Bank Reconciliation

Republic of the Philippines
Department of Education
Region 02(Cagayan Valley)
SCHOOLS DIVISION OFFICE OF ISABELA
ECHAGUE NATIONAL HIGH SCHOOL 300612
San Fabian, Echague, Isabela
Accountancy, Business and Management (ABM Strand)

Grade 11 Fayol (ABM-FABM2)
Learning Module
Fundamentals of accountancy, Business and Management 2
Lesson 04: Bank Reconciliation
Topic: The Bank Account
Sub Topics:
1. Different kinds of Bank Accounts
2. Types of Checks
3. Different kinds of Bank Forms
Objectives:
The Salettinian students will be able to:
1. Identify the types of Bank Accounts
2. Differentiate a savings account from a checking account
3. Prepare bank deposit and withdrawal slips
References:
 FABM2 by Diwa, pp. 113-120
 FABM2 by Dani Rose C. Salazar, pp173-180
I. Introduction
A. What are the different kind of Bank Accounts?
a. Saving account
It is a basic type of deposit account and can be withdrawn any time the depositor
decides to. The bank may issue an automated teller machine (ATM) card or a
passbook for the savings account. A savings account with a passbook requires a
higher initial deposit and maintaining balance to earn interest compared to saving
account with an ATM card.
b. Checking or current account
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It is usually non-interest earning and is evidenced by a check book. However, few

banks offer interest on some checking accounts given a higher initial and
maintaining balance than the regular checking account. Similar to a savings
account, a checking or current account can be withdrawn anytime and is also
payable on demand, except for post-dated checks. The initial deposit and
maintaining balance for checking account is usually higher than those for savings.
A basic purpose of a checking or current account is to transfer funds to a third
party via check.
Check
It is a bank instrument used to put in effect the payment of the issuer to a payee. It carries the
name of the bank branch where the checking account is maintained by the depositor.
Type of checks
i. Personal check
It is issued by the bank to individual depositors with only one signatory. The depositor may
simply fill in the name of payee, date of checks amount in words and figures, and affix his
or her signature.
ii. Commercial check
It is used by business, it is issued by the bank with two signatories issued. A checkwriter
may be used for settling the needed amount and two signatories will have to sign on the
checks.
 Both personal and commercial checks are printed by a printing house accredited by the
Philippine Clearing House Corporation (PCHC) wherein it is local body on information that must
be contained in the check.
c. Time Deposits
It is an investment placement. The depositor agrees not to withdraw the funds over the
contracted period in exchange for fixed interest rates that are higher than depositor rates. It is
evidenced by certificates of time deposits (CTD).
B. What are the bank forms normally use in a business?

a. Deposit slip
It documents the deposit transaction. It is a bank form filled up by the depositor. The depositor
will indicate the account name as well as to account number. The depositor may or may not be the
account holder.
Two kinds of deposit slip:
i. Cash deposit slip
ii. Check deposit slip
b. Withdrawal Slip
It documents the withdrawal from passbook account .It is a bank form filled up by the account
holder. She indicates the account name as well as the account number from which account she
wants to make a withdrawal. Unlike in deposit transactions, only the account holder may withdraw
from his account
C. Activity
Prepare the deposit slip for the transaction below:
ABC Company used deposits on July 18, 2018 in its Lucky Bank Savings account number
000123455589. The total amount is P 55,000 composed of 35 pieces of P 1,000 bill and 40 pieces of P
500 bill.
II. Integration
a. Synthesis
a. What are the different kinds of bank accounts?
b. What is the difference between savings account and checking account?
c. What is check?
d. What are the type of checks?
e. What are the different kinds of bank forms?
b. Valuing
a. What is the significance of knowing how to prepare bank forms?
b. What is the use of deposit slip?
c. What is the use of withdrawal slip?
d. Why is a bank check a commonly use form of payment?
c. Reflection
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Topic: The Bank Statement

