FUNDAMENTALS OF

ACCOUNTANCY,
BUSINESS AND
MANAGEