (IAA) Problem 2-9 (IAA)

Alpha Company provided the foilowing information for the Pathetic Company revealei
month of December:
Balance ofcash in bank accoul
5,000,000 Balance of bank statement
Cash balance per iedger
5,500,000 Outstanding checks, August 3
Cash balance per bank statement
Number 555
Proceeds ofbank loan discounted on
for one Year aL lLYn 516,000 761
December 1
300,000 762
Undeposited collections on December 31
763
764
Check of Omega Company had been
765
incorrectly deducted bY bank from
50,000 P.eceipts of August 31, deposite
Alpha Company account
The bank statement showed ih
Check of Alpha Company in payment of
an account payable had been recorde$
by the depositor as P20,000. The correct
e. Service charge forAugust
amount is 200,000 Ll NSF check received from a

The ledger account for cash was the onl-v-

The cashier-bookkeeper har
cash account kePt bY the entit-v-. additional P10,000 by char
It included a petty cash account accounts receivable.
comprised of the lbllowing items:
Currency and coin .{,000 The stub for check number '

Supplies 2,000 show that it was for P50.00t

Transportation 3,000
Postage 1,000 10.000 The check was recorded inc
Deposit of Omega Company credited b5'
:ournal as P70,000. The cL
bank to the account of Alpha Company 130,000 account payable.
Deposit of December 27 omitted frorn bank statement 150,000
Outstanding checks 544.000 ?a1'ment has been stopped
,lrarvn in payment of an acc
- - cated.
Required:
a. Prepare bank reconciliation on Decernber 31'
Required:
b. Prepare one journal entry only necessary to adjust the cash Prepare a bank recon(
account. adjusted balance metho
Prepare adjusting entrie
on August 31.

68
 Problem 2-9 (IAA)

?athetic Company revealed the following facts on August 31:

I alance ofcash in bank account 1,300,000
r:.^lance of bank statement
1,200,000
';:standing checks, August 31:
\umoer DDD 10,000
76r 55,000
762 40,000
763 25,000
764 65,000
765 70,000
.. -=rpts ofAugust 31, deposited September 1 275,OOO

'cank
statement showed the foliowing charges
---=
- Seiwice charge forAugust 5,000
\SF check received from a customer 85,000

-..= cashier-bookkeeper had misappropriated P30,000 and an

.-:itronal P10,000 by charging sales discounts and crediting
-unts receivable.
--.= stub for check number 765 and the invoice relating thereto
- . '.i' rhat it was for P50,000

-.. :heck was recorded incorrectly in the cash disbursements

-:':al as P70,000. The check was drawn in payment of an
;:rt payable.
:-ent has been stopped on check number 555 which was
..,".:
in payment of an account payable. The payee cannot be
.: i.
.- . quired:

h - r':pare a bank reconciliation on August 31 using the

. riusted balance method.

, -'=pare adjusting entries to correct the cash in bank account

, -\ugust 31.
69
Problem 2-10 (IAA) Problem 2-11 (AICPA I
Adversary Company kept all cash in a checking account. An Pearl Company maintains
examination of the accounting records and bank statement tsank. The bank provides
for the month of'June revealed the following information: canceled checks on the last d
" The cash balance per book on June 30 is P8,500,000' statement included the follr
* The cash balance per bank statement on June 30 is Balance, July 1
P8,200,000. Deposits
* A d.eposit of P1,000,00.0 that rvas placed in the bank's night
Checks procassed
S:nice charge
d.epository on June 30 does not appear on the bank I SF check
st,atement. l'li,nthl), loan payment deducteC
* The bank statement showed on June 30, the bank collected
note for Adversary Company and credited the proceeds Deposits outstanding totaiecj
of P950,000 net of coilection change of P50,000 to the
;y Pcarl Company were pr'
entity's account. -:reck of P500,000.
* Checks outstanding on June 30 amounted to P300,000 .1 P200,000 July deposit fror
including certified check of P100,000. . t,1" Pearl Company as P20.t
* :ccounts receivable.
Adversary Company discovered that a check written in
June for P200,000 in payment of an account payable had
been recorded as P20,000. -{, check correctly recorded
iisbursement was incorre,
* Included with the June bank statement was NSF check f 300, 000 disbursement.
for P250,000 that Adversary Company had received from
a customer on June 26. fhe cash balance per ledge
* The bank statement showed a P20,000 service charge for Required;
June.
i Determine the baiance p
Required:
L Prepare a bank recon(
1. Prepare a bank reconciliation on June 30 using the adjusted balance metho(
adjusted balance method.
.1 Prepare the necessry a
2. Prepare the adjusting entries on June 30 to correct the aecounts of Pearl Compa
accounts of Adversary ComPanY'

