LECTURE NOTES ON BANK RECONCILIATION

1. Bank reconciliation

The bank reconciliation, when properly prepared, proves that the cash balance per bank and the cash balance per book are
in agreement.

Periodic bank reconciliations can help identify any cash errors or irregularities that have occurred in accounting for cash, either
by the entity or the bank.

Prepared by an individual who neither handles nor records cash.

Most differences in bank and book balances for cash are “normal” and are the result of temporary timing lags.

Deposits in Transit - Deposits recorded in the cash account in one period but not received by the bank until the next period.

Outstanding Checks - Checks written by the company that have yet to be presented at the bank for collection.

Bank Charges - Charges by the bank for services that are deducted from the account by the bank and which the company
learns of when it receives the bank statement.

Bank Credits - Collections or deposits in the company's account that the company is not aware of until receipt of the bank
statement.

Bank or Depositor Errors - Errors made by the company or the bank that must be corrected for the reconciliation to balance.

2. Forms of bank reconciliation

Two forms of bank reconciliation may be prepared.

One form reconciles from the bank statement balance to the book balance or vice versa.

The other form is described as the reconciliation of bank and book balances to corrected cash balance. This form is composed
of two separate sections that begin with the bank balance and book balance, respectively. Reconciling items that apply to
the bank balance are added and subtracted to arrive at the corrected cash balance. Likewise, reconciling items that apply to
the book balance are added and subtracted to arrive at the same corrected cash balance. The corrected cash balance is the
amount that should be shown on the balance sheet at the reconciliation date.

STRAIGHT PROBLEM

The Cash in Bank account of Dollar Company disclosed a balance of P203,000 as of December 31. The bank statement as of
December 31 showed a balance of P106,000. Upon comparing the bank statement with cash records, the following facts
were developed:

a. The company’s account was charged on December 26 for a customer’s uncollectible check amounting to P30,000.

b. A two-month, 17% P60,000 customer’s note dated October 25, discounted on November 25, was dishonored on
December 25, and the bank charged the company P62,000, which included a protest fee of P2,000.

c. A customer’s check for P15,400 was entered as P14,500 by both the depositor and the bank but was later corrected by
the bank.

d. Check no. 142 for P12,425 was entered in the cash disbursements journal at P12,245 and check no. 156 for P3,290 was
entered as P32,900.

e. Bank service charges of P1,830 for December were not yet recorded on the books.

f. A bank memo stated that a customer’s note for P25,000 and interest of P1,000 had been collected on December 28; and
the bank charged P500. (No entry was made on the books when the note was sent to the bank for collection).

g. Receipts on December 31 for P24,000 were deposited on January 2.

h. The following checks were outstanding on Dec. 31:

No. 123 P3,000 No. 154 P4,000
143 * 2,000 157 6,000
144 7,000 159 7,000
147 3,000 169 5,000
* Certified by the bank in December

i. A deposit of P20,000 was recorded by the bank on December 5, but it should have been recorded for Dolor Company
rather than Dollar Company.

j. Petty cash of P10,000 was included in the Cash in Bank balance.

k. Proceeds from cash sales of P60,000 for December 18 were stolen. The company expects to recover this amount from
the insurance company. The cash receipts were recorded in the books, but no entry was made for the loss.

l. The December 21 deposit included a check for P20,000 that had been returned on December 15 marked NSF. Dollar
Company had made no entry upon return of the check. The redeposit of the check on December 21 was recorded in the
cash receipts journal of Dollar Company as a collection on account.

REQUIRED:
1. Prepare a bank reconciliation using:
a) Bank to book method;
b) Book to bank method; and
c) Adjusted balance method

Prepare adjusting entries as of December 31

MULTIPLE CHOICE PROBLEMS

1. The following data pertaining to the cash transactions and bank account of Mandirigma Company for the month of May
are available to you:

Cash balance, per records, May 31 P17,194

Cash balance, per bank statement, 5/31 31,948
Bank service charge for May 109
Debit memo for the cost of printed checks
delivered by the bank 125
Outstanding checks, May 31 6,728
Deposit of May 30 not recorded by bank
until June 1 4,880
Proceeds of a bank loan of May 30, net of interest
of P300 5,700
Proceeds from a customer's promissory note,
including interest of P100 8,100
Check No. 2772 issued to a supplier entered in the
accounting records at P2,100 but deducted in
the bank statement at an erroneous amount of
1,200
Stolen check lacking an authorized signature,
deducted from Mandirigma's account by the
bank in error 800
Customer's check returned by the bank marked
NSF; no entry has been made in the accounting
records to record the returned check
760
What is the correct cash balance at May 31?

2. The information below is from the books of the Seminole Corporation on June 30:

Balance per bank statement P11,164

Receipts recorded but not yet deposited in the
bank 1,340
Bank charges not recorded 16
Note collected by bank and not recorded on
books 1,120
Outstanding checks 1,100
NSF checks - not recorded on books nor
redeposited 160

Assuming no errors were made, compute the cash balance per books on June 30 before any reconciliation adjustments.

3. The cash in bank account of S-mart, Inc. for April showed an ending balance of P129,298. Deposits in transit on April
30 was P18,200. Outstanding checks as of April 30, were P59,435, including a P5,000 check which the bank had certified
on April 27. During the month of April, the bank charged back NSF checks in the amount of P3,435 of which P1,835 had
been redeposited by April 20. On April 23, the bank charged S-Mart’s account for a P2,200 items which should have
been charged against K-mart, Inc., the error was not detected by the bank. During April, the proceeds from notes
collected by the bank for S-Mart, Inc. was P7,548 and bank charges for this services was P18.

How much is the unadjusted balance per bank on April 30?

Use the following information for the next two questions.

Shown below is the bank reconciliation for YOUR Company for the month of May:
Balance per bank, May 31 P75,000
Add: Deposits in transit 12,000
Total 87,000
Less: Outstanding checks P14,000
Bank credit recorded in error 5,000 19,000
Cash balance per books, 5/31 P68,000

The bank statement for the month of June contains the following data:

Total deposits P55,000

Total charges, including an NSF check of P4,000 and a
service charge of P200 48,000

All outstanding checks on May 31, including the bank credit, were cleared in the bank in June.

There were outstanding checks of P15,000 and deposits in transit of P19,000 on June 30.

4. Cash receipts per books in June is

5. Cash disbursements per books in June is
Use the following information for the next two questions.

Banaue Company deposits all receipts and makes all payments by check. The following information is available from the cash
records:

May 31 Bank Reconciliation

Balance per bank P262,460
Add: Deposits in transit 21,000
Deduct: Outstanding checks ( 38,000)
Balance per books P245,460

Month of June Results Per Bank Per Books

Balance June 30 P279,950 P303,550
June deposits 107,840 158,890
June checks 111,000 100,800
June note collected (not included in
June deposits) 30,000 -0-
June bank service charge 350 -0-
June NSF check of a customer
returned by the bank (recorded
by bank as a charge)
9,000 -0-

6. The deposits in transit as of June 30 is

7. The outstanding checks as of June 30 is

8. The following information was included in the bank reconciliation for Ryan, Inc. for June. Assume all other reconciling
items are listed.

Checks and charges recorded by bank in June,

including a June service charge of P600
P344,200
Service charge made by bank in May and recorded
in the books in June 400
Total of credits to Cash in all journals during June
396,040
Customer’s NSF check returned as a bank charge in
June (no entry made on books)
2,000
Customer’s NSF check returned in May and
redeposited in June (no entry made on books
in either May or June) 5,000
Outstanding checks at June 30 265,200
Deposits in transit at June 30 12,000

What was the total of outstanding checks at the beginning of June?