GRADE

12

ACCOUNTING 2
Work Sheet (Q2, Wk3)

Bank Reconciliation
Statement

Most Essential Learning Competency:

1. Describe the nature of a bank reconciliation statement.

2. Identify common reconciling items and describe each of them.
3. Analyze the effects of the identified reconciling items.
4. Prepare a bank reconciliation statement.

GOVERNMENT PROPERTY
NOT FOR SALE
Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

Activities

Activity 1.1
Title of Activity:

Objectives:
1. Prepare a bank reconciliation statement.
2. Reflect the importance of a Bank Reconciliation Statement for a business.

Procedure:
A. Prepare a Bank Reconciliation Statement using the adjusted method.
B. Note:
o Bank Debit Memo are deductions made by the bank to the account of the
depositor.
o Bank Credit Memo are additions made by the bank to the account of the
depositor.

 The bank statement for Juan Company shows a balance of a balance per bank of
P15,907.45 on April 30, 2015.
 On this date the balance of cash per books is P11,589.45.
 Additional information are provided below:
o Deposits in Transit: April 30 deposit (received by the bank on May 1)
P2,201.40.
o Outstanding Checks: No. 453 – P3,000.00
No. 457 – P1,401.30
No. 460 – P1,502.70

o Errors: Juan wrote Check No. 443 for P1,226.00 and the bank correctly paid
the amount. However, he recorded the check as P1,262.00.
o Bank Memoranda:
Debit – NSF check from Pedro P425.60
Debit – Charge for printing company checks P30.00
Credit – Collection of note receivable for P1,000 plus interest earned of P50,
less bank collection fee of P15.00.

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Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

Critical Thinking Questions

1. When do you use the debit and credit side of the Bank Memoranda?

________________________________________________________

2. How did you solve the errors committed by Juan Company?

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Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

Remember
 Bank Statement is a monthly statement given by the bank to the depositor
summarizing all the cash transactions (deposits and checks paid by the bank)
during the month. It includes the beginning balance, bank charges, bank
collections made by the bank in favor of the depositor if any, and the ending
cash balance.

 Bank Reconciliation Statement is a report which compares the bank

balance as per company’s accounting records with the balance stated in the
bank statement.
o A statement which reconciles the bank balance with the depositor’s cash
balance (the end-product of bank reconciliation). It is prepared by the
depositor for purpose of preparing and adjusting the entries (items
recorded by the bank but not by the depositor) to correct the cash balance
recorded in the books.

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Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

Two

Common Causes of the Discrepancy in figures:

1. Time Lags which prevent one of the parties (company or the bank) from
recording the transaction in the same period as the other party.
a. Example: A bank statement that ends January 30, 2015 and then
the company were able to collect cash of P20,000 at 5:00 p.m.
Bank usually closes at 3:00 p.m., because of this, the cash collected
will not be reflected in the bank as deposit but it is however,
recorded in accounting records of the company.
2. Errors by either party in recording transactions.
a. Example: A check was issued by Meralco by the company
amounting to P1,000. The company recorded this as P100. When
the check was presented, the bank paid Meralco P1,000. In the
records of the company, it was P100 while in the records of the
bank it’s P1,000. There is in this case an error that will cause the
difference between the company’s records and the bank records.

 Importance of Bank Reconciliation:

o Preparation of Bank Reconciliation helps in the identification of errors in
the accounting records of the company or the bank.
o Cash is the most valuable asset of an entity. Bank Reconciliation provide
the necessary control mechanism to help protect the valuable resource
through uncovering irregularities such as unauthorized bank withdrawals.
However, in order for the control process to work effectively, it is necessary
to segregate the duties of persons responsible for accounting and
authorizing of bank transactions and those responsible for preparing and
monitoring Bank Reconciliation Statements.
o If the bank balance appearing in the accounting records can be confirmed
to be correct by comparing it with the bank statement balance, it provides

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Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

added comfort that the bank transactions have been recorded correctly in
the company records.
o Monthly preparation of Bank Reconciliation assists in the regular
monitoring of cash flows of a business.

 Three (3) Methods of Preparing Bank Reconciliation Statement:

1. Adjusted Method wherein the balances per bank and per book are
separately determined.
2. Book to Bank Method wherein the book balance is adjusted to agree with
the bank balance.
3. Bank to Book Method wherein the bank balance is adjusted to agree with
book balance.

 Reasons or Reconciling Items why the balance per bank does not tally with
the balance per book:
o Deposit in Transit – this is a deposit made by the depositor usually at the
end of the month, which is not included in the bank statement; amounts
already received and recorded by the company, but are not yet recorded
by
the bank.
Example: A retail store deposits its cash receipts of August 31 into the
bank’s night depository at 10:00 p.m. on August 31. The bank will process
this deposit on the morning of September 1. As of August 31 (the bank
statement date) this is a deposit in transit.
 Since deposits in transits are already included in the company’s Cash
account, there is no need to adjust the company’s records. However,
deposits in transit are not yet on the bank statement. Therefore, they
need to be listed on the bank reconciliation as an increase to the
balance per bank in order to report the true amount of cash.

o Outstanding Checks – these are checks issued by the depositor but not
yet paid by the bank presented for payment (opposite of cancelled checks;
checks that have been written and recorded in the company’s cash
account but not yet cleared the bank account or presented to the bank by
the payee.
 Checks written during the last few days of the month plus a few older
checks are likely to be among the outstanding checks.
 Because all checks have been written are immediately recorded in the
company’s Cash account, there is no need to adjust the company’s
records for the outstanding checks. However, the outstanding checks
have not yet reached the bank and the bank statement. Therefore,
outstanding checks are listed on the bank reconciliation as a decrease
in the balance per bank.
Example: On January 29, 2015, Juan issued a check to Maria
amounting to P2,000. The checks were then recorded by Juan in his
books as a deduction to his cash. It so happened that the bank was
closed on that day and Maria was able to visit the bank and have it
encashed on February 1, 2015 only. In the bank statement received by

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Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

Juan from his bank ending January 30, 2015, the P2,000 check was
not deducted, however it was already deducted in the books of Juan on
January 29, 2015. The P2,000 check is called an outstanding check.

o Bank errors – are mistakes by the bank. It could include the bank
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.
 The company should notify the bank of its errors. Depending on the
error, the correction could increase or decrease the balance shown on
the bank statement. Since the company did not make the error, the
company’s records are not changed.

o Errors in the company’s Cash account result 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. Since the
company made these errors, the correction of the error will be either an
increase or a decrease to the balance of the Cash account on the
company’s book.

o Bank Service Charges – are fees deducted from the bank statement for
the bank’s processing of the checking account activity. A Debit Memo is
attached to the bank statement as supporting document.
Examples: accepting deposits, posting checks, mailing the bank
statement, check printing
 Other types of bank service charges include the fee charged when a
company overdraws its checking account and the bank fee for
processing a stop payment order on the company’s check.
 Because the bank service charges have already been deducted on the
bank statement, the is no adjustment to the balance per bank.
However, the service charges will have to be entered as an adjustment
to the company’s books. The company’s Cash account will need to be
decreased by the amount of the service charges.

o Bank Collection – a collection made by the bank in favor of the depositor.

A Credit Memo is attached to the bank statement as supporting
document.

 Notes Receivable – are assets of the company. When notes come

due, the company might ask its bank to collect the notes receivable.
For this service the bank will charge a fee. The bank will increase the
company’s checking account for the amount it collected (principal and
interest) and will decrease the account by the collection fee it charges.
Since these amounts are already on the bank statement, the company
must be certain that the amounts appear on the company’s books in its
Cash account.

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Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

o Interest Income – the interest earned on the deposit; it will appear on the
bank statemen when a bank gives a company interest on its account
balances. The amount is added to the checking account balance and is
automatically on the bank statement. Hence there is no need to adjust the
balance per the bank statement. However, the amount of interest earned
will increase the balance in the company’s Cash account on its books.

o Drawn Against Insufficient Fund (DAIF) – is a check deposited by the

depositor returned by the bank because the funds (cash balance) in the
drawer’s checking account is not sufficient to cover the amount of the
check.
 NSF Check – is a check that was not honored by the bank of the
person or company writing the check because that account did not
have a sufficient balance. As a result, the check is returned without
being honored or paid.
 When the NSF check comes back to the bank in which it was
deposited, the bank will decrease the checking account of the company
that had deposited the check. The amount charged will be the amount
of the check plus a bank fee.
 Because of the NSF check and the related bank fee have already been
deducted on the bank statement, there is no need to adjust the balance
per the bank. However, if the company has not yet decreased its Cash
account balance for the returned check and the bank fee, the company
must decrease the balance per books in order to reconcile.

o Bank Credit Memo – a form used by the bank notifying the depositor that
his account is Credited (the cash balance is increased) which may be due
to the interest earned by the depositor or collection made by the bank in
favor of the depositor.

o Bank Debit Memo – a form used by the bank to notify the depositor that
his account is debited (the cash balance is decreased) due to the bank
service charge.

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Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

 Illustration of the Bank’s and Company’s books:

 Steps in the Bank Reconciliation:

1. Adjust the balance on the bank statement to the true, or corrected
balance. The items necessary are listed in the following schedule:

Balance per Bank Statement on Aug. 31, 2019

Adjustments:
Add: Deposit in transit
Deduct: Outstanding checks
Add/Deduct: Bank errors
Adjusted/Corrected Balance per Bank

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Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

2. Adjusting the Balance per Books – adjust the balance in the company’s
Cash account so that it is the true, adjusted, or corrected balance:

Balance per Books on Aug. 31, 2019

Adjustments:
Deduct: Bank service charges
Deduct: NSF checks & fees
Deduct: Check printing charges
Add: Interest earned
Add: Notes receivable collected by the bank
Add/Deduct: Errors in company’s Cash account
Adjusted/Corrected Balance per Books

3. Comparing the Adjusted Balances – after adjusting the balance per

bank (Step 1) and the balance per books (Step 2), the two (2) 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 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).

 Illustrative Problem:
1. The bank statement for August 2019 shows an ending balance of ₽3,490.
2. On Aug. 31 the bank statement shows charges of ₽35 for the service
charge for maintaining the checking account.
3. On Aug. 28 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.
4. The bank statement shows a charge of ₽80 for check printing on Aug. 20.
5. The bank statement shows that ₽8 was added to the checking account on
Aug. 31 for interest earned by the company during the month of August.
6. The bank statement shows that a note receivable of ₽1,000 was collected
by the bank on Aug. 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.
7. The company’s Cash account at the end of August shows a balance of
₽967.
8. During the month of August the company wrote checks totaling more than
₽50,000. As of Aug. 31, ₽3,021 of the checks written in August had not
yet cleared the bank and ₽200 of checks written in June had not yet
cleared the bank.
9. The ₽1,450 cash received by the company on Aug. 31 was recorded on
the company’s books as of Aug. 31. However, the ₽1,450 of cash receipts
was deposited at the bank on the morning of Sept. 1.
10. On Aug. 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.

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Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

Solution:
Juan Company
Bank Reconciliation Statement
April 31, 2019

Cash balance per bank statement April 31, 2019 ₽ 15,907.45

Add: Deposit in transit 2,201.40
Sub-total ₽ 18,108.85
Less: Outstanding checks
No.453 ( 3,000.00)
No.457 ( 1,401.30)
No.460 ( 1,502.70)
Adjusted cash balance per bank ₽ 12,204.85

Cash balance per books ₽ 11,589.45

Add: Error in recording Check no.443 36.00
(P1226-P1262) wssdsdsdsd
Sub-total ₽ 11,625.45

Less: Bank Debit memo

NSF checks (425.60)
Printing charges ( 30.00)

Bank Credit Demo

Collection (1,000+50-15) 1,035.00
Adjusted cash balance per books ₽ 12,204.85

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Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

Checking your Understanding

Critical Thinking Questions
1. Why do companies need to reconcile their books with the bank?
______________________________________________________________
________________________________________

2. How important is Bank Reconciliation for every business?

___________________________________________________
___________________________________________________

EVALUATION
Directions: Write the letter of the correct answer in a separate paper.

1. Amounts already received and recorded by the A. Notes Receivable

company but are not yet recorded by the bank. B. Time Lags
2. A check deposited by the depositor returned by C. Credit Memo
the bank due to insufficient fund. D. Deposit in Transit
3. These are company’s assets that are collected by the E. Errors
bank. F. Bank Credit Memo
4. In Step 3 of the Bank Reconciliation, the adjusted cash G. DAIF
balance will appear as the Cash in Bank in the __? H. Bank Errors
5. This method shows that the balances per bank and per I. Adjusted Method
book are separately determined. J. Bank Debit Memo
6. This document is attached to the bank statement as K. SFP
supporting document to bank collection L. Bank Statement
7. This form used by the bank to notify the depositor that his cash balance is
decreased due to the bank service charge.
8. These are mistakes committed by either party in recording transactions.
9. It is a monthly statement given by the bank to the depositor summarizing all the
cash transactions during the month.
10. This prevents one of the parties from recording the transaction in the same
period as the other party.

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Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

Answer Card

Evaluation
1. D
2. G
3. A
4. K
5. I
6. C
7. J
8. E
9. L
10. B

References
Books:
Fundamentals of Accountancy, Business & Management 2 (Teachers Guide)

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Name: Taripe, Allan Paul B. Date: February 1, 2021
Grade/Strand: ABM-12 Teacher: Mrs. Evelyn Plaza

Nelson S. Abeleda, Simplified Accounting for Single Proprietorship (2009),

Nelson Publications
Internet:
https://www.google.com/search?
q=sample+picture+of+bank+statement&source=lnms&tbm=isch&sa=X&ved=2ahUKEwiWtdS5__TtAh
VE7GEKHQZAC-IQ_AUoAXoECBYQAw&biw=1366&bih=657#imgrc=g2vDXJlq3BgERM
https://www.google.com/search?
q=sample+picture+of+bank+reconciliation+statement&tbm=isch&ved=2ahUKEwii7M-
7__TtAhVSNaYKHb7kAbgQ2-
cCegQIABAA&oq=sample+picture+of+bank+reconciliation+statement&gs_lcp=CgNpbWcQA1DLziFY-
4giYNecImgAcAB4AIAB3gGIAd0SkgEFNC45LjSYAQCgAQGqAQtnd3Mtd2l6LWltZ8ABAQ&sclient=img&
ei=KhPsX6KvIdLqmAW-yYfACw&bih=657&biw=1366#imgrc=I1mT7pfCD7spzM

Written by:
EVELYN S. PLAZA, San Juan City Academic Senior High School

For questions or comments, write or call:

Department of Education
Schools Division Office – San Juan City
Pinaglabanan St., San Juan City, Philippines 1500
Telefax: (632) 8451-2699; (632) 8251-2383
Email Address: depedsanjuanrecords@gmail.com

For questions or comments, write or call:

Department of Education
Schools Division Office – San Juan City
Pinaglabanan St., San Juan City, Philippines 1500
Telefax: (632) 8451-2699; (632) 8251-2383
Email Address: depedsanjuanrecords@gmail.com
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