Senior High School

Fundamentals of Accountancy,
Business and Management 2
Module 9:
Bank Reconciliation Statement

AIRs - LM
LU_FABM 2_Module 9
 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2
Module 9: Bank Reconciliation Statement
Second Edition, 2021

Copyright © 2021
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form without written
permission from the copyright owners.

Development Team of the Module

Author: Iren F. Abenes,
Editor: SDO La Union, Learning Resource Quality Assurance Team
Content Reviewer: Rudyna M. Minasalvas
Language Reviewer: Liza Antolin
Illustrator: Ernesto F. Ramos, Jr.
Design and Layout: Hermogenes T. Diaz

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Schools Division Superintendent
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Assistant Schools Division Superintendent
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Department of Education – SDO La Union

Office Address: Flores St. Catbangen, San Fernando City, La Union
Telefax: 072 – 205 – 0046
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LU_FABM 2_Module 9
 Senior High School

Fundamentals of Accountancy,
Business and Management 2
Module 9:
Bank Reconciliation Statement
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear learners,
can continue your studies and learn while at home. Activities, questions, directions,
exercises, and discussions are carefully stated for you to understand each lesson.

Each SLM is composed of different parts. Each part shall guide you step-by-
step as you discover and understand the lesson prepared for you.

Pre-tests are provided to measure your prior knowledge on lessons in each

SLM. This will tell you if you need to proceed on completing this module or if you
need to ask your facilitator or your teacher’s assistance for better understanding of
the lesson. At the end of each module, you need to answer the post-test to self-check
your learning. Answer keys are provided for each activity and test. We trust that you
will be honest in using these.

In addition to the material in the main text, Notes to the Teacher are also
provided to our facilitators and parents for strategies and reminders on how they can
best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on any part
of this SLM. Use a separate sheet of paper in answering the exercises and tests. And
read the instructions carefully before performing each task.

If you have any questions in using this SLM or any difficulty in answering the
tasks in this module, do not hesitate to consult your teacher or facilitator.

Thank you.
 Target

In your previous lesson, you have learned what is a bank statement. As a part
of a control, the bank statement received from the bank is compared with the
accounting records of the business. This process is called bank reconciliation. A bank
reconciliation statement is a document that matches the cash balance on a
company’s balance sheet to the corresponding amount on its bank statement.
Reconciling the two accounts helps determine if accounting changes are needed.
Bank reconciliations are completed at regular intervals to ensure that the company’s
cash records are correct. They also help detect fraud and any cash manipulations.

This module will provide you with information and activities that will help you
understand what is a bank reconciliation.

After going through this module, you can attain the following objectives:

Learning Competency:

➢ Describe the nature of a bank reconciliation statement, (ABM_FABM12-

IId10)

Subtasks:
1. Define bank reconciliation.
2. Explain the nature of bank reconciliation.

Before going on, check how much you know about the topic.
Answer the pretest on the next page on a separate sheet of paper.

LU_FABM 2_Module 9
 Jumpstart

For you to understand the lesson well, do the following activities. Have fun
and good luck!

Activity I: Identification

Direction: Read and analyze carefully each item. Choose your answer from the
choices below. Use a separate sheet for your answers. Write only the letter of the
best answer for each test item.

A. Adjusted Method
B. Collections in favor of the depositor
C. Monthly
D. Deposit in Transit
E. Bank Reconciliation
F. Outstanding Checks

1. What do you call a collection made by the bank acting as an agent for the
depositor?

2. What method of preparing a bank reconciliation statement wherein the

balance per bank and per book are separately determined?

3. What is the period of preparation of bank reconciliation that assists in the

regular monitoring of cash flows of a business?

4. What is referred to as the amount of the checks issued by the depositor but
not yet presented for payment to the bank by the holders thereof?

5. What type of report compares the bank balance as per the company’s
accounting records with the balance stated in the bank statement?

