Fundamentals of Abm 2 Q2 Module 1 Week 1 2

ORIENTAL MINDORO NATIONAL HIGH SCHOOL
(Formerly Jose J. Leido, Jr. Memorial High School)

J.P Rizal St., San Vicente East, Calapan City, Oriental Mindoro
Supplementary Learning Materials for

Senior High School Learners
CONTENT STANDARD: The learners demonstrate an understanding of a bank reconciliation statement, its
nature and structure, and reconciling items and methods of preparation.
PERFORMANCE STANDARD: the learners are 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.
MOST ESSENTIAL LEARNING COMPETENCIES:

> describe the nature of a bank reconciliation statement (ABM_FABM12IId-10 ).
> analyze the effects of the identified reconciling items (ABM_FABM12IId-12)
> prepare a bank reconciliation statement (ABM_FABM12IId-13)
Prepared by: Rhodora Anoud O. Adarlo
Page 1 of 13
Accountancy, Business, and Management
Bank Reconciliation Statement
What this module is about

One of the internalcontrol features in every company is the monthly bank reconciliation. This is done to
show that there is no discrepancy between the cash balance per book records and the cash balance per bank
records.
In some cases, ther is no need to poerform bank reconciliation. But due to timing differencesand errors, the
need for such procedure arises.
What you are expected to learn

This module will enable you to:
 Describe the nature of a bank reconciliation

 Analyze the effects of the identified reconciling items
 Prepare a bank reconciliation statement.
How to learn from this module
To achieve the objectives of this module, do the following:
1. Take your time reading the lessons carefully.

2. Follow the directions and/or instructions in the activities diligently.
3. Answer all the given tests and exercises.
4. Familiarize yourself with the following terms:
Term Definition
Bank Reconciliation
Statement - Is one of the control procedures that give the bank and the depositor an
opportunity to update their records and to discover the errors committed in the
previous month.
- It is a useful audit tool that gives warnings about committed fraud and/or
misappropriation.
Drawer - The Depositor
Drawee - The depository bank
- The person who will receive the payment. He/she can be a third party ( a
Payee
creditor, supplier, or lender), or the drawer himself/herself.
Page 2 of 13
Pre-Assessment
Name of Learner: ______________________________________________

Grade Level/Section: __________________________________________ Date: _____________________________
Instructions: Answer the following questions. Write your answer only on a separate sheet of paper.
1. What do you already know about the module topic?

2. What do you want to learn about the module topic?
LECTURE:
There are alternative forms of bank reconciliation statements. In this module, only one form is introduced – the
adjusted balance form of bank reconciliation which shows the adjusted balances of the books and the bank
statement. The body of this form of bank reconciliation has two parts. The first part shows the balance per
depositor’s books and all the reconciling items that affect the balance per books. The second is the balance per
bank’s records and all the reconciling items that affect the balance per bank. After considering all the reconciling
items, the final or adjusted balances of the two parts must be equal or reconciled.
The two parts are also called reciprocal accounts because they should have the same balance after all adjustments
have been made.
RAOA Company
Bank Reconciliation
For the Month ended December 31, 2018
Balance per books, end. Phpxxxxxxx Balance per bank statement, end Phpxxxxxx
Add: Credit Memos (CM) xxxxxxx Add: Deposit in Transit (DIT) xxxxxx
Less: Debit Memos (DM) xxxxxxx Less: Outstanding Checks (OC) xxxxxx
Add/Less: Book Errors xxxxxxx Add/less: Bank Errors xxxxxx
Adjusted Balance xxxxxxx Adjusted Balance xxxxxx
 Balance per books, end – the cash balance in the accounting records as of the end of the current month
In the pro forma statement above, Balance per books, end is the cash in the accounting records as of
December 31, 2018.
 Balance per bank statement, end – the ending cash balance in the bank statement of the current month
*Other elements of Bank Reconciliation will be discussed on the succeeding parts of this module.
The steps in making the verifications and in preparing a reconciliation are:
Step 1. Determine the cash in bank balance as of the end of the month. This balance comes from the general ledger
of the depositor after the postings are updated. Of the ending balance is not yet available, it is computed as follows:
Balance as of the beginning of the month + Receipts during the month – Payments during the
month = Balance as of the end of the month.
Step 2. Compare the book debits shown in the Cash Receipts Journal with the bank credits as shown in the bank
statement. Many times, several collections are deposited together and will therefore appear in the bank’s records
as one amount, in total.
Step 3. Compare the book credits as shown in the cash payments journal with the bank debits or with actual checks
encashed or cleared by the drawee bank.
Page 3 of 13
After the comparisons (steps 2 and 3 ), the causes of the discrepancy between the two balances are identified. The
causes, called reconciling items, are grouped into two:
 Timing Differences
 Errors
1. Timing Differences
The balance per book can be temporarily higher or lower than the balance per bank’s records due to
timing differences. An item or transaction that is already taken up in the depositor’s books but is not yet taken up
in the bank’s records, or vice versa is a timing difference. Some delays in recording process are unavoidable and
are not necessarily signs of inefficiencies. Some examples of timing differences are:
 Items already added by the depositor but not yet added by the bank, such as unrecorded deposits or
undeposited collections which are sometimes referred to as deposits in transit.
 Items already deducted by the depositor but not yet deducted by the bank, such as outstanding checks.
 Items already added by the bank but not yet added by the depositor (credit memos), such as interest earned
on bank deposits.
 Items already deducted by the bank but not yet deducted by the depositor (debit memos), such as bank
service charges, and checks deposited but later returned by the bank due to error or insufficiency of
funds on the part of the drawer.
2. Errors
An error arises if an item or transaction is recorded in a manner that is different from the way it
should be recorded. Failure to what should be done, and doing what should not be done are also classified
as commission of errors.
Examples of errors of a depositor are:

- Recording and posting an overstated or understated amount.
- A completed transaction was not taken up in the books.
Examples of errors that a bank may commit are:

- Posting a transaction to a wrong subsidiary account
- Posting a transaction that is not properly acknowledged by a depositor
- Posting an overstated or understated amount.
The bank reconciliation procedure will be much appreciated if the step by step transactions will be shown.
The following illustrative example will show the reason why bank reconciliation should be performed.
The following transactions were recorded for ABC Company for the month of July 2016.
1. The company received P300,00.00 from a customer. It was deposited in the bank at the end of the day.
2. The company issued a check worth P47,000.00 to a supplier. It was encashed the day after.
3. At the last day of July, the company received a P100,000.00 payment from walk-in customers. Due to the
delay in the delivery to the bank, the amount was only credited by the bank on August 2, 2016.
4. The company issued a check worth P92,000.00 to a creditor. It was only encashed by the creditor on
August 13, 2016.
5. The bank credited P400.00 interest income to the account of ABC Company for the month of July. The
company only knew of this amount upon receipt of the July bank statement on August 1, 2016.
6. The bank deducted P80.00 from the account of ABC Company as a 20% withholding tax for the P400.00
interest income. The company also knew of this upon receipt of the bank statement on August 1,2016.
Page 4 of 13
Cash in Bank Deposit from ABC Company

0.00 0.00
At the start, both accounts have zero balances.

1. The company received P300,00.00 from a customer. It was deposited in the bank at the end of the day.

0.00 0.00
300,000.00
300,000.00
Both accounts were increased by P300,000.00. the “Cash in Bank” account is an asset in the point of view of the
company. The “Deposit from ABC Company” is a liability in the point of view of the bank. At this point, both
accounts have the same balances.
2. The company issued a check worth P47,000.00 to a supplier. It was encashed the day after.

0.00 0.00
300,000.00
300,000.00
47,000.00 47,000.00
Both accounts were decreased by P47,000.00. the company paid their liability by issuing a check to their creditor.
When the check was immediately encashed by the payee, the bank deducted such amount from the balance of ABC
Company.
3. At the last day of July, the company received a P100,000.00 payment from walk-in customers. Due to the
delay in the delivery to the bank, the amount was only credited by the bank on August 2, 2016.

0.00 0.00
300,000.00
300,000.00
47,000.00 47,000.00
100,00.00 -----
It can now be seen that there will be a discrepancy in the ending balance of the two accounts. This is due to a
timing difference known as “deposit in transit”. The P100,000.00 has already been added by the book, but not yet
added by the bank as of the last day of July. This is due to the fact that they only knew of the presence of such
amount on August 2,2016. The cut off for the July bank statement is July 31,2016. This will be one of the items that
will be adjusted in the bank reconciliation.
4. The company issued a check worth P92,000.00 to a creditor. It was only encashed by the creditor on
August 13, 2016.

0.00 0.00
300,000.00
300,000.00
47,000.00 47,000.00
Page 5 of 13
100,00.00 -----
92,000.00 -----
Another discrepancy in the records arose because of the P92,000.00 check that was issued by the company. The
creditor did not immediately need the money, and such, encashed it on the succeeding month only. This is the
reason why there was no P92,000.00 deduction on the records per banks for the month of July. They only knew of
such issuance on August 13,2016.
This amount is known as “Outstanding Check”. This is an amount that has been deducted by the book, but has not
yet been deducted by the bank as of the cut-off date.
5. The bank credited P400.00 interest income to the account of ABC Company for the month of July. The
company only knew of this amount upon receipt of the July bank statement on August 1, 2016.

0.00 0.00
300,000.00
300,000.00
47,000.00 47,000.00
100,00.00 -----
92,000.00 -----
----- 400.00
The computation of interest income being earned is usually done by the bank. They will just automatically credit
the account of the depositor with the amount of interest income. The depositor would only become aware of such
addition upon receipt of the bank statement for the month of July.
This is presumably on the first few days of the succeeding month (August). This timing difference is also known as
credit memo. These are items that were already added by the bank, but have not yet been added by the book as of
cut-off date. Other credit memos include accounts receivable collected by the bank in favor of the company and
loan proceeds directly credited by the bank to the account of the customer.
6. The bank deducted P80.00 from the account of ABC Company as a 20% withholding tax for the P400.00
interest income. The company also knew of this upon receipt of the bank statement on August 1,2016.

0.00 0.00
300,000.00
300,000.00
47,000.00 47,000.00
100,00.00 -----
92,000.00 -----
----- 400.00
----- 80.00
Interest income earned in savings deposit is subject to 20% final income tax. The banks are mandated by law to
immediately deduct such tax from the interest income earned by the depositor. This is reflected in the bank
records with the P80.00 debit to the “Deposit from ABC Company” account.
Like the earlier credit memo, this deduction would only be known by the depositor at a much later time. The
depositor would learn such deduction upon receipt of the bank statement for the month.
This amount that has been deducted by the bank but has not yet been deducted per book is known as debit memo.
Other debit memos include bank service charges and returned checks such as checks Drawn Against Insufficient
Fund (DAIF), checks Drawn Against Uncleared Deposit (DAUD) and customer’s No Sufficient Fund (NSF) checks
returned by the bank. Assuming there would be no other transactions for the month of July, the reciprocal accounts
would have balances like this:
Page 6 of 13

0.00 0.00
300,000.00
300,000.00
47,000.00 47,000.00
100,00.00 -----
92,000.00 -----
----- 400.00
----- 80.00
261,000.00 253,000.00
It can be seen that their balances are not the same at the end of July. This is due to the four timing differences that
we have discussed. The accountant of the company is now tasked to reconcile such unadjusted balances.
The following adjustments must be made:

1. Deposits in transit must be added per bank.
2. Outstanding checks should be deducted per bank.
3. Credit memos should be added per book.
4. Debit memos should be deducted per book.
Per Book Per Bank
261,000.00 253,320.00
400.00 100,000.00
(80.00) (92,000.00)
261,320.00 261,320.00
After the adjustments have been made, the balances of both accounts are now the same. P261,320.00 is the
adjusted cash balance for the month of July. Assuming the timing differences from the month of July has already
been recorded, the starting balances for the month of August would now be the same at P261,320.00.
Assume further that the following transactions occurred for the month of August:
1. a cash sale worth P500,000.00 was processed for a customer. The check received from the customer was
immediately deposited to the bank.
2. a notes payable worth P150,000.00 was paid using a check. The payee creditor encashed the check within
the month of August.
3. Another check worth P20,000.00 was issued to a supplier. The supplier only encashed the check on
October 5, 2016.
4. The bank collected an accounts receivable in favor of the company for P50,000.00. the company was only
notified of such collection in September.
5. A service charge worth P3,000.00 was deducted by the bank from the balance of ABC Company. The
depositor was only informed of such decrease upon receipt of the August bank statement on September 3,
2016.
6. The company received P49,000.00 payment from a customer. Due to negligence of the treasurer, the bank
was only able to receive the amount on September 5, 2016.
7. A cash receipt from a customer was correctly recorded by the book as P20,000.00. the bank teller
erroneously recorded it as P2,000.00 only.
8. The company incorrectly recorded a check payment as P5,600.00 when it should have been recorded as
P6,500.00.
9. The book inadvertently recorded a P5,000.00 cash receipt twice.
10. The bank teller thought that the P30,000.00 check it received was from ABC Company, when it was in fact
from CBA Company. The bank erroneously deducted the P30,000.00 from the account of ABC Company.
Page 7 of 13
The following transactions would have the effects on the book and bank records:

261,320.00 261,320.00
1. A cash sale worth P500,000.00 was processed for a customer. The check received from the customer was
immediately deposited to the bank.

261,320.00 261,320.00
500,000.00 500,000.00
This is the usual effect of a cash receipt that was recorded by the bank in the same month.
2. A notes payable worth P150,000.00 was paid using a check. The payee creditor encashed the check within
the month of August.

261,320.00 261,320.00
500,000.00 500,000.00
150,000.00 150,000.00
This is the usual check payment being issued by the company that was deducted by the bank within the same
month.
3. Another check worth P20,000.00 was issued to a supplier. The supplier only encashed the check on
October 5, 2016

261,320.00 261,320.00
500,000.00 500,000.00
150,000.00 150,000.00
20,000.00 -----
The P20,000.00 that was not yet deducted by the bank is the outstanding check for the period.
4. The bank collected an accounts receivable in favor of the company for P50,000.00. the company was only
notified of such collection in September.

261,320.00 261,320.00
500,000.00 500,000.00
150,000.00 150,000.00
20,000.00 -----
----- 50,000.00
The P50,000.00 that was not yet added by the book is the credit memo for the period. This is the case wherein the
customer directly deposited his payment for the amount he owes to the company.
5. A service charge worth P3,000.00 was deducted by the bank from the balance of ABC Company. The
depositor was only informed of such decrease upon receipt of the August bank statement on September 3,
2016.
Page 8 of 13

261,320.00 261,320.00
500,000.00 500,000.00
150,000.00 150,000.00
20,000.00 -----
----- 50,000.00
----- 3,000.00
The bank service charge in this problem is another example of a bank debit memo. Banks deduct this amount from
the account of the depositor due to some additional services that were availed by the company.
6. The company received P49,000.00 payment from a customer. Due to negligence of the treasurer, the bank
was only able to receive the amount on September 5, 2016.

261,320.00 261,320.00
500,000.00 500,000.00
150,000.00 150,000.00
20,000.00 -----
----- 50,000.00
----- 3,000.00
49,000.00 -----
The P49,000.00 in this problem is the deposit in transit. The bank only knew of such cash receipt on September 5,
2016.
7. A cash receipt from a customer was correctly recorded by the book as P20,000.00. the bank teller
erroneously recorded it as P2,000.00 only.

261,320.00 261,320.00
500,000.00 500,000.00
150,000.00 150,000.00
20,000.00 -----
----- 50,000.00
----- 3,000.00
49,000.00 -----
20,000.00 2,000.00
Aside from timing differences, errors may also be the reason why there are discrepancies in the unadjusted book
and bank balances. In this case, the bank made an error.
8. The company incorrectly recorded a check payment as P5,600.00 when it should have been recorded as
P6,500.00.

261,320.00 261,320.00
500,000.00 500,000.00
150,000.00 150,000.00
20,000.00 -----
----- 50,000.00
----- 3,000.00
49,000.00 -----
Page 9 of 13
20,000.00 2,000.00
5,600.00 6,500.00
This is an example of book error. It should be noted that both company and the bank can make errors.
9. The book inadvertently recorded a P5,000.00 cash receipt twice.

261,320.00 261,320.00
500,000.00 500,000.00
150,000.00 150,000.00
20,000.00 -----
----- 50,000.00
----- 3,000.00
49,000.00 -----
20,000.00 2,000.00
5,600.00 6,500.00
5,000.00
5,000.00
This is another example of book error. The accountant of the company is negligent.
10. The bank teller thought that the P30,000.00 check it received was from ABC Company, when it was in fact
from CBA Company. The bank erroneously deducted the P30,000.00 from the account of ABC Company.

261,320.00 261,320.00
500,000.00 500,000.00
150,000.00 150,000.00
20,000.00 -----
----- 50,000.00
----- 3,000.00
49,000.00 -----
20,000.00 2,000.00
5,600.00 6,500.00
5,000.00
5,000.00
---- 30,000.00
This is another example of bank error. Due to negligence, banks sometimes deduct checks that were issued by
another company.
After taking into consideration all of the above transactions, the unadjusted balance of both the book and the bank
can be computed as follows:

261,320.00 261,320.00
500,000.00 500,000.00
150,000.00 150,000.00
20,000.00 -----
----- 50,000.00
----- 3,000.00
49,000.00 -----
20,000.00 2,000.00
5,600.00 6,500.00
Page 10 of 13
5,000.00
5,000.00
---- 30,000.00
664,720.00 628,820.00
The accountant will then perform bank reconciliation procedures as follows:

Per Book Per Bank
664,720.00 628,820.00
50,000.00 (20,000.00)
(3,000.00) 49,000.00
(900.00) 18,000.00
(5,000.00) 30,000.00
705,820.00 705,820.00
Aside from the usual procedure on how to correct the timing differences, it should be noted that the side which
made the error should be the one who will make the correction. Aside from the adjusted bank balance, other items
can be asked in problems regarding bank reconciliation.
What you will do
Name of Learner: ______________________________________________

Grade Level/Section: __________________________________________ Date: ___________________________
Activity No. /Title: 1.1 (Mental Calisthenics)
How are the following items treated if the adjusted balance form of bank reconciliation is prepared?
Indicate your answer by placing a check mark under the appropriate columns. (on a separate sheet of
paper, draw the columns below – balance per books and balance per bank then check the appropriate
columns for each number. Do not copy the questions.)
Reconciling Items Balance per Books Balance per Bank

Add Deduct Add Deduct
1. Bank Service Charges.
2. Customer’s DAIF check
3. Customer’s DAUD check
4. Enterprise’s own check, returned by
the payee due to an error in the
written amount.
5. Outstanding checks
6. Enterprise’s own check that has been
outstanding for 12 months.
7. Undeposited collections
8. Deposit of another company credited
to the enterprise’s bank account
9. Checks for P12, 250.00 recorded in the
cash payment journal of the enterprise
as P12, 520.00
10. Interest credited by the bank.
Page 11 of 13
What you will do
Name of Learner: ______________________________________________

Grade Level/Section: __________________________________________ Date: _____________________________
Activity No. /Title: 1.2 (Problem Solving)
Instructions: Prepare a bank reconciliation statement using the adjusted balance method on a separate sheet of
paper.
The following data were gathered after a review of the March 2019 bank statement and cash records of Hed Ake
Trading:
Balance per bank statement ------------------------------------------------------------------------------------------P75, 245.88

Balance per cashbooks------------------------------------------------------------------------------------------------- 69, 683.91
Outstanding checks----------------------------------------------------------------------------------------------------- 25,221.50
Undeposited collections----------------------------------------------------------------------------------------------- 12,875.35
Bank debit for March service charges------------------------------------------------------------------------------ 110.50
Bank credit for March interest income----------------------------------------------------------------------------- 76.32
Check collected from a customer, deposited, and returned by the bank due to lack of funds on the
part of the customer ---------------------------------------------------------------------------------------------- 5,500.00
Bank debit for a check drawn against the account of Head Ace Trading ------------------------------------ 1,250.00
What you will do

Activity No. /Title: 1.3 (Problem Solving)
Instructions: Prepare a bank reconciliation statement using the adjusted balance method on a separate sheet of
paper.
A review of the cashbooks, bank statement, and other cash transactions of Maynd Grain Merchandising revealed
the following:
Balance per cashbooks as of April 30,2019 ----------------------------------------------------------------------P125,250.00

Balance per bank statement received from ROA Bank for the month of April, 2019-------------------- 142,306.70
Undeposited collections as of April 30,2019--------------------------------------------------------------------- 11,525.50
Outstanding Checks: Check No. 725105-------------------------------------------------------------------------- 845.50
Check No. 725110-------------------------------------------------------------------------- 1,235.50
Check No. 725125--------------------------------------------------------------------------- 8,527.25
Check No. 725126-------------------------------------------------------------------------- 22,250.00
Bank service charges, representing the cost of a new checkbook-------------------------------------------- 135.45
Interest Income earned for the month of April 2019, net of tax---------------------------------------------- 100.40
Error in recording check no. 725111,dated April 7, issued in payment for accounts payable. The
correct amount should be P12,245.75; but it was recorded in the cash payment journal of the
company as P12,254.75.
The bank returned a customer’s DAIF check on April 29,2019------------------------------------------------ 4,250.00
----------End of Module 1----------

References: FABM Teaching Guide; Fundamentals of Accountancy, Business, and Management 2 by Beticon, Domingo, and Yabut.; Fundamentals of
Accounting (Second Edition) by Mercedes Bartolome-Kimwell; WorldWideWeb
Page 12 of 13
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Fundamentals of Abm 2 Q2 Module 1 Week 1 2

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ORIENTAL MINDORO NATIONAL HIGH SCHOOL

(Formerly Jose J. Leido, Jr. Memorial High School)

Supplementary Learning Materials for

MOST ESSENTIAL LEARNING COMPETENCIES:

Prepared by: Rhodora Anoud O. Adarlo

Bank Reconciliation Statement

What this module is about

What you are expected to learn

 Describe the nature of a bank reconciliation

How to learn from this module

To achieve the objectives of this module, do the following:

1. Take your time reading the lessons carefully.

Drawer - The Depositor

Drawee - The depository bank

Name of Learner: ______________________________________________

1. What do you already know about the module topic?

The steps in making the verifications and in preparing a reconciliation are:

Examples of errors of a depositor are:

Examples of errors that a bank may commit are:

Cash in Bank Deposit from ABC Company

At the start, both accounts have zero balances.

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

The following adjustments must be made:

Per Book Per Bank

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

9. The book inadvertently recorded a P5,000.00 cash receipt twice.

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

Cash in Bank Deposit from ABC Company

The accountant will then perform bank reconciliation procedures as follows:

What you will do

Name of Learner: ______________________________________________

Activity No. /Title: 1.1 (Mental Calisthenics)

Reconciling Items Balance per Books Balance per Bank

What you will do

Name of Learner: ______________________________________________

Activity No. /Title: 1.2 (Problem Solving)

Balance per bank statement ------------------------------------------------------------------------------------------P75, 245.88

What you will do

Balance per cashbooks as of April 30,2019 ----------------------------------------------------------------------P125,250.00

----------End of Module 1----------

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