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CITY SCHOOLS DIVISION OF DASMARINAS

AND

SELF- LEARNING MODULE

 ABM
FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS AND
MANAGEMENT 2 12
QUARTER 2
Development Team of the Module

Author: Richpher G. Gagalac

Editor: Joel D. Salazar, PSDS

Management Team:
Gemma G. Cortez, Ed.D., CID – Chief

Leylanie V. Adao, EPS - LR

Joel D. Salazar, EPS

SDO Dasmariñas City

Schools Division Superintendent: Celedonio B. Balderas Jr.

Asst. Schools Division Superintendent: Bernadette T. Luna

Guide in Using Learner’s Module

For the Parents/Guardian

This module is designed to assist you as the learning facilitator at home.
It provides you with activities and lessons’ information that the learners
need to accomplish in a distance learning modality.

For the Learner

This module is designed to guide you in your independent learning
activities at your own pace and time. This also aims to help you
acquire the competencies required by the Department of Education
(DepEd) at the comfort of your home.

You are expected to answer all activities on separate sheets of paper

and submit the outputs to your respective teachers on the time and date
agreed upon.
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 Module 1 – Bank Reconciliation
Statement
What I need to know?

In this lesson you demonstrate an understanding of a bank

reconciliation statement, its nature and structure, and reconciling items
and methods of preparation

You shall be able to solve exercises and problems involving the following:
1. identification of the proper treatment of reconciling items in the bank
reconciliation statement
2. preparation of a bank reconciliation statement

We expect that you will demonstrate the following learning outcomes

1. describe the nature of a bank reconciliation statement
(ABM_FABM12-IId-10)
2. analyze the effects of the identified reconciling items (ABM_FABM12- IId-
12) 3. prepare a bank reconciliation statement (ABM_FABM12- IId-13)

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 What is new?

Recall from earlier discussion that cash is an important asset. It is

therefore essential for us to know how much cash the company can use its
operations. Recall further that we made it a policy to deposit all cash receipts
and use checks for disbursements. This implies that under an ideal scenario, all
the cash that the company owns are kept in the bank.

I – Learning Task 1 - Review

Let’s have a review on the discussion made about the basic documents and
transactions related to bank deposits by answering the following questions.

1. What is current account?

2. Who are the parties involved in the issuance of a check?
3. What is a bank statement?
4. What are the contents of a bank statement?
5. What is the purpose of a bank statement?

II – Learning Task 2 – Bank reconciliation

Please watch the link below and make sure to take down important notes.
https://www.youtube.com/watch?v=ciM67vECz88

After you watched the video, answer the following questions:

1. What can you say about the video?
2. Why the bank balance is different from the book balance?
3. What is a bank reconciliation as stated in the video?

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 What is it?

Nature of Bank Reconciliation Statement

It is normal for a company's bank balance as per accounting records to differ from
the balance as per bank statement. The difference between these figures is the
reasons why companies prepare a bank reconciliation statement. 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.

The importance of Bank Reconciliations are as follows:

• Preparation of bank reconciliation helps in the identification of errors in the
accounting records of the company or the bank.
• Cash is the most vulnerable asset of an entity. Bank reconciliations 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.
• 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 added
comfort that the bank transactions have been recorded correctly in the company
records.
• Monthly preparation of bank reconciliation assists in the regular monitoring of cash
flows of a business.

There three methods of preparing bank reconciliation statement, namely:

a. Adjusted Method wherein the balances per bank and per book are separately
determined.
b. Book to Bank Method wherein the book balance is adjusted to agree with the
bank balance.
c. Bank to Book Method wherein the bank balance is adjusted to agree with book
balance.
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Bank reconciliation is the procedure to reconcile the unadjusted bank and book
balances to the correct cash balance.

a. Reconciling items that result from timing differences occurs when transactions
are recorded on the banks and the company’s accounting books at different dates.

I. Outstanding checks refer to the checks issued and delivered to the designated
payee but has not yet cleared the bank.

II. Deposit in transit refers to the deposits that did not meet the bank’s cut-off time
and is not recorded in the bank statement until the following period.

III. Collections received directly by the bank are added to the unadjusted book
balance.

IV. Debit and credit memo refers to additions and deductions from the account
that were not instructed by the depositor. Examples are interest income, interest
expense and bank service charge.

V. NSF checks are checks dishonoured by the bank because the balance of the
issuer’s checking account is not enough to cover the amount of the check.

b. Errors are unintentional mistakes. It should be carefully analyzed to determine

the proper adjustment to the bank reconciliation.