LU_FABM 2_Module 9
 Discover

BANK RECONCILIATION

The control feature in every company is the monthly bank reconciliation. This is
done to show that there is no discrepancy between the cash balance to book records
and the cash balance per bank. Due to timing differences and errors, the need for
such procedures arises.

• Deposit in Transit. The amount deposited by the depositor at the end of the
month was received by the bank too late to appear in the bank statement for
the same month. It has been recorded by the depositor but not recorded by
the banks.
• Outstanding Checks. Amount of the checks issued by the depositor but not
yet presented for payment to the bank by the holders thereof. These checks
have been recorded by the depositor but not yet recorded by the bank.
• NSF Checks. Amount of the checks accepted by the depositor from customers
in the course of business deposited at the bank but returned by the bank to
the depositor due to the insufficiency or lack of funds at the drawee banks in
the name of the drawers. These items have been debited by the depositor while
the book has credited the items at the same deposit. The amount of the
Checks should be debited back to the customers.
• Bank collections in favor of the depositor. Collections are made by the bank
acting as an agent for the depositor. The bank records the amount to the
credit of the depositor. This collection may not have been recorded by the
depositor. These are relayed to the depositor thru credit memos.
• Reduction of loan. Amount deducted from the depositor’s account in the bank
books as payment of loan due from the depositor. This charge may not have
been recorded by the depositor when he receives the bank statement showing
such deduction. The depositor is informed utilizing notice or debit memo.
• Interest credit by the bank. Amounts credited to the account of the depositor
by the bank for the interest on the deposit of the depositor. These are relayed
to the depositor by means of the credit memo.
• Commissions charged by the bank. Amounts deducted by the bank from the
depositor’s balance representing the compensation charged by the bank for
its services to the depositor.

LU_FABM 2_Module 9
Nature of Bank Reconciliation

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. A bank
reconciliation statement is a report which compares the bank balance as per the
company’s accounting records with the balance stated in the bank statement.

➢ The two common causes of the discrepancy in figures are:

1. Time lags prevent one of the parties (company or the bank) from recording the
transaction in the same period as the other party.

Example: A bank statement that ends January 30, 2015, and then the company
was able to collect cash of Php 20,000 at 5:00 PM. Bank usually closes at 3:00 PM
because of this, the cash collected will not be reflected in the bank as a deposit but
it is however recorded in the accounting record of the company.

2. Errors by other party in recording transactions

Example: A check was issued to Meralco by the company amounting to Php1,000.

The company recorded this as Php 100. When the check was presented, the bank
paid Meralco Php 1,000. In the records of the company, it was Php 100 while in the
records of the bank it’s Php 1,000. In this case, there is an error that will cause the
difference between the company’s record and the bank records.

The importance of Bank Reconciliation is as follows:

1. Preparation of bank reconciliation helps in the identification of errors in the

accounting records of the company or the bank.
2. Cash is the most vulnerable asset of the entity. Bank reconciliations provide
the necessary control mechanism to help protect valuable resources through
uncovering irregularities such as unauthorized bank withdrawals. However,
for the control process to work effectively, it is necessary to segregate the
duties of persons responsible for accounting and authorizing bank
transactions and those responsible for preparing and monitoring bank
reconciliation statements.

3. 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.
4. Monthly preparation of bank reconciliation assists in the regular monitoring
of cash flows of a business.

LU_FABM 2_Module 9
The three methods of preparing a bank reconciliation statement

1. Adjusted Method wherein the balance per bank and per book are separately
determined.
2. Book to Bank Method where the book balance is adjusted to agree with the
bank balance.
3. Banks to Book Method where the bank balance is adjusted to agree with the
book balance.

The method you will be using in the bank reconciliation statement is the adjusted
method as shown in Figure 1. This format facilitates the determination of the correct
cash balance. After considering all reconciling items, the adjusted bank balance will
equal the book balance.