70
?:*:blem 2-11 (AICPA Adapted)
. .:-r' Company maintains a checking account at the City
:.,-.i. The bank provides a bank statement along with
:.::=l.ed checks on the Iast day of each month. The July bank
i: ::itr^ent included the following information:

: ' .:::e, JUly 1 3,200,0J0. '

F-,Lf 8,600,000 r
.;.;1:;lOCeSSed ?,500,000 +,

. hrrso 50,000
'" : i :r:ck 150,000
. ,:i--,' -.)an payment deducted by bank from account 500,000

: - - -iriS outstanding totaled P400,000 and all checks written

.-:- : f P5oo,o00.

-. i :a u.000 July deposit from a credit customer was recorded

:-. itarl Company as P20,000 debit to cash and credit to
::i': intE feceivable.
: :heck correctly recorded by Pearl Company as P30,000
' r:rrsernent was incorrectly processed by the bank as
- : -"-r 000 disbursement.

I--.= cash balance per ledger on July 31 is P4,290,000.

3,rquired:

- Determine the balance per bank sttaement on July 31.

(

Prepare a bank reconciliation on July 31 using tire

zdrusted balance method.

Frepare the necessry adjusting entries to correct the

accounts of Pearl Company on July 31.

7L
Problem 2-12 (AICPA Adapted) ?:,-,blem 2-14 (AICPA
In preparing the bank reconciliation for the month of August, . " r::aring the bank
Apex Company provided the foliowing information: .
- =:-ier. Case Companr
Balance per bank statement 1,805,000 - r-:r-:=:er bank statemeu
Deposit in transit 325,000 . - -: l:: tf anSit
-.
Return of customer check for insufficient fund 60,000 - - -:-: ::r-neouSlr-Creci::+ j .

-.. i:r'.-r,'- charse for D=:=

Outstanding checks 275,000
Bank service charge for August 10,000 : - -:=:k
--
- --.-.-^L^^t-^
_ -: Ulltlhs
-- ---1<

What arnount should be reported as adjusted cash in bank? -:: r:f-Unt $'aS fe;,:f:
' :-:I -= pef
a. 1,855,000 bOOk?
b. 1,795,000 -,,.t-i00
c. 1,785,000 ' r :'.:_ t-i01J
d. 1,755,000 : . - -t.t-l0tr
. r5 ,:l(,r0
Problem 2-13 (IAA)
Core Company provided the foliowing data for the purpose
i: -'nlem 2-15 (AICPA
of reconciling the cash balance per book with the cash balance . . :::I inY f€cs]\'tr f ::--
per bank statement on December 31:
,..,--Ll^
Balance per book 850,000
Balance per bank statement 2,000,000 -:r--r ti tl c(lnracl the ia:
Outstanding checks, including certified check of P100,000 500,000 ' . i. t': I infi,rmatrc :.
Deposit in transit 200,000
. _-' t: ::ck baLanct
December NSF checks, of which P50,000 had '. - --=::.ibr banli
been redeposited and cleared on December 27 150,000 ' '::. :.-itd On nOte
Erroneous credit to Core's account, representing ' "' - ---= -"- tf customer
proceeds ofloan granted to another company 300,000 -. . hrlqc
Proceeds ofnote collected by bank for Core, ' - :ri "" \SF :i
sel.\-lce char.*e
net ofservice charge ofP20,000 750,000 -: j--rrr:g checks
..: ,: Februarl'28 plac=,i.
What arnount should be reported as cash in bank . ,.- ,. = :ed b3' -lx1e Ccmpal-.
at year-end?
. . .-::OUnt \yas r.epCII
a. 1,500,000 t:=.i:lent']
b. 1,400,000
c. 1,800,000 -:i l-100

d. 1,450,000 r , 1100
: = - '1t00
' r , .1100

72
 ?roblem 2-14 (AICPA Adapted)
- ::=paring the bank reconciliation for the month of
- .--:rber. Case Company provided the following data:
0 -- .-,:-:= per bank statement 3,800,000
a - .:-: tn transit 520,000
0 -- ,.:-: :rroneously credited by bank to Case's account 40,000
ar :. -.- .=rr-ice charge for December 5,000
.'- . ^l-
- -- --rtrL_N
] 50,000
--.:.-::iing checks 675,000
' .:- rrrlount was reported as unadjusted cash in bank
.- : t -: per bOOk?

