TOPIC 3: BANK RECONCILIATION

Expected question(s): 6) What is the unadjusted balance of cash in bank per book or per bank statement?

1. What is the adjusted balance of cash in bank? Answer:

2. What is the unadjusted balance of cash in bank per book or per bank
statement? PER BOOK
3. What is the amount of the missing reconciling item? Unadjusted balance per book
Add: Credit memo (CM)
(1) Notes collected by bank in behalf X
(2) Interest income earned by bank deposit X
5) What is the adjusted balance of cash in bank? (3) Loan proceeds directly credited or added by bank X
(4) Unrolled-over matured time deposits X
Answer: Less: Debit memo (DM)
(1) NSF/DAIF/DAUD check from customer (X)
PER BOOK (2) Bank service charge (X)
Unadjusted balance per book (3) Automatic debit agreement (X)
Add: Credit memo (CM) (4) Payment of loans (X)
(1) Notes collected by bank in behalf X (5) Final withholding tax on interest income (X)
(2) Interest income earned by bank deposit X Add: Book errors (BOE)
(3) Loan proceeds directly credited or added by bank X (1) Overstated disbursements X
(4) Unrolled-over matured time deposits X (2) Understated receipts X
Less: Debit memo (DM) Less: Book errors (BOE)
(1) NSF/DAIF/DAUD check from customer (X) (1) Understated disbursements (X)
(2) Bank service charge (X) (2) Overstated receipts (X)
(3) Automatic debit agreement (X) ADJUSTED BOOK BALANCE X
(4) Payment of loans (X)
(5) Final withholding tax on interest income (X)
PER BANK
Add: Book errors (BOE)
Unadjusted balance per bank
(1) Overstated disbursements X
Add: Deposit in transit (DIT) X
(2) Understated receipts X (deposits made but not yet credited by bank to the depositor’s account)
Less: Book errors (BOE) Less: Outstanding checks (OC) X
(1) Understated disbursements (X) (checks drawn and released but not yet encashed with the bank)
(2) Overstated receipts (X) (exc. certified checks, stale checks)
ADJUSTED BOOK BALANCE X Add: Bank errors (BAE)
(1) Overstated disbursements X
(2) Understated receipts X
PER BANK
Less: Bank errors (BAE)
Unadjusted balance per bank
(1) Understated disbursements X
Add: Deposit in transit (DIT) X
(deposits made but not yet credited by bank to the depositor’s account) T (2) Overstated receipts X
Less: Outstanding checks (OC) X ADJUSTED BANK BALANCE X
(checks drawn and released but not yet encashed with the bank)
(exc. certified checks, stale checks)
Add: Bank errors (BAE)
(1) Overstated disbursements X i. Compute the adjust balance of either book or bank depending on which unadjusted
(2) Understated receipts X balance is given.
Less: Bank errors (BAE)
(1) Understated disbursements X ii. Whatever the adjusted of one, that will also be the adjusted balance of the other one.
(2) Overstated receipts X
ADJUSTED BANK BALANCE X iii. From the adjusted balance copied from one record, WORK BACK the adjusted balance.
  Book reconciling items – CM, DM and BOE - YES
 Bank reconciling items – DIT, OC and BAE – NO
7) What is the amount of the missing reconciling item?
Treatment of errors
Answer:
Nature of error Effect on ending balance of Correction
PER BOOK cash
Unadjusted balance per book BOOK ERRORS
Add: Credit memo (CM) Understatement in book debit Understatement Debit (addition)
(1) Notes collected by bank in behalf X Understatement in book credit Overstatement Credit (deduction)
(2) Interest income earned by bank deposit X Overstatement in book debit Overstatement Credit (deduction)
(3) Loan proceeds directly credited or added by bank X
Overstatement in book credit. Understatement Debit (addition)
(4) Unrolled-over matured time deposits X
BANK ERRORS
Less: Debit memo (DM)
Understatement in bank credit Understatement Credit (addition)
(1) NSF/DAIF/DAUD check from customer (X)
(2) Bank service charge (X) Understatement in bank debit Overstatement Debit (deduction)
(3) Automatic debit agreement (X) Overstatement in bank credit Overstatement Debit (deduction)
(4) Payment of loans (X) Overstatement in bank debit Understatement Credit (addition)
(5) Final withholding tax on interest income (X)
Add: Book errors (BOE)
(1) Overstated disbursements X
(2) Understated receipts X
Less: Book errors (BOE) Computation of Deposit in Transit (DIT)
(1) Understated disbursements (X)
(2) Overstated receipts (X) DIT, beg bal X
Deposits made during the month: Deposits credited by bank during current month:
ADJUSTED BANK BALANCE X
Total debits per book X X Total credits per bank
Less: CM last month X X Less: CM in current month
PER BANK Less: Effect on book error last month X X Less: Effect of bank error last month
Unadjusted balance per bank Add/less: Effect of book error in X X Add/less: Effect of bank error in current month
Add: Deposit in transit (DIT) X current month
(deposits made but not yet credited by bank to the depositor’s account) X
SQUEEZE X
Less: Outstanding checks (OC) X
(checks drawn and released but not yet encashed with the bank)
(exc. certified checks, stale checks) X DIT, ENDING BALANCE
Add: Bank errors (BAE)
(1) Overstated disbursements X
(2) Understated receipts X
Less: Bank errors (BAE)
Computation of Outstanding Checks (OC)
(1) Understated disbursements X
(2) Overstated receipts X X OC, beg bal
ADJUSTED BALANCE X Checks drawned during current month:
Checks encashed duringcurrent month:
Total debits per bank X X Total credits per book
Less: DM current month X X Less: DM last month
Less: Effect on bank error last month X X Less: Effect of book error last month
How? Add/less: Effect of book error in X X Add/less: Effect of book error in current month
current month
- The missing reconciling item can be squeezed from the two records. For example X X
above, the missing reconciling item is the outstanding check.
OC, ENDING BALANCE X
Which should the depositor make reconciling entries?