University of Southern Philippines Foundation

College of Accountancy

Intermediate Accounting 1

Module.02_Preparation of Bank Reconciliation

Introduction

Bank reconciliation are an essential internal control tool and are necessary in preventing and detecting fraud. They also help
identifying accounting and bank errors by providing explanation of the difference between the accounting record’s cash balances and
the bank balance position per the bank statement, and to book changes to the accounting records as appropriate. This module
introduces the learner how to prepare a Statement of Bank Reconciliation through online lecture, develop learner’s understanding of
the requirements through the use of examples and indicates significant judgements. Furthermore, the module includes questions
designed to test the learner’s knowledge of the requirements and to develop the learner’s ability to prepare bank reconciliation.

Learning Outcomes

At the end of this module, you MUST be able to:

1. Identify bank and book reconciling items.
2. Prepare bank reconciliation using different method.

Learning Activities:

1. Submission of assignment through Canvas.

2. Read lecture notes.
3. Answer pre-assessment activities through Canvas.
4. Download the pre-recorded lecture.

Lecture Notes

Bank reconciliation

The bank reconciliation, when properly prepared, proves that the cash balance per bank and the cash balance per book are in
agreement. Periodic bank reconciliations can help identify any cash errors or irregularities that have occurred in accounting for cash,
either by the entity or the bank. Prepared by an individual who neither handles nor records cash. Most differences in bank and book
balances for cash are “normal” and are the result of temporary timing lags.

Deposits in Transit - Deposits recorded in the cash account in one period but not received
by the bank until the next period.

Outstanding Checks - Checks written by the company that have yet to be presented at
the bank for collection.

Bank Charges - Charges by the bank for services that are deducted from the account by the bank and which the company learns
of when it receives the bank statement.

Bank Credits - Collections or deposits in the company's account that the company is not aware of until receipt of the bank
statement.

Bank or Depositor Errors - Errors made by the company or the bank that must be corrected for the reconciliation to balance.

Forms of bank reconciliation

Two forms of bank reconciliation may be prepared. One form reconciles from the bank statement balance to the book balance or vice
versa. The other form is described as the reconciliation of bank and book balances to corrected cash balance. This form is composed
of two separate sections that begin with the bank balance and book balance, respectively. Reconciling items that apply to the bank
balance are added and subtracted to arrive at the corrected cash balance. Likewise, reconciling items that apply to the book balance
are added and subtracted to arrive at the same corrected cash balance. The corrected cash balance is the amount that should be shown
on the balance sheet at the reconciliation date.

Straight Problem
The Cash in Bank account of Dollar Company disclosed a balance of P203,000 as of December 31. The bank statement as of
December 31 showed a balance of P106,000. Upon comparing the bank statement with cash records, the following facts were
developed:

a. The company’s account was charged on December 26 for a customer’s uncollectible check amounting to P30,000.

b. A two-month, 17% P60,000 customer’s note dated October 25, discounted on November 25, was dishonored on December 25,
and the bank charged the company P62,000, which included a protest fee of P2,000.

c. A customer’s check for P15,400 was entered as P14,500 by both the depositor and the bank but was later corrected by the bank.

d. Check no. 142 for P12,425 was entered in the cash disbursements journal at P12,245 and check no. 156 for P3,290 was entered as
P32,900.

e. Bank service charges of P1,830 for December were not yet recorded on the books.

f. A bank memo stated that a customer’s note for P25,000 and interest of P1,000 had been collected on December 28; and the bank
charged P500. (No entry was made on the books when the note was sent to the bank for collection).

g. Receipts on December 31 for P24,000 were deposited on January 2.

h. The following checks were outstanding on Dec. 31:

No. 123 P3,000 No. 154 P4,000
143 * 2,000 157 6,000
144 7,000 159 7,000
147 3,000 169 5,000
* Certified by the bank in December

i. A deposit of P20,000 was recorded by the bank on December 5, but it should have been recorded for Dolor Company rather than
Dollar Company.

j. Petty cash of P10,000 was included in the Cash in Bank balance.

k. Proceeds from cash sales of P60,000 for December 18 were stolen. The company expects to recover this amount from the
insurance company. The cash receipts were recorded in the books, but no entry was made for the loss.

l. The December 21 deposit included a check for P20,000 that had been returned on December 15 marked NSF. Dollar Company
had made no entry upon return of the check. The redeposit of the check on December 21 was recorded in the cash receipts journal
of Dollar Company as a collection on account.

REQUIRED:

1. Prepare a bank reconciliation using:

Bank to book - bank balance is adjusted to equal the book balance

bank recon item normal
book recon item reverse

Book to bank - book balance is adjusted to equal the bank balance

bank recon item reverse
book recon item normal

a) Bank to book method;

Bal. per bank 106,000

a. DM - customer uncollectible check 30,000
b. DM - dishonored note 62,000
c. Error - understated collection (900)
d. Error - overstated payments (29,430)
e. DM - service charge 1,830
f. CM - note collected net (25,500)
g. DIT 24,000
h. OC (35,000)
i. erroneous bank credit (20,000)
j. petty cash fund 10,000
k. stolen receipts 60,000
l. double counted deposit 20,000
Balance per book 12/31 203,000
 b) Book to bank method; and

Bal. per book 203,000

a. DM - customer uncollectible check (30,000)
b. DM - dishonored note (62,000)
c. Error - understated collection 900
d. Error - overstated payments 29,430
e. DM - service charge (1,830)
f. CM - note collected net 25,500
g. DIT (24,000)
h. OC 35,000
i. erroneous bank credit 20,000
j. petty cash fund (10,000)
k. stolen receipts (60,000)
l. double counted deposit (20,000)
Balance per bank 1231 106,000

c) Adjusted balance method

BOOK BANK
Unadjusted bal. 203,000 106,000
a. DM - customer uncollectible check (30,000)
b. DM - dishonored note (62,000)
c. Error - understated collection 900
d. Error - overstated payments 29,430
e. DM - service charge (1,830)
f. CM - note collected net 25,500
g. DIT 24,000
h. OC (35,000)
i. erroneous bank credit (20,000)
j. petty cash fund (10,000)
k. stolen receipts (60,000)
l. double counted deposit (20,000)  
Adjusted Balance 75,000 75,000

2. Prepare adjusting entries as of December 31, 2019.

Accounts Receivable 300,000

Cash in Bank 300,000

Notes Receivable - dishonored 62,000

Cash in Bank 62,000

Notes Receivable - discount 60,000

Notes Receivable 60,000

Cash in bank 900

Accounts Receivable 900

Cash in Bank 29,430

Accounts Payable 29,430

Bank Service Charge 1,830

Cash in Bank 1,830

Cash in bank 25,500

Bank Service Charge 500
Notes Receivable 25,000
Interest income 1,000

Petty Cash Fund 10,000

Cash in Bank 10,000

Receivable from Insurance Co. 60,000

Cash in bank 60,000

Accounts Receivable 20,000

Cash in Bank 20,000
 -- end of lecture notes --

Pre-Assessment Activity for Bank Reconciliation

1. The following data pertaining to the cash transactions and bank account of Mandirigma Company for the month of May are
available to you:

Cash balance, per records, May 31 P17,194

Cash balance, per bank statement, 5/31 31,948
Bank service charge for May 109
Debit memo for the cost of printed checks delivered by the bank 125
Outstanding checks, May 31 6,728
Deposit of May 30 not recorded by bank until June 1 4,880
Proceeds of a bank loan of May 30, net of interest of P300 5,700
Proceeds from a customer's promissory note, including interest of P100 8,100
Check No. 2772 issued to a supplier entered in the accounting records at P2,100 but deducted
in the bank statement at an erroneous amount of 1,200
Stolen check lacking an authorized signature, deducted from Mandirigma's account by the
bank in error 800
Customer's check returned by the bank marked NSF; no entry has been made in the
accounting records to record the returned check 760

What is the correct cash balance at May 31?

Cash balance, per bank statement, 5/31 31,948

Outstanding checks, May 31 (6,728)
Deposit of May 30 not recorded by bank until June 1 4,880
Check No. 2772 issued to a supplier entered in the accounting records at P2,100 but deducted in the
(900)
bank statement at an erroneous amount of
Stolen check lacking an authorized signature, deducted from Mandirigma's account by the bank in error 800
Adjusted Cash Balance 30,000

2. The information below is from the books of the Seminole Corporation on June 30:

Balance per bank statement P11,164

Receipts recorded but not yet deposited in the bank 1,340
Bank charges not recorded 16
Note collected by bank and not recorded on books 1,120
Outstanding checks 1,100
NSF checks - not recorded on books nor redeposited 160

Assuming no errors were made, compute the cash balance per books on June 30 before any reconciliation adjustments.

Balance per bank statement 11,164

Receipts recorded but not yet deposited in the bank 1,340
Bank charges not recorded 16
Note collected by bank and not recorded on books (1,120)
Outstanding checks (1,100)
NSF checks - not recorded on books nor redeposited 160
Balance per books - June 30 10,460

3. The cash in bank account of S-mart, Inc. for April showed an ending balance of P129,298. Deposits in transit on April 30 was
P18,200. Outstanding checks as of April 30, were P59,435, including a P5,000 check which the bank had certified on April 27.
During the month of April, the bank charged back NSF checks in the amount of P3,435 of which P1,835 had been redeposited by
April 20. On April 23, the bank charged S-Mart’s account for a P2,200 items which should have been charged against K-mart,
Inc., the error was not detected by the bank. During April, the proceeds from notes collected by the bank for S-Mart, Inc. was
P7,548 and bank charges for this services was P18.

How much is the unadjusted balance per bank on April 30?

Unadjusted balance - book 129,298

Deposit in transit (18,200)
Outstanding Check 54,435
NSF Check (1,600)
Bank - error - debit (2,200)
Note collected 7,548
Bank Service Charge (18)
Unadjusted balance - bank 169,263
Use the following information for the next two questions.

Shown below is the bank reconciliation for YOUR Company for the month of May:

Balance per bank, May 31 P75,000

Add: Deposits in transit 12,000
Total 87,000
Less: Outstanding checks P14,000
Bank credit recorded in error 5,000 19,000
Cash balance per books, 5/31 P68,000

The bank statement for the month of June contains the following data:

Total deposits P55,000

Total charges, including an NSF check of P4,000
and a service charge of P200 48,000

All outstanding checks on May 31, including the bank credit, were cleared in the bank in June.

There were outstanding checks of P15,000 and deposits in transit of P19,000 on June 30.

4. Cash receipts per books in June is

Receipts per bank -June 55,000

DIT-May (12,000)
DIT - JUNE 19,000
Receipts per book - june 62,000

5. Cash disbursements per books in June is

Disbursement per bank - June 48,000

NSF - June (4,000)
BSC - June (200)
OC - May (14,000)
OC - June 15,000
Error - credit (5,000)
Disbursement per book - June 39,800

Alternative:
Bank Book
Unadjusted May 31 75,000 68,000
Receipts 55,000 62,000
Disbursement (48,000) (39,800)
Unadjusted June 30 82,000 90,200
DIT 19,000
OC (15,000)
DM (4,200)
Adjusted balance 86,000 86,000

Use the following information for the next two questions.

Banaue Company deposits all receipts and makes all payments by check. The following information is available from the cash
records:

May 31 Bank Reconciliation

Balance per bank P262,460
Add: Deposits in transit 21,000
Deduct: Outstanding checks ( 38,000)
Balance per books P245,460

Month of June Results Per Bank Per Books

Balance June 30 P279,950 P303,550
June deposits 107,840 158,890
June checks 111,000 100,800
 June note collected (not included
in June deposits) 30,000 -0-
June bank service charge 350 -0-
June NSF check of a customer
returned by the bank (recorded
by bank as a charge)
9,000 -0-

6. The deposits in transit as of June 30 is

DIT, beg 21,000

Collection - June 158,890
Total amount to bedeposited 179,890
Deposit credited by bank - june (107,840)
DIT - end 72,050

7. The outstanding checks as of June 30 is

OC, beg 38,000

Check issued - june 100,800
Total to be charged by bank 138,800
Check paid by the bank - june (111,000)
OC, end 27,800

-- end of Pre-Assessment Activity --

Assessment

1. Online quiz through Canvas.

Optional Activities/Resources

1. Intermediate Accounting 1B 2019 Edition by Zeus Vernon B. Millan

2. https://www.iasplus.com/en/standards/ias/ias7
3. https://www.youtube.com/watch?v=37zu5wfNBsg
SMC 😊