Sub Topics:
4. Format of Bank Statement
5. Different accounts in the Bank Statement
Objectives:
The students will be able to:
4. Define bank statement
5. Identify the accounts included in the bank statement
6. Explain the importance of preparing the Bank Statement
References:

 https://debitoor.com/dictionary/bank-statement
 https://www.accountingcoach.com/blog/debit-memo-credit-memo-bank-reconciliation
III. Introduction
A. What is bank statement?
It is detailed transaction history of the account over the reporting period .It is a report
prepared by the bank for those accounts that do not have passbooks. The statement informs
the account holders of all transactions that occur during the reporting period. It is usually sent
by the bank through courier services together with the debit and credit memos and the
cancelled checks. Usually refers to a statement from the bank showing the activity in a
company's checking account. The statement includes the deposits received by the bank,
checks paid by the bank, bank service charge, and other amounts transferred into and out of
the checking account.
B. What should be included in the Bank Statement?
Cancelled checks - Are all the issued checks that the bank honoured or paid. Checks that are
paid by the bank during the period are sent back to the account holder together with the bank
statement.
Credit memorandum (CM) - is an advice from the bank which tells that the account increased
due to collection by the bank in the account owner’s favor.
Returned Check - A check that is not paid by the bank on which it is written (drawn). Check
returned unpaid (dishonored) after presentation at the bank on which it was drawn (the payee
bank).
Dishonor may be due to:
(1) a technical reason, such as a (a) mismatch between amount in figures and words, (b)
disfigured or torn state,
(2) it being 'stale,' the validity of check has expired because of its too-late presentment (usually
six months after the date on the check),
(3) lack of sufficient funds in the drawer's account to cover the amount
(4) stop payment order issued by its maker (drawer) to the payee bank.
Credit Memo is an item on a company's bank statement that increases a company's checking
account balance.
Debit Memo is an item on the bank statement that reduces the company's checking account
balance.
A bank statement typically provides a full overview of your account over the previous month. It
will include:
 The beginning and ending balances of the account

 Deposits in the form of income, cash deposits
 Withdrawals in the form of cash, checks
 Any interest that was made on the account
 Any bank fees or charges for service
Some of the important uses to which bank statements may be put to are as follows:
 A bank statement is invaluable in clarifying the transaction details of a particular bank

account. Since most bank statements are now computer generated, the accuracy, speed
and accessibility of these statements have increased manifold.
 A bank statement can also be used in case of any misunderstanding or financial
mismanagement. It serves as documentary evidence in such cases and is usually given
great weight in clearing cases.
 A bank statement alludes to the financial status of a company or an individual. It is often
used to judge an individual or a company’s worth or standing as well as for purposes of
business. It is an indicator of a company’s suitability in many cases.
 A bank statement which is issued periodically is very useful for keeping track of an
account. It is imperative that for the purpose of financial management and order, a bank
statement is inevitable and useful.
IV. Integration
a. Synthesis
a. What is bank statement?
b. What information does the bank statement includes?
c. What are cancelled checks?
b. Valuing
a. Why bank statement is prepared?
b. How it is important to business and individual depositor?
c. Reflection
Sub Topics:
1. Bank Reconciliation Process
2. Common Reconciling items
Objectives:
The students will be able to:
1. Identify common reconciling items and describe each of item.
2. Explain the importance of bank reconciliation.
3. Prepare a bank reconciliation statement.
References:
 https://www.accountingcoach.com/bank-reconciliation/explanation
I. Introduction
A. What is a bank reconciliation statement?
It is an accounting tool used by businesses and individuals to know the true
balance of cash in a bank account. It is the process of matching the balances in
the business records to the bank records. The goal is to find the differences
between the two (business records vs. bank records) and making changes to the
business record as appropriate.
B. Why do business do bank reconciliation?
 Identify any errors committed by the business or the bank (name)
 Help to business identify to actual amount of cash available to spend.
 Without bank reconciliation you expose your business to risk.
Risk of people stealing from your account.
 The bank reconciliation may also show any undone delay in the clearance
of checks.
 A balanced bank reconciliation provides confidence in the accuracy of the
business records.
C. 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:
Deposits in transit are amounts already received and recorded by the company, but
are not yet recorded by the bank.
For 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.
Because deposits in transit 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.
A helpful rule of thumb is "put it where it isn't." A deposit in transit is on the

company's books, but it isn't on the bank statement. Put it where it isn't: as an
adjustment to the balance on the bank statement .
Outstanding checks are checks that have been written and recorded in the company's
Cash account, but have not yet cleared the bank account. 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 that 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.
Bank errors are mistakes made by the bank. Bank errors 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.)
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:
Bank service charges are fees deducted from the bank statement for the bank's
processing of the checking account activity (accepting deposits, posting checks,
mailing the bank statement, etc.) 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 a company's 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.
Check printing charges occur when a company arranges for its bank to handle the
reordering of its checks. The cost of the printed checks will automatically be deducted
from the company's checking account.
Interest earned will appear on the bank statement 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.
Notes Receivable are assets of a 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.
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 in the
Cash account on the company's books.
Step 3. Comparing the Adjusted Balances
After adjusting the balance per bank (Step 1) and after adjusting the balance per
books (Step 2), the two 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.
Step 4. Preparing Journal Entries
Journal entries must be prepared for the adjustments to the balance per books (Step
2). Adjustments to increase the cash balance will require a journal entry that debits
Cash and credits another account. Adjustments to decrease the cash balance will
require a credit to Cash and a debit to another account.
C. Evaluation. Prepare a bank reconciliation statement, assuming that a company has

the following items:
The bank statement for August 2017 shows an ending balance of $3,490.
Item #1.
Item #2. On August 31 the bank statement shows charges of $35 for the service charge for
maintaining the checking account.
Item #3. On August 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. The
check was also marked "do not redeposit."
Item #4. The bank statement shows a charge of $80 for check printing on August 20.
Item #5. The bank statement shows that $8 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 $1,000 was collected by the bank on
August 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.
Item #7. The company's Cash account at the end of August shows a balance of $967.
Item #8. During the month of August the company wrote checks totaling more than $50,000. As of
August 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

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Republic of the Philippines

Accountancy, Business and Management (ABM Strand)

Echague National High School EchagueNationalHighSchool.yolasite.com

It is usually non-interest earning and is evidenced by a check book. However, few

Echague National High School EchagueNationalHighSchool.yolasite.com

B. What are the bank forms normally use in a business?

Prepare the deposit slip for the transaction below:

Echague National High School EchagueNationalHighSchool.yolasite.com

Topic: The Bank Statement

Echague National High School EchagueNationalHighSchool.yolasite.com

 FABM2 by Diwa, pp. 115-117

A. What is bank statement?

B. What should be included in the Bank Statement?

Dishonor may be due to:

Echague National High School EchagueNationalHighSchool.yolasite.com

 The beginning and ending balances of the account

 A bank statement is invaluable in clarifying the transaction details of a particular bank

Echague National High School EchagueNationalHighSchool.yolasite.com

Echague National High School EchagueNationalHighSchool.yolasite.com

C. Bank Reconciliation Process

Step 1. Adjusting the Balance per Bank

Because deposits in transit are already included in the company's Cash

A helpful rule of thumb is "put it where it isn't." A deposit in transit is on the

Echague National High School EchagueNationalHighSchool.yolasite.com

Step 2. Adjusting the Balance per Books

Echague National High School EchagueNationalHighSchool.yolasite.com

Step 3. Comparing the Adjusted Balances

Step 4. Preparing Journal Entries

C. Evaluation. Prepare a bank reconciliation statement, assuming that a company has

Echague National High School EchagueNationalHighSchool.yolasite.com

Echague National High School EchagueNationalHighSchool.yolasite.com

Echague National High School EchagueNationalHighSchool.yolasite.com

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