,:,i,-1.000
, " '_-trl.3oo
:'-
'.00U
._'i5.000

-:: rblem 2-15 (AICPA Adapted)

'
--. - - mpany received the bank staternent for the month of
-' : Horvever, the closing balance of the account was
. .-. ,:,rbie.
'- : rr-r:s to contact the bank after office hours
did not secure
- .::rred information.
- :.--.' 28 book balance
.. 1,460,000
-. -'red by bank 100,000
-- l::: :ai'ned On nOte 10,000
- - .:-=:x of customer 130,000
. .=r'..-ice charge on NSF check 2,000
' ".: -- : -i:ik service charge
3,000
.-. .,-.-::Lng checks 200,000
- --- -iFebruary 28placedinnightdepository 85,000
' - --,.sued by Axie Company charged to Able's account 20,000

, . r rrlount was reported as cash balance per bank

'-.:"mefft?
- L5.000
. r r1.000
. I _).000
, r -r.000

73

ffi.-tu
-.
 Problem 2-16 (IAA) Problem 2-18 (IAA)
Laconic Company received the bank statement for the month Glass Company provided tl
of April which included the following information:
Bank service charge for April 15,000 3a-lance per bank statement.
Check deposited by Laconic duringApril was not collectible )eposit ofJuly 30 not recorded t
and has been marked "NSF, by the bank and returned 40,000 Debit memo - service charge
Deposits made but not yet recorded by bank 130,000 ,'lredit memo - collection of note
Checks writterr and maileci but not yet recorded by bank 100,000
iutstanding checks
The entity found a custorner check for P35,000 payable to
Laconic Company that had not yet been deposited and had .\n analysis of the canceled
not been recorded. :ratement revealed the foll
The general ledger showed cash in bank account with balance
Check for purchase of i
of P920,000.
but was recorded by Gre
What amount should be reported as adjusted cash in bank
on April 30? The manager of Gras
traveling expenses of P
a. 900,000 check was not recorded
b. 865,000
c. 930,0O0
d. 965,000 - What amount of cash
July 31?
Problem 2-17 (IAA)
a. 970,000
Sapphire Company provided'the following information for b. 270,000
the month of December: c. 550,000
31
Balance per bank statement December 2.800,000
d. 610,000
Bank service charge for December 12,000
December 10,000
Interest paid by bank to Sapphire Company for \\trat amount was repor
bank
Deposits madc but not yet recorded hy the 350,000 on Juiy 31?
Checkswrittenbutnotyetrecordedbythebank 650,000
Sapphire Company discovered that it had drawn and a. 650,000
erroneousiy recorded a check for P46,000 that should have b. 750,000
been recorded fcrr P64,000. c. 810,000
What amount was reported as cash balance per ledger on
d. 850,000
December 31?
a. 2,500,000
b. 2,520,000
c. 2,540,000
d. 2,800,000

74

H
?roblem 2-18 (IAA)
-:-.ss Company provided the following information:

:. ::-ce per bank statement, JulY 31 1,240,000

- -;,srt of July 30 not recorded by bank 280,000
, .: -: memo - service charge 10,000
:. it memo - collection of note by bank for Grass 300,000
-:-.tanding checks 550,000

r-:. airah'sis of the canceled checks returned with the bank

r:":;ment revealed the following:
" (lheck for purchase of supplies was drawn for P60,000
'Dut rvas recorded
by Grass Company as P90,000'

" The manager of Grass Company wrote a check for

:raveling expenses of P100,000 while out of town. The
-reck was not recorded.
\\-hat amount of cash in bank should be reported on
iuir'31?
z. 970,000
'o. 270,000
c. 550,000
c. 610,000
-.\laat
amount was reported as cash balance per ledger
cn July 31?

