Senior High School

Fundamentals of Accountancy,
Business and Management 2
Module 10:
Analyzing the Effects of the
Identified Reconciling Items

AIRs - LM
LU_FABM 2_Module 10
 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2
Module 10: Analyzing the Effects of the Identified Reconciling Items
Second Edition, 2021

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LU_FABM 2_Module 10
 Senior High School

Fundamentals of Accountancy,
Business and Management 2
Module 10:
Analyzing the Effects of the
Identified Reconciling Items

LU_FABM 2_Module 10
 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 a 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.

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Please use this module with care. Do not put unnecessary marks on any part
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If you have any questions in using this SLM or any difficulty in answering the
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Thank you.

LU_FABM 2_Module 10
 Target

Bank reconciliation is a process of making the cash balance per

book and cash balance per bank equal. The process needs two primary
documents. These are the cash book of the company and the bank
statement. Cash book is a record of all the cash receipts and
disbursement on the part of the company while the bank statement is the
records of the bank pertaining to a current account showing all the debits
and credits with corresponding balances on every date after each
transaction.
As a process, the accountant preparing the bank reconciliation must
do a lot of examination. The examination entails that the reconciling items
must be compared one by one from the book with the bank or vice-versa.

In your previous lessons, you are task to identify the bank

accounts normally maintained by a business (ABM_FABM12-IIc-5),
identify and prepare a check (ABM_FABM12- IIc-8), and asks to describe
the nature of a bank reconciliation statement (ABM_FABM12- IId-10).
Those topics have given you the basic idea of some of the reconciling
items in a bank reconciliation statement.

This learning material will provide you with a piece-by-piece idea of

the different reconciling items that formed the bank reconciliation
statements. Specifically, it will aid you to analyze the effects of the
identified reconciling items (ABM_FABM12- IId-12).

Subtasks:
1. Identify the different reconciling items;
2. Define the different reconciling items; and
3. State the effects of the different reconciling items to the book
(bank) record.

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LU_ FABM2_Module 10
 Jumpstart

Directions: Answer briefly the questions below:

1. What is a bank statement?

2. What is an outstanding check?

3. What is a deposit in transit?

4. What is a stale check?

5. What is an NSF check?

6. Who can correct a book error?

7. Who can correct a bank error?

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 Discover

Activity 1. Read Me! Understand Me!

Directions: Read the bank reconciliation methods, the different

reconciling items, and their effects. Understand what you are reading.

Bank Reconciliation Methods

There are three methods of bank reconciliation. These are: a.)

adjusted balance method; b.) book to bank method, and c.) bank to book
method.
The adjusted balance method shows the beginning balances of
both the book and the bank at the beginning of the month. Reconciling
items are either added or deducted to the book or bank balances to arrive
at the adjusted balances at the end of the month. The adjusted balance
shows that the ending balance of the current account is the same for both
the book and the bank.

The book to bank method starts with the unadjusted balance of

the book at the beginning of the period. Series of adjustments will follow
to arrive at the bank balance at the beginning of the month.

The bank to book method begins with the unadjusted balance of the
bank. Adding or deducting the applicable reconciling items will let you arrive
at the unadjusted book balance.

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LU_ FABM2_Module 10
Reconciling Items and Their Effects
The following terms presented are the regular and usual
reconciling items that can be used to prepare bank reconciliation
statements. These reconciling items can be used in each of the different
methods of bank reconciliation.

Reconciling
Definition / Description Effects
Items
Outstanding Checks already recorded in the Cash per bank
Check Cash Disbursement Journal and balance is overstated.
issued by the company but not yet
presented to the bank for payment.
Stale check is considered as a n
outstanding check but
must be replaced by a new one.
Deposit-in- Amount already recorded in the Cash per bank
Transit Cash Disbursement Journal of the balance is
company as a deposit but not yet understated.
recorded in the
book of the bank.
Book Error Mistakes committed in the book by Overstatement error
the company. It can only be corrected increases the cash
in the book of the company. balance per book;
Understatement error
decreases the cash
balance per book.
No Sufficient Check issued by the company Cash per book
Fund (NSF) (drawer) but returned by the bank balance is
Check due to insufficient funds. The bank understated.
charges a specific amount for every
check issued
with insufficient funds.
Bank debit Bank charges were deducted from Cash per book
memorandum the account of the drawer by the balance is overstated.
drawee (bank) but not known by the
company. Examples: Cost of
printing checks, cost
of collection of accounts receivable
Bank credit Cash was added to the account by Cash balance per
memorandum the bank but not yet known by the book is understated.
company. Examples: interest
earned; amount
collected as payment of an obligation.
Bank Error/s Mistakes committed by the bank. Overstatement error
Error made by the bank can only be increases the cash
corrected by the bank. balance.
Understatement error
decreases the cash
balance

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 Explore

Enrichment Activity: Read Me! Answer Me!

Directions: Analyze each problem independently then answer the
questions that follow. Write your answer in the space provided before the
number. Use CAPITAL LETTER ONLY.

A. The cash disbursement journal of ABC Corporation reflected the

following collections for the month of October 2019:
Check Date Check No. Payee Amount
10/12/2019 14171 Alpha 4,000
10/13/2019 14172 Bravo 2,000
10/19/2019 14173 Charlie 8,900
10/25/2019 14174 Delta 7,800
10/30/2019 14175 Echo 3,200

The bank statement for October 2019 revealed following checks presented
to the bank for payment:
Date Amount
10/13/2019 4,000
10/14/2019 2,000
10/28/2019 7,800

____1. What are the outstanding checks?

A. Check numbered 14172 and 14173
B. Check numbered 14173 and 14175
C. Check numbered 14171 and 14175
D. Check numbered 14174 and 14175
_____2. What is the total calculated amount of the outstanding checks?
A. 7,200 B. 10,900 C. 11,000 D. 12,100

___3. What possible findings can you give if given the chance to
investigate the effects of the outstanding checks to cash balances
of book and bank as of October 31, 2019?
A. Bank: no effect: Book: overstated
B. Bank: overstated: Book: no effect
C. Book: overstated; Bank: understated
D. Book: understated; Bank: overstated

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LU_ FABM2_Module 10
 Deepen

The cash receipts journal of XYZ Merchandising reflected the following

collections for the month of April 2019:
Official Receipt Official Receipt Custome Amount
Date No. r
5/2/2019 4171 Carl 4,000
5/8/2019 4172 Vincent 2,000
5/9/2019 4173 Ryan 8,900
5/25/2019 4174 Fatima 7,800
5/30/2019 4175 Cherry 3,200

It is the policy of the company to deposit collection within the following

day from the date of collection.

The bank statement for April 2019 revealed t he following deposits made:
Deposit Date Amount
5/3/2019 4,000
5/9/2019 2,000
5/10/2019 8,900
5/26/2019 7,800

Required:

________1. What is the calculated amount of deposit in transit?

A. 3,000 B. 3,100 C. 3,200 D. 3,300

________2. What can be detected as a possible effect of the deposit in

transit to the book balance and bank balance as of the end
of April 2019?

A. Bank balance: no effect; book balance; overstated

B. Book balance: no effect; bank balance: overstated
C. Bank balance: overstated; book balance: understated
D. Book balance: understated; bank balance: understated.

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LU_ FABM2_Module 10
 Gauge

Directions: Answer the questions below by writing the letter of the best
answer on the space provided before the number. Use CAPITAL LETTERS
only.
1. What is the monthly statement containing the beginning and ending
balances, debits, and credits with corresponding dates given by the
bank to the owner of the current account?
A. Bank statement B. Credit memorandum
C. Bank reconciliation D. Outstanding check
2. What is the amount already recorded in the Cash Disbursement
Journal of the depositor but too late to be recorded in the book of
the bank?
A. Stale check B. Debit memorandum
C. Deposit in transit D. Credit memorandum
3. What check was written, forwarded to the payee but not yet
presented to the bank for payment?
A. NSF check B. Bouncing check
C. Stale check D. Outstanding check
4. What check was issued by the drawer but was returned by the
drawee for lack of funds?
A. NSF check B. Local check
C. Stale check D. Outstanding check
5. What are mistakes committed by the drawer?
A. Bank errors B. Book errors
C. NSF checks D. Deposit in transit
6. What are mistakes committed by the drawee?
A. Bank errors B. NSF checks
C. Book errors D. Deposit in transit
7. Which is an example of a debit memorandum?
A. Interest earned
B. Bank service charges
C. Cash collected by the company without the knowledge of the
bank
D. Cash collected by the bank without knowledge of the
company

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LU_ FABM2_Module 10
______8. Which is an example of a credit memorandum?
A. Book error B. Outstanding check
C. Interest earned D. Bank service charge
______9. Who can correct an error committed by the bookkeeper of the
drawer?
A. The bank can correct the error.
B. The company can correct the error.
C. The auditor of the bank can correct the error.
D. Either the company or the bank can correct the error.
_____10. Who can correct an error committed by the bookkeeper of the
bank?
A. The bank can correct the error.
B. The company can correct the error.
C. The auditor of the book can correct the error.
D. Either the company or the bank can correct the error.
______11. Which of the statements below is not true about the
understatement of cash balance per book?
A. Check issued is correctly recorded in its amount.
B. Check amount issued is recorded at a lower amount.
C. Check amount issued is recorded at a higher amount.
D. Check issued is correctly recorded in its date and check
number.
______12. How do you calculate the amount of outstanding checks?
A. Total amount of checks issued a less stale check
B. Total amount of checks issued less No Sufficient Funds
Check
C. Total amount of checks issued less amount of checks
encashed
D. Total amount of check issued is the amount of outstanding
check
______13. How do you distinguish an outstanding check from other
checks?
A. Check not yet presented for payment.
B. Check presented for payment to the bank.
C. Check issued but not yet encash after 9 months.
D. Check presented for payment to the bank but marked NSF.

______14. How do you calculate an overstatement or understatement of

cash recorded?

A. Recorded amount.
B. Actual amount recorded.
C. Actual amount less than the recorded amount.
D. Amount recorded less than the actual amount.

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LU_ FABM2_Module 10
 15. What is the comparison between a bank error and a book
error?
A. Book errors can be corrected by either the bank or the book.
B. Bank error can be corrected by either the bank or the book.
C. Bank error can be corrected in the book; book error can be
corrected by the bank.
D. Book error can be corrected in the book; bank error can be
corrected by the bank.

Congratulations! You have reached this point. To measure how much you
have learned from the topic, answer the posttest prepared for you. After
which compare your answers with your answers on the pretest.

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LU_ FABM2_Module 10
LU_ FABM2_Module 10
10
GAUGE:
1. A
2. A
3. D
4. A
5. B
6. A
7. D
8. C EXPLORE
9. B 1. B
10.A 2. D
11.C 3. B
12.C DEEPEN
13.B
14.D 1. C
15.D 2. B
Answer Key
References
Printed Materials:
Commission on Higher Education. (2016). Teaching Guide for Senior High
School in Fundamentals of Accountancy, Business, and Management
(pp. 137 – 147). Diliman, Quezon City.

LINKS:
What is bank reconciliation and its importance? Retrieved July 23,
2020, https://accounting-simplified.com/financial/bank-
reconciliation/

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LU_ FABM2_Module 10
 For inquiries or feedback, please write or call:

Department of Education – SDO La Union

Curriculum 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_ FABM2_Module 10