LAGUNA STATE POLYTECHNIC UNIVERSITY

SINILOAN, LAGUNA

Auditing and Assurance: Concept/Applications March 1, 2021

03 Bank Reconcilation Instructor: John Bo S. Cayetano

LEARNING OBJECTIVES:
1. Adjusted Balance of Cash in Bank
2. Workback Unadjusted Balance of Cash in Bank
3. Determine Missing Recon Item
4. Proof of Cash

REVIEW NOTES:

Bank Reconciliation – Explains the difference between the cash balance per book and the cash balance per
bank statement. Any difference is because of the reconciling items. Reconciling items are transaction
recorded by either book or bank but not both.

Reconciling items are classified as either book reconciling items and bank reconciling items. This will be used
as adjustment to its respective unadjusted cash balance.

Reconciling items are classified as either book reconciling items and bank reconciling items. This will be used
as adjustment to its respective unadjusted cash balance.

§ Deposit in transit – receipt recorded by the book but not recorded by the bank.

§ Outstanding checks – disbursement recorded by the book but not recorded by the bank (certified check
should be excluded).

§ Credit memo – receipt recorded by the bank but not recorded by the book. Credit memos includes the
following:

a. Notes receivable collected by the bank in behalf of the company (including interest)
b. Interest income from bank deposit
c. Loans proceed approved by the bank

§ Debit memo – disbursement recorded by the bank but not recorded by the book. Debit memos includes
the following:

a. Bank service charge

b. No sufficient fund (NSF) check by customer
c. Auto debit agreement and loan payment

§ Errors – Errors made by the bank are adjustment by the bank. Errors made by the book are adjustment
by the book.

Errors made Adjustment

Understatement of receipt Add
Understatement of disbursement Minus
Overstatement of receipt Minus
Overstatement of disbursement Add

Page 1 of 4
Adjusted Balance Method – bank:

Unadjusted balance – bank P XX

Deposit in transit XX
Outstanding check ( XX)
Errors XX
Adjusted balance – bank P XX

Adjusted Balance Method – book

Unadjusted balance – bank P XX

Credit memo XX
Debit memo ( XX)
Errors XX
Adjusted balance – book P XX

Proof of Cash – Is a two-month bank reconciliation with separate column for cash receipt and
disbursement.

How to proof of cash the bank balance?

Prev. Rec. Dis. Curr.
Unadjusted
Deposit in transit, prior month + –
Deposit in transit, current month + +
Outstanding check, prior month – –
Outstanding check, current month + –
Overstated disbursement, prior month, corrected at current + –
month
Overstated disbursement, prior month, not yet corrected at + +
current month
Overstated receipt, prior month, corrected at current month – –
Overstated receipt, prior month, not yet corrected at current – –
month
Overstated disbursement, current month, corrected at current – –
month
Overstated disbursement, current month, not yet corrected at – +
current month
Overstated receipt, current month, corrected at current month – –
Overstated receipt, current month, not yet corrected at current – –
month
Understated disbursement, prior month, corrected at current – –
month
Understated disbursement, prior month, not yet corrected at – –
current month
Understated receipt, prior month, corrected at current month + –
Understated receipt, prior month, not yet corrected at current + +
month
Understated disbursement, current month, corrected at current none none none none
month
Understated disbursement, current month, not yet corrected at + –
current month
Understated receipt, current month, corrected at current month none none none none
Understated receipt, current month, not yet corrected at current + +
month
Adjusted X X X X