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The Bank Reconciliation Process

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:

Item 1
The bank statement for August 2016 shows an ending balance of Php3,490.

Item 2
On August 31 the bank statement shows charges of Php35 for the service charge
for maintaining the checking account.

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Item 3
On August 28 the bank statement shows a return item of Php100 plus a
related bank fee of Php10. The return item is a customer's check that was
returned because of insufficient funds.

Item 4
The bank statement shows a charge of Php80 for check printing on August 20.

Item 5
The bank statement shows that Php8 was added to the checking account on
August 31 for interest earned by the company during the month of August.

Item 6
The bank statement shows that a note receivable of Php1,000 was collected by
the bank on August 29 and was deposited into the company's account. On the
same day, the bank withdrew Php40 from the company's account as a fee for
collecting the note receivable.

Item 7
The company's Cash account at the end of August shows a balance of Php967.

Item 8
During the month of August the company wrote checks totaling more
than Php50,000. As of August 31 Php3,021 of the checks written in August had
not yet cleared the bank and Php200 of checks written in June had not yet
cleared the bank.

Item 9
The Php1,450 of cash received by the company on August 31 was recorded on
the company's books as of August 31. However, the Php1,450 of cash receipts
was deposited at the bank on the morning of September 1.

Item 10
On August 29 the company's Cash account shows cash sales of Php145. The
bank statement shows the amount deposited was actually Php154.
The company reviewed the transactions and found that Php154 was the correct
amount.

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Solutions:

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 Learning Task 3 – Book or Bank

Identify whether the following independent transaction is a book or a bank

reconciling. In addition, determine the amount of the error and state whether the
amount will be added or deducted in the preparation of the bank reconciliation (use
adjusted method):

1. Eagle Repairs received P1,500 from Jane. The bookkeeper recorded the amount
as P500.

2. Nation Bank collected from the customer of Eagle the sum of P5,000 representing
payment of the said customer to Eagle. No entry was made in the books of Eagle.

3. The bank teller deducted CK 123 for P3,500 from the account of Eagle. The said
check was issued by Eagles Company a different depositor of the bank.

4. The bookkeeper of Eagle recorded Check No. 345 in the Cash Disbursement
Journal as P5,205. The correct amount of the check was P5,250.

5. The deposits of Eagle earned interest of P100 for the month. Eagle does not have
knowledge of interest earned until it receives the bank statement.
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 What is more?

Learning Task 4 – Problem Set

Reconcile the bank account and the accounting books based on the following
information:

a. The bank statement for the account of Hungry Joe Company reflects the July 31,
balance of P 51,780.

b. P68,757 was the ending balance of the general ledger cash account as of July
31.

c. A check issued by Hungry Joe Company for P3,000 was recorded in the
accounting books as P4,500.

d. Check that were issued and received by payees that have not yet cleared the
bank as of July 31 totaled to P9,885.

e. Bank service charge according to the July bank statement is P210. Hungry Joe’s
Accountant has not yet recorded this on the books.

f. Deposit in transit as for July amounted to P13,425.

g. Comparison of the accounting records and the bank statement showed a July
3 P600 deposit (with the validated deposit slip on file) that was not found in the
bank statement.

h. There were two customers checks that were dishonored by the bank in July for
non-sufficient funds:
* from Cris Corporation - P 1,296
* from May Incorporated – P14,265

i. The accountant made an error in recording the July 24 deposit. It was reflected in
the books for P2,895 instead of P2,700.

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j. A customer directly deposits their P4,500 payment to the bank. This was not
yet recorded in the accounting books because the customer neglected to fax
the deposit slip to Hungry Joe.

k. The bank statement reflected interest income for December for P129.00

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 What I have learned?

Learning Task 5 – Evaluation

Bank reconciliation problem:

The bank statement for Juan Company shows 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:

Deposits in transit: April 30 deposit (received by the bank on May 1) P2,201.40

Outstanding checks: No. 453-P3,000.00 No. 457-P1,401.30

No. 460-P1,502.70

Errors: Juan wrote check no. 443 for P1,226.00 and the bank correctly paid that
amount. However, he recorded the check as P1,262.00.

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.

Required: Prepare a bank reconciliation statement using the adjusted method.

Hint:
Bank Debit Memo are deductions made by the bank to the account of the depositor

Bank Credit Memo are additions made by the bank to the account of the depositor

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