a. 650,000
b. 750,000
c 810,000
,l 950,000

'lD
 Problem 2-19 (IAA) Problem 2-20 (AICPA

Timex Company provided the following data relating to the Jane Company provided fo.
cash transactions and bank account for the month of July :
Cash in bank per bank state
Deposit in transit
Cash balance per ledger ?
Outstanding checks, includrng
Cash balance per bank statement ?
check ofP200,000
Debit memo for July service charge 5,000
-:.nount erroneously credired t
Deposit of JuIy 31 not recorded by bank untii \rte collected by bank for Jan=
August 1 450,000 rnterest of P100,000
Outstanding checks, including certified check S:n-ice charge for the currenl
of P50,000 750,000 -t' SF checks of customers ret'!rl
Proceeds of bank toan not recorded in ledger 500,000 Ilror in recording a check in i
Proceeds from customer note, face P400,000, amount as paid by the bar
collected by bank, collection fee of P15,000 435,000 ofP200,000 as recorded rrl
A creditor check had been entered in the book S.-,-rng deposit in other bank c.
';rrenc1,- and coins on ha:rci
as P20,000 and was erroneously deducted by -
:':::1'CaSh fund
the bank at 200,000
A customer check was returned by bank
marked DAIF 50,000
\\hat amount shorild b=
at month-end?
Correct cash balance 3,000,000
a. 7,750.000
1. What amount was reperted as cash balance per ledger? b. 7,900,000
c. 8,050,000
a. 2,120,000 d. 7,550,000
b. 3,055,000
c. 2,555,000 ar,rount \r'as l'ep
"\-hatledger at month-
per
d. 2,065,000
l
070,000
2. What amount was reported as cash balance per bank - 220,000
statement? 270,000
: 750,000
a. 3,700,000 -,ileat
b. 3,070,000 total amount of i
c. 3,050,000
:->:gL.

d. 2,370,000 :.9.700,000
: 9.700,000
: s,020,000
: 8,850,000

76

l-." E
?:oblem 2-20 (AICPA Adapted)
"
,:-= Company provided following information at month-entl:

::.-- :n bank per bank statement 8,000,000

:: s:I in tranSit 1,200,000
-: =: irding checks, including certified
-:,-ck of P200,000 1,500,000
- :, -:r: elroneously credited by bank to Jane's account 150,000
:
= - - -,Lected by bank for Jane Company, inciuding
--.:ei'est of P100,000 1,100,000
-- : -. -: :harge for the current month 20,000
- :-recks of customers returned by bank 500,000
r ,::n recording a checkinthe book. The correct
.- runt as paid by the baqk is P100,000 instead
. : Pi 00.000 as recorded in the book 100,000
' -a ieposit in other bank closed by BSP 1,000,000
--r: l 3',- ancl coins on hand 900,000
-- :ash fund 50,000
-i
:l:t amount should be reporte d as adju,sted, caslt in banlz
,.: Ilorlth-end?
;.;50.000
;.900,000
8.050,000
;,550,000
'i-:-ar
ar^rount was reported as unadjusted cash in bank
per ledger at month-end?
. 1.070,000
- ;.1J0,000
- t;0,000
: 1.750,000
'' :at total amount of cash should be reported as current
::::l-,

E.700,000
9.700,000
s.020,000
s.350,000

77

1"* - .. f IIII
'r-r
 Problem 2-21 (AICPA AdaPted) Problwm 2-22 Multipk
Boracay Company kept ail cash in a checking account' An bank leconciliatior, r.
of"the'bank statement for the month of --\
"*."ri"rtion
D;;;;t"t revealed a bo'nk staternen't balance of P8'470'000' a. '\ financial statemen
haiances of an entitl-
A d.eposit of P950,000 placed in the bank's night depository
on December 29 does not appear on the bank statement' b. merger of trvo ban;
^A.
c. A statement sent br- :
Checks outstanding on December 31 totaled P270'000' basis.
The bank stateutent showed" that on December 25 the bank d. ^{ scheduie that ac,::
collected a note for Boracay Company and credited the cash balance shou-n c
pr""u"a* of P935,000 to the entity's account net of P15'000 balance shorvn on th,
service charge.
Boracay Company discovered that a check written in \\hi,ir of the fo11ox'ing .

D;;;ft- fo. Ptg"a,o00 pavment of an account had been balance per iedger in pre
recorded as P138,000. ends with adjusted cash
Included with the December 31 bahk statement was an NSF a. Note i'eceivable cr l
for P250,000 that Boaracay Company had received from depositor and cred:te
"tr".t
a customer on December 20. b. NSF customer check
The bank statement showed a P15,000 service charge for c. Service charge
December. d. Erroneous bank debi
1. What amount should be reported as adjusted cash in
bank on December 31? \trhich of the following ri
bank staternent to arnve
a. 9,150,000
b. 9,240,000 tr. Outstanding check
c. 9,195,000 b. Bank service charge
d. 9,215,000 c. Deposit in transit
2. What amount was reported as unadjusted balance per d. A customer note coLie
book on December 31? depositor
a. 8,480,000 \lhich of the following :
b. 8,525,000 statement balance in pre;
c. 8,435,000
d. 8,510,000 ends with adjusted cash

3. What amount should be recorded as net adjustment to cash a. Deposit in transit

in bank on Decernber 31? b. Outstanding check
a. Net i-lo:hrt 935,000 c. Reduction of }oan cha:
b. Net credit 310,000 d. Certified check
c. Net debit 625,000
d. Net credit 625,000
78

E-
:- -
 ? :'rblwrn 2-22 Multiple choice (IAA)
J}
)f tank reconciliation is
0.
-\ financial statement that lists ali of the bank account
i'alances of an entity.
-{ nrerger of two banks that previously were competitors.
^{ statement sent by the bank to depositor on a monthlv
i,a sis.
{scheduie that accounts tbr tire differences between
cash balance shou,n on the bank statement and the cash
balance shown on the general ledger.
','"
::r--r of the following items must be added to the cash
- '--ance per ledger in preparing a bank reconci_liation
which
.:is u'ith adjusted cash balance?
\,;te receivable collecteci by bank in favor of the
lepositor and credited to the account of the depositor
\SP customer check
Service charge
Elroneous bank debit
',',lch of the foilowing
would be added to the balance per
. ,rk sraternent to arrive at the correct eash balance?
. Outstanding check
: Bank scnrice charge
. Deposit in transit
,r : \ customer note collected by the bank on behalf of the
depositor
""t
nch of the following must be deducted ftom the bank
::ar€menl balance in preparing a bank reconciliation which
.:is with adjusted cash balance?
ih
: Outstanding check
- Reduction ofloan charged to the account ofthe depositor
: Certified check

7S
5. If the balance shorvn in the bank statement is less than the 9. Which of the fbllowing s

correct cash balance and neither the entity nor the bank check is not true?
has made any errors, there must be .
a. A certified check is a
b. A certified check rvili
a. Deposits credited by the bank but not yet recorded by would not other"w-ise
the depositor c. A certified check is o
b. Outstanding checks d. A certified check
c.
,

Deposits in transit outstanding checks.

d. Bank charges not yet recorded by the depositor
\\-hich of the following
6. If the cash balance shown in the accoutt'ting record' is less ieconciliation is true?
than the cotrect cash balance and neither the entity rlor
the bank has made any errors, there rnust be :i. Bank service charge
ledger to be higher
a. Deposits credited by the bank but not' yet recorded by all other things bein
the depositor
b. I)eposits in transit to be higher than thz
c. Outstanding checks things being equal.
d. Bank charges not yet recorded by the depositor - Outstanding checks
iedger to be greater r
7. Bank reconciliatiotrs ei'e norrnaliy preparcd on a monthly bank, all other thing
basis to ici.entify adjustments needed in the deposit;or's r The cash amounr
records and to identifu bank errors' A.djustrnents on the tinancial positi.on rnu
part of the clepositor should be recorded fbr bank statcntent.
a. Bank errors, outstanding checks and deposits in transit'
b. Atl items except trank errors, outstanding checks and
in tralsit.
deposits
c. Book errors, bank errors, deposits in transit and
outstanding checks"
d. Outstanfing checks and deposits in transit'

8. Bank statements provide information about ail of the

following, excePt

a. Checks cleared during the peri'od

b. NSF checks
c. Bank charges for the Period
d. Errors made bY the dePositor

80

---
'.',
irch of the following statements in relation to a certified
: eck is not true?

,. -{ certified check is a liability of the bank certifying it.

-\ certified check will be accepted by many persons who
ri-ould not otherwise accept a personal check.
- -\ certified check is one drawn by a bank upon itseif.
: \ certified check should not be included in the
rutstanding checks.
-,''-r:,ch
of the foilowing statements in relation to bank
- =::,nciliation is true?
. Bank service charge u,ill cause the cash balance per
iedger to be higher than that reported by the bank,
ail other things being equal.
- Ci'edit memos will cairse the cash balance per ledger
:o be higher than that reported by the bank, all other
rirings being equal.
. tlutstanding checks will cause the cash balance per
ieclger to be greater than the balance reported by the
'rank,
all other things being equal.
r The cash amount reported in the statement of
:inancial position must be the balance reported in the
Lank statrrutent.

81