Page 2 of 4
 How to proof of cash the book balance?
Prev. Rec. Dis. Curr.
Unadjusted
Credit memo, prior month + –
Credit memo, current month + +
Debit memo, prior month – –
Debit memo, current month + –
Overstated disbursement, prior month, corrected at current + –
month
Overstated disbursement, prior month, not yet corrected at + +
current month
Overstated receipt, prior month, corrected at current month – –
Overstated receipt, prior month, not yet corrected at current – –
month
Overstated disbursement, current month, corrected at current – –
month
Overstated disbursement, current month, not yet corrected at – +
current month
Overstated receipt, current month, corrected at current month – –
Overstated receipt, current month, not yet corrected at current – –
month
Understated disbursement, prior month, corrected at current – –
month
Understated disbursement, prior month, not yet corrected at – –
current month
Understated receipt, prior month, corrected at current month + –
Understated receipt, prior month, not yet corrected at current + +
month
Understated disbursement, current month, corrected at current none none none none
month
Understated disbursement, current month, not yet corrected at + –
current month
Understated receipt, current month, corrected at current month none none none none
Understated receipt, current month, not yet corrected at current + +
month
Adjusted X X X X

DISCUSSION:
1. The books of Hotsilog Service Inc. disclosed a cash balance of P48,757 on June 30. The bank statement
as of June 30 showed a balance of P54,780. Additional information that might be useful in reconciling the
two balances follows:

(a) Check payable to creditors for P3,000 was erroneously recorded on the books as P4,500.

(b) The deposit of June 24 was recorded on the books as P2,895, but it was actually a deposit of P2,700.

(c) Outstanding checks totaled P9,885 as of June 30.

(d) There were bank service charges for June of P210 not yet recorded on the books.

(e) Hotsilog’s account had been charged on June 26 for a customer’s NSF check for P1,296.

(f) Hotsilog’s account had been credited by the bank for P600. This amount should have been credited to
Langsilog.

(g) Receipts of June 30 for P13,425 were recorded by the bank on June 2.

(h) A bank memo stated that a customer’s note for P9,000 and interest of P164 had been collected on June
27.

How much is the correct cash balance at the end of the month?
A. 57,720
B. 57,270
C. 58,920
D. 58,290
Page 3 of 4
Numbers 2-4
Valix revealed the bank statement balance on December 31 at P8,500,000.
• A deposit of P950,000 placed in the bank’s night depository on December 29 does not appear on the bank
statement. Checks outstanding on December 31 amount to P400,000, including P100,000 certified check.

• The bank statement showed that on December 25 the bank collected a note for Valix and credited the
proceeds of P935,000 to Valix’s account which included P35,000 interest. Valix discovered that a check
written in December for P200,000 in payment of an account had been recorded as P20,000.

• Included with the December 31 bank statement was an NSF check for P250,000 that Valix had received from
a customer on December 20. The bank statement showed a P15,000 service charge for December.

2. What it the adjusted cash in bank on December 31?

A. 9,150,000
B. 8,660,000
C. 8,970,000
D. 8,200,000

3. What is the cash in bank per ledger on December 31?

A. 8,560,000
B. 8,660,000
C. 8,990,000
D. 8,270,000

4. What is the net adjustment to cash in bank on December 31?

A. 935,000 debit
B. 490,000 debit
C. 445,000 credit
D. 900,000 debit

5. At the end of the month, the bank statement of Dior Company showed a balance of P102,000, service
charges of P6,000, a customer’s no sufficient fund check of P20,000 and the proceeds of note collected by
the bank for Dior company. The note had a face value of P15,000

Dior Company reported a balance of P128,000 in its cash account at the end of the month. At this time, there
were P28,300 deposits in transit and P12,000 of outstanding check.

How much is the interest on the note collected by the bank?

A. 13,000
B. 8,700
C. 3,000
D. 1,300

6. Fino Company banks with ABCDE Bank and prepares reconciliation of the bank and book balances on a
regular monthly basis. The December 31, 2021 reconciliation shows a balance per bank of P581,050, balance
per books of P627,000, outstanding checks of P84,300, deposit in transit of P120,000, interest earned on
the bank balance of P1,250, and service charges of P400. Included in the bank statement was a canceled
check which the company failed to record. The check was in payment of accounts payable.

What is the amount of the unrecorded check issued by the company in payment of accounts payable?
A. 8,600
B. 11,000
C. 11,100
D. 11,900

Page 4 of 4