I. Bank II. Books

Unadjusted balance Php. xxx Adjusted balance Php. xxx

Add: reconciling items xxx Add: Reconciling xxx

items
Less: Reconciling items xxx Less: Reconciling xxx

Adjusted balance xxx Adjusted balance xxx

Figure 1: Bank Reconciliation format

LU_FABM 2_Module 9
 Explore

Here are some enrichment activities for you to work on to master and
strengthen the basic concepts you have learned from this lesson.

Enrichment Activity 1:

Assessment 1
Direction: Understand the purpose of bank reconciliation in the scenario below. Read
and understand the activity. Write your answer on a separate sheet of paper.

1. On January 1, 2019, the company collected Php10,000 from its accounts

receivable. The collection was deposited to open a savings account in ABC
Bank. What is the journal entry made to account for this transaction?

________________________________
______________________________________

2. Let us assume that we left this deposit in the bank. There was no other
transaction on this cash account. On December 31, 2019, the cash in the
bank – ABC Bank will have a ledger balance of Php10,000. This is from
the posted entry on January 1, 2020. At the end of the year, we received
the bank statement from ABC Bank.

Per the bank statement, the balance of the account is Php10,050. This gives a
problem. The accounting record shows a balance of Php10,000.

Questions:
a. Do we conclude the bank made an error because we are sure there were
no movements in this cash account?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
b. Perform a bank reconciliation by using the figure below. In this scenario,
there are no other transactions recorded on the ledger account except the
original entry. On the other hand, we noted that the bank statement shows
the interest of Php50 earned by the savings account.

LU_FABM 2_Module 9
 I. Bank II. Books
Unadjusted balance Php Unadjusted balance Php ________
________
Add:
Reconciling items ___________
Adjusted balance Php Adjusted balance Php ________
________

Figure 2: Bank Reconciliation Cash in Bank – ABC

c. From the bank reconciliation, prepare a journal entry to adjust for interest
income.

________________________________
______________________________________

d. Why there is no adjusting journal are prepared for the bank side?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________

LU_FABM 2_Module 9
 Deepen

At this point, apply the new knowledge or skills you’ve learned about bank
reconciliation.

Activity 1

A. TRUE OR FALSE
Direction: Read and understand the following statements carefully. Write TRUE if
the statement is correct and FALSE if the statement is incorrect. Use a separate
sheet of paper for your answer.

1. Preparation of bank reconciliation helps in the identification of errors in the

accounting records of the company or the bank.

2. Errors by the other party in recording transactions prevent one of the parties
(company or the bank) from recording the transaction in the same period as
the other party.
3. It is normal for a company’s bank balance as per accounting records to differ
from the balance as per bank statement.

4. Book to Bank Method wherein the balance per bank and per book are
separately determined.

5. Adjusted Method where the bank balance is adjusted to agree with the book
balance.

6. Interest credit by the bank is the amount deducted from the depositor’s
account in the bank books as payment of loan due from the depositor.

7. NSF Checks should not be debited back to the customers.

8. Outstanding Checks have been recorded by the bank but not yet recorded by
the depositor.
9. Another reason why the balance per book will not tally with the balance per
bank is when errors are committed by either party.

10. It is normal for a company’s bank balance as per accounting records to differ
from the balance as per bank statement.

LU_FABM 2_Module 9
 Gauge

Posttest
Directions: Read carefully each item. Use a separate sheet for your answers. Write
only the letter of the best answer for each test item.

1. What report compares the bank balance as per the company’s accounting
records with the balance stated in the bank statement?
A. Bank reconciliation statement B. Deposit Slip
C. Bank statement D. Withdrawal slip
2. What is the most vulnerable asset of the entity?
A. Building B. Equipment
C. Cash D. Supplies
3. What is the period in the preparation of bank reconciliation to assists in the
regular monitoring of cash flows of a business?
A. Annually B. Quarterly
C. Monthly D. Semi-annually
4. Which method of preparing a bank reconciliation statement wherein the
balance per bank and per book are separately determined?
A. Adjusted Method B. Book to Bank Method
C. Banks to Book D. Both B & C
5. What word makes the statement incorrect – “Time lags that prevent both of
the parties from recording the transaction in the same period as the other
party?”
A. Both B. Recording
C. Prevent D. Same period

6. What collections are made by the bank acting as an agent for the depositor?
A. Bank collections in favor of the depositor
B. Commissions charged by the bank
C. Deposit in Transit
D. Interest credit by the bank

7. Which checks refer to the amounts already received and recorded by the
company but are not yet recorded by the bank?
A. Company Checks
B. Deposit in Transit
C. NSF Checks
D. Outstanding Checks

LU_FABM 2_Module 9
8. Which checks have been written in the company’s Cash account but have not
yet been cleared in the bank account or presented to the bank by the people?
A. Company Checks
B. Deposit in Transit
C. NSF Checks
D. Outstanding Checks

9. What check was not honored by the bank of the person or company writing
the check because the account did not have a sufficient balance?
A. Deposit in Transit
B. Manager’s Check
C. NSF Checks
D. Outstanding Checks

10. What makes the sentence incorrect – “Preparation of bank statement helps
in the identification of errors in the accounting records of the company or the
bank”?
A. Accounting
B. Bank Statement
C. Identification
D. Records

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LU_FABM 2_Module 9
LU_FABM 2_Module 9
11
Jumpstart
Activity I: IDENTIFICATION
1. B 2. A 3. C 4. F 5. E
Explore
Enrichment Activity 1
Assessment 1
1. Cash in Bank Php 10,000
Accounts Receivable Php 10,000
2. a) No, we do not make such conclusion without careful analysis of facts.
b)
I. Bank II. Books
Unadjusted balance Php 10,500 Unadjusted balance Php 10,000
Add:
Reconciling items 50
Adjusted balance Php 10,500 Adjusted balance Php 10,000
Figure 2: Bank Reconciliation Cash in Bank – ABC
c) Cash Php 50
Interest Income Php 50
d) The reason is, we are only responsible for maintaining the books of the company not the
records of the bank. We are limited to notifying the bank of their errors that were discovered
during the reconciliation process.
Deepen
Activity 1: TRUE OR FALSE
1. TRUE 2. FALSE 3. TRUE 4. FALSE 5. FALSE
6. FALSE 7. FALSE 8. FALSE 9. TRUE 10. TRUE
Gauge
1. A 2. C 3. C 4. A 5. A 6. A 7. B 8. D 9. C 10. B
Answer Key
 Reference Lists

Books:

Dani Rose C. Salazar Management 2, 2017, 8, 5Fundamentals of Accountancy,

Business and 6 Nicanor Reyes Sr. St, Sampaloc, Manila, Rex
Bookstore, Inc.

Patricia B. Licuanan, Ph.D., 2016 Fundamentals of Accountancy, Business

and Management 2, Teacher’s Guide, 4th Floor, Commission on
Higher Education, C.P. Garcia Ave., Diliman, Quezon City,
Commission on Higher Education

Links:
Bank Statement: Definition, Use, Importance, Sample retrieved from
https://www.iedunote.com/bank-statement

Purpose of a bank reconciliation and prepare a bank reconciliation and its

associated journal entries retrieved from

https://opentextbc.ca/principlesofaccountingv1openstax/chapter/defi

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LU_FABM 2_Module 9
 For inquiries or feedback, please write or call:

Department of Education – SDO La Union

Curriclum Implementation Division
Learning Resource Management Section
Flores St. Catbangen, San Fernando City La Union 2500
Telephone: (072) 607 - 8127
Telefax: (072) 205 - 0046
Email Address:
launion@deped.gov.ph
lrm.launion@deped.gov.ph

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LU_FABM 2_Module 9