BANK RECONCILIATION

BANK RECONCILIATION STATEMENT

 It is a report which compares the bank balance as per company’s accounting

records with the balance stated in the bank statement.

Accounting Records Bank Statement

BANK RECONCILIATION STATEMENT?

Accounting Records Bank Statement

In the company’s books:

increase in cash is debited
decrease in cash is credited
Notice:
increase in company’s cash is credit
decrease in company’s cash is debit
METHODS OF PREPARING BANK
RECONCILIATION STATEMENT

ADJUSTED BOOK TO BANK BANK TO BOOK

METHOD METHOD METHOD
Here, the balances per Here, the book balance is Here, the bank balance is
bank and per book are adjusted to agree with the adjusted to agree with
separately determined. bank balance. book balance.
RECONCILING ITEMS (BANK BALANCE)

DEPOSITS IN TRANSIT +
These are amounts already received and recorded by the company, but are not yet recorded by
the bank.

OUTSTANDING CHECKS -
These are checks that have been written and recorded in the company's Cash account but have
not yet cleared the bank account or presented to the bank by the payee.

BANK ERRORS + -
These are mistakes made by the bank and may include:
 Recording an incorrect amount
 Entering an amount that does not belong on a company's bank statement, or
 Omitting an amount from a company's bank statement
 RECONCILING ITEMS (BOOK BALANCE)

CREDIT MEMOS +
These are items credited by the bank to the company’s bank account but not yet recorded in the
company’s books. These include Notes Receivable collected by the bank in behalf of the
company and interest earned in putting the company’s cash in the bank.

DEBIT MEMOS -
These are items charged against the company’s bank account but not yet recorded in the
company’s books. These includes NSF (not sufficient funds) checks which are checks deposited
but were returned by the bank because the source account has insufficient balance as well as
bank service charges.

BOOK ERRORS + -
These are results from the company entering an incorrect amount, entering a transaction that
does not belong in the account, or omitting a transaction that should be in the account.
ADJUSTED BALANCE METHOD

Book balance
Bank balance
+ Notes collected

Bank balance + Interest earned

+ Deposit in transit - NSF checks

- Outstanding checks - Service charges

= ADJUSTED BALANCE
+/- Bank error +/- Book error

= ADJUSTED BALANCE = ADJUSTED BALANCE

BANK TO BOOK METHOD

Bank balance

Bank balance + Deposit in transit

- Outstanding checks

+/- Bank error

- Notes collected
- Interest earned
= ADJUSTED BALANCE
+ NSF checks

+ Service charges
+/- Book error

= Book balance
BOOK TO BANK METHOD

Book balance
Bank balance + Notes collected
+ Interest earned
- NSF checks

- Service charges
+/- Book error
= ADJUSTED BALANCE
- Deposit in transit
+ Outstanding checks

+/- Bank error

= Bank balance
Illustrative Problem 1:
Luna Company maintains cash in PBI Bank. The following information was made
available for the month of June 2020.

• The bank statement at the end of the month shows 10,000.

• Deposits not yet reflected in the bank statement, 84,000.
• Checks issued but not yet encashed, 65,000.
• The bank made an error of debiting the account of Luna Company which was
actually for Alun Company, 4,000.
• The company’s books show a cash in bank balance of 12,000.
• Notes receivable collected by the bank for Luna amounted to 16,000.
• Interest earned by Luna from keeping their cash at PBI bank is 5,000.
• PBI bank charged Luna 1,000 service charges directly debited to their account as
seen in the bank statement.
• Luna received a check from Sioux Company amounting to 7,000 but it was
drawn against insufficient funds.
• There was a bank related transaction that erroneously credited the book
balance of cash in bank account amounting to 8,000.

REQUIREMENT:
Prepare a BANK RECONCILIATION STATEMENT using the three methods.
Illustrative Problem 1: ADJUSTED BALANCE METHOD
Luna Company maintains cash in PBI Bank. The following
information was made available for the month of June
2020.

• The bank statement at the end of the month shows LUNA COMPANY
10,000.
• Deposits not yet reflected in the bank statement,
BANK RECONCILIATION STATEMENT
84,000. JUNE 30, 2020
• Checks issued but not yet encashed, 65,000.
• The bank made an error of debiting the account of
Luna Company which was actually for Alun Company, Bank statement balance 10,000
4,000.
• The company’s books show a cash in bank balance of
Deposit in transit 84,000
12,000. Outstanding checks (65,000)
• Notes receivable collected by the bank for Luna
amounted to 16,000.
Bank error 4,000
• Interest earned by Luna from keeping their cash at PBI Adjusted cash-in-bank balance 33,000
bank is 5,000.
• PBI bank charged Luna 1,000 service charges directly
debited to their account as seen in the bank Book balance 12,000
statement.
• Luna received a check from Sioux Company
Notes collected by the bank 16,000
amounting to 7,000 but it was drawn against Interest earned 5,000
insufficient funds.
• There was a bank related transaction that erroneously
Bank service charges (1,000)
credited the book balance of cash in bank account NSF check (7,000)
amounting to 8,000.
Book error 8,000
REQUIREMENT: Adjusted cash-in-bank balance 33,000
Prepare a BANK RECONCILIATION STATEMENT using the
three methods.
 Since the cash account has been adjusted
ADJUSTED BALANCE METHOD at the end of the month, adjusting entry
needs to be set up to recognize the
adjustments made.
LUNA COMPANY
BANK RECONCILIATION STATEMENT Note: What needs to be adjusted are only
those in the company’s accounts (books).
JUNE 30, 2020
ADJUSTING ENTRY:
Bank statement balance 10,000 Cash-in-bank 16,000
Deposit in transit 84,000 Notes receivable 16,000
To recognize the notes collected.
Outstanding checks (65,000)
Bank error 4,000 Cash-in-bank 5,000
Adjusted cash-in-bank balance 33,000 Interest revenue 5,000
To recognize the interest earned.

Book balance 12,000 Bank service charges 1,000

Notes collected by the bank 16,000 Cash-in-bank 1,000
Interest earned 5,000 To recognize bank service charges

Bank service charges (1,000) Accounts receivable 7,000

NSF check (7,000) Cash-in-bank 7,000
Book error 8,000 To recognize receivable from Sioux
Company.
Adjusted cash-in-bank balance 33,000
Cash-in-bank 8,000
Miscellaneous account 8,000
To recognize an erroneous transaction.
 BANK TO BOOK METHOD BOOK TO BANK METHOD

LUNA COMPANY LUNA COMPANY

BANK RECONCILIATION STATEMENT BANK RECONCILIATION STATEMENT
JUNE 30, 2020 JUNE 30, 2020

Bank balance 10,000 Book balance 12,000

Deposit in transit 84,000 Notes collected by the bank 16,000
Outstanding checks (65,000) Interest earned 5,000
Bank error 4,000 Bank service charges (1,000)
Notes collected by the bank (16,000) NSF check (7,000)
Interest earned (5,000) Book error 8,000
Bank service charges 1,000 Deposit in transit (84,000)
NSF check 7,000 Outstanding checks 65,000
Book error (8,000) Bank error (4,000)
Book balance 12,000 Bank balance 10,000
Illustrative Problem 2:

Balance per bank statement 108,000

+ Deposit in transit 80,000
- Outstanding checks (95,000)
Adjusted balance 93,000
Illustrative Problem 2:

Balance per books 65,000

+ Credit memo 30,000
- Debit memo (2,000)
Adjusted balance 93,000
Bal. 65,000