Fundamental of Accountancy,

Learning Area Grade Level 11

W2 Quarter
Business and Management 2
4 Date
I. LESSON TITLE Bank Reconciliation Statement
II. MOST ESSENTIAL LEARNING
Prepare a Bank Reconciliation Statement ABM_FABM12- IId-13
COMPETENCIES (MELCs)
III. CONTENT/CORE CONTENT Preparing a Bank Reconciliation Statement

IV. LEARNING PHASES AND LEARNING ACTIVITIES

I. Introduction (Time Frame: 30 minutes)
At the end of the lesson, you are expected to:
1. Distinguish the steps in preparing a bank reconciliation statement.
2. Prepare a bank reconciliation statement.
3. Analyze bank reconciliation statement based on the given problem.

In this module you will learn about bank reconciliation statements. You will be able to prepare bank reconciliation and
analyze its method on the given problem.

A bank reconciliation statement is a report that is prepared for the purpose of bringing the balances of cash (a) per records
and (b) per bank statement into agreement. Prepared on monthly basis immediately upon receipt of monthly bank statements
from banks.

In the previous module we have already learned the different key terms when dealing with a
bank reconciliation.

A bank reconciliation statement has the following format:

Ledger (Book of Company) Balance reconciling items:

(notes: happen in the bank but did not know by the company/depositors.)

• Balance per books end - the cash balance in the accounting records as of the end of the current month. On the
statement above the “balance per books end” is the cash balance in the accounting records as of August 31, 2016.
• Credit memos (CM)- are additions (bank credits) made by the bank to the depositor’s bank account but not yet recorded
by the depositor. (not recorded on book of the company).
includes:
- Notes receivable- collection made by bank on behalf of depositors.
- Interest earned- interest income earned by the deposit.
- Proceeds from loan directly credited or added by the bank to the depositor’s account.
• Debit memos (DM)- are deductions (bank debits) made by the bank to the depositor’s bank account but not yet
recorded by the depositor.

includes:

- Bank service charges- representing bank charges for fees, interest, penalties, and surcharges.
- No sufficient funds checks (NSF) or Drawn against insufficient funds checks (DAIF) – checks deposited and already
recorded by the bank but subsequently returned to the depositor because the drawer’s fund is insufficient to pay
the check.
- Automatic debits, e.g., automatic payments of bills by the bank on behalf of the depositor.
- Payment of loans
• Book errors- errors committed by the depositor (e.g., erroneous recording in the accounting books).

Bank Balance reconciling items:

(notes: happen in company but did not know by the bank.)

• Balance per bank statement, end. – the ending cash balance in the bank statement of the current month.
• Deposits in transit – are deposits already made but not yet received by the bank or received by the bank but not yet
credited to the depositor’s bank account.
- often occur when deposits are mailed to the bank, placed in a overnight depository, made through check and
the check has not yet cleared, or made after the bank’s cut-off.
 • Outstanding checks – These are checks drawn and released to payees but are not yet encashed with the bank and
exclude certified checks and stale checks.
• Bank errors – errors committed by the bank.

Preparation of Bank Reconciliation Statement

One of the internal control features in every company is the monthly bank reconciliation. This is done to show that there is no
discrepancy between the cash balance per book records and the cash balance per bank records.

The following are the steps in preparing Bank Reconciliation Statement:

Step 1. Adjusting the Balance per Bank

The first step is to adjust the balance on the bank statement to the true, adjusted, or corrected balance. The items
necessary for this step are listed in the following schedule:

Step 2. Adjusting the Balance per Books

The second step of the bank reconciliation is to adjust the balance in the company’s Cash account so that it is the true,
adjusted, or corrected balance. Examples of the items
involved are shown in the following schedule:

Step 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 What is It 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).

B. Development (Time Frame: 90 minutes)

Illustration 1:
Given the following information, prepare a bank reconciliation statement of XYZ Company.

1. The bank statement for July 2019 shows an ending balance of ₱ 3,490.
Answer: Bank: ending balance ₱ 3,490.

2. On July 31, the bank statement shows charges of ₱ 35 for the service charge for maintaining the checking account.
Answer: Book. ₱ 35 will be deducted to book records as bank service charges.

3. On July 31, the bank statement shows a return item of ₱ 100 plus a related bank fee of ₱ 10. The return item is a
customer’s check that was returned because of insufficient funds.
Answer: Book. ₱ 110 will be deducted to book records as NSF checks.

4. The bank statement shows a charge of ₱ 80 for check printing on July 20.
Answer: Book. ₱ 80 will be deducted to book records as Check printing charges.

5. The bank statement shows that ₱ 8 was added to the checking account on August 31 for interest earned by the
company during the month of August.
Answer: Book. ₱ 8 will be added to bank book records as interest earned.

6. The bank statement shows that a note receivable of ₱ 1,000 was collected by the bank on July 29 and was deposited
into the company’s account. On the same day, the bank withdrew ₱ 40 from the company’s account as a fee for
collecting the note receivable.
Answer: Book. ₱ 960 will be added to book records as notes receivable collected less fees.

7. The company’s Cash account at the end of July shows a balance of ₱ 967.
Answer: Book. Ending balance ₱ 967.
 8. During the month of July, the company wrote checks totaling more than ₱ 50,000. As of July 3, ₱3,021 of the checks
written in July had not yet cleared the bank and ₱ 200 of checks written in June had not yet cleared the bank.
Answer: Bank. ₱ 3,221 will be deducted from Bank records as outstanding checks.

9. The ₱ 1,450 of cash received by the company on July 31 was recorded on the company’s books as of August 31.
However, the ₱ 1,450 of cash receipts was deposited at the bank on the morning of August 1.
Answer: Bank. ₱ 1,450 will be added to bank records as Deposit in transit.

10. On July 29, the company’s Cash account shows cash sales of ₱ 145. The bank statement shows the amount deposited
was actually ₱ 154. The company reviewed the transactions and found that ₱ 154 was the correct amount.
Answer: Book. ₱ 9 will be added in book records as errors in company’s Cash account.

The bank reconciliation statement for this example is:

Illustration 2: Reconciling items and use of formula.

On October 1,2018, you opened a checking account for your business for an initial deposit of P10,000. During the
month, you wrote checks totaling P5,000 and made a P2,000 deposit on October 29, 2018. Accordingly, the ending balance
 of your “Cash in Bank” account per accounting records is P7,000 (10,000 beg. – 5,000 withdrawal + 2,000 deposit = 7,000 end)-
book record/company’s record

Today, November 3, 2018, you received the October 31,2018 bank statement and found out that your account
balance is P16,400- bank record.

Noted the following differences.

Cash balance per books (company’s record). P7,000

Cash balance per bank statement (bank record. 16,000
Difference P 9,400 – need to reconcile to make it balance.

Investigation:

a. One of your customers deposited P12, 000 to your bank account as payments for a purchase.
Analysis: this is Credit Memo (CM) i.e.., addition by bank to depositor’s account but not yet recorded by the depositor
books.

b. The bank paid your Globe internet bill of P1,600 on your behalf. You have agreed to this arrangement.
Analysis: this is Debit Memo (DM) i.e..., deduction by bank from depositor’s account but not yet recorded by the depositor
books.

c. Your P2,000 deposit on October 29, 2018 was not yet reflected on the bank statement because the deposit was through
check and it takes about 3 days for check to clear the bank.
Analysis: this is Deposit in Transit (i.e., deposit made but not yet credited to the depositor’s bank account.

d. Of the total P5,000 checks you have written, only P4,000 were encashed by the payees.
Analysis: the P1,000 check not yet encashed is Outstanding Check (i.e., check drawn and release to payees but not yet
encashed).

Analysis of the Effects of the Identified Reconciling Items

TRANSACTION NAME OF THE ADD/ ADD/DEDUCT.

BANK / BOOK DEDUCT TO TO BANK

RECONCILING BOOK

ITEM

a. Customers deposited Credit Memo (CM Add to book

P12, 000 to your bank
account as payments
for a purchase
b. bank paid your Globe Automatic debits (Debit Less to book
internet bill of P1,600 Memo)

c. deposit P2,000 not Deposit in Transit Add to bank

reflected to the bank
d. the P1,000 check not Outstanding Check (OC) Less to bank
yet encashed.

Prepared Bank Reconciliation:

 Your Business

Bank Reconciliation

For the month ended October 31, 2018.

Bal. per books end P7,000 Bal. per bank statement, end P 16,400
Add: Credit memo (CM) 12,000 Add: Deposits in transit (DIT) 2,000
Less: Debit memos (DM) (1,600) Less: Outstanding checks (OC) (1,000)
Add/Less: Book errors - Add/Less Book errors -
Adjusted book balance P17,400 Adjusted book balance P17,400

Note: Your October 31, 2018 statement of financial position will show an adjusted “Cash in Bank” Balance of P17,400

C. Engagement

Learning task 1: Check Me!

Direction: Determine whether the following reconciling items should be added to the book or bank account balance or
deducted from the book or bank account balance by putting a (√) checkmark. Write your answer on a separate sheet of
paper.
D. Assimilation

Learning task 2: Bank Reconciliation Problem

Entity A is preparing its March 31, 20x1 bank reconciliation. The following information was determined:

a. The cash balance per books is ₱280,000 while the cash balance per bank statement is ₱320,000.
b. Credit memo – ₱20,000
c. Debit memo – ₱15,000
d. Deposits in transit – ₱75,000
e. Outstanding checks – ₱25,000
f. The disbursements per books are overstated by ₱45,000.
g. The bank debits are understated by ₱40,000.

Requirement: Prepare the bank reconciliation.

V. Assessment

Learning task 3:
MULTIPLE CHOICE. Write the chosen letter on a separate sheet of paper.

1. Brix company has a P1,860,000 balance per book, a P311,000 deposit in transit, P53,000 outstanding checks, a P56,000
credit memo, and a P129,000 NSF check. What is the adjusted cash balance?
a. P1,585,000
b. P1,975,000
c. P1,787,000
d. P1,722,000

2. Max Co. has a P2,000,000 cash balance per books, P521,000 deposit in transit, P543,000 outstanding checks, P591,000
notes collected by the bank from the entity's customers, P1,200 bank service charge and P88,400 DAIF check. What is
the adjusted cash balance?
a. P2,048,000
b. P2,502,600
c. P2,501,400
d. P2,179,000

3. AC company has a P1,800,000 cash balance per bank statement, P685,000 deposits in transit, P536,000 NSF check,
P200,000 erroneous deduction by the bank from the company's account, and P380,000 outstanding checks. What is the
adjusted cash balance?
a. P1,841,000
b. P2,377,000
c. P1,264,000
d. P2,336,000

4. ABC company has P1,000,000 cash balanced per bank statement P550,000 deposit in transit 900 interest earned on the
deposit not yet recorded in the books of accounts, 1,000 bank service charge, and P200,100 outstanding check. What
is the adjusted cash balance?
a. P1,350,000
b. P1,750, 100
c. P1,349,100
d. P1,351,000
5. Carlos Repairs has a P1,500,000 cash balance per bank statement P600,000 deposit in transit, P5,000 interest earned on
the deposit, net of tax, P1,000 service charge, P250,000 outstanding checks, and P90,000 NSF check. What is the
adjusted cash balance?
a. P2,114,000
b. P1,750, 100
c. P1,349,100
d. P1,850,000
 6. Carol Laundry Shop has a P2,300,000 cash balance per bank statement, a P398,000 deposit in transit, P320,000 NSF checks, and a P200,000
outstanding check. What is the adjusted cash balance?
a. P2,178,000
b. P2,620,000
c. P2,498,000
d. P2,142,000
7. Miracle Builders has P1,478,000 cash balance per bank statement, P533,000 deposit in transit, P233,000 NSF check, P205,000 erroneous credit
by the bank to the entity's account, and P221,000 outstanding check. What is the adjusted cash balance?
a. P1,585,000
b. P1,352,000
c. P1,542,000
d. P1,818,000
8. Cristine, the bookkeeper, erroneously recorded a deposit of P420 as P720. What is the adjustment in the bank reconciliation?
a. P720 addition to the book balance
b. P720 deduction from the book balance
c. P300 addition to the book balance
d. P300 deduction from the book balance
9. Boyet Computer Store recorded a check withdrawal of P78,400 as P76,400. The check cleared the bank at the correct amount of P78,400. What
is the adjusted correct cash balance per book?
a. P78,400 addition to the book balance.
b. P78,400 deduction from the book balance.
c. P2,000 addition to the book balance.
d. P2,000 deduction from the book balance.
10. XYZ company's records show a cash balance of P31,200, but the bank statement shows a balance of P30,000. If there is only one reconciling
item, the P1,200 difference would most likely be a(an)
a. credit memo.
b. overstated book credit.
c. outstanding check.
d. NSF check

VI. REFLECTION

Complete the following phrases.

I understand that ___________________________________________________________________________________.

I realize that _______________________________________________________________________________________.

I need to learn more about ___________________________________________________________________________.

VII. REFERENCES Rodiel C. Ferrer, Zeus Vernon B. Millan (3rd Edtion) Fundamentals of Accountancy, Business and
Management 2
Kevin Troy M. Chua Macy, CPA, CPP, CTT, Sir Chua Accounting Lesson PH

Prepared by: Delia D. Abel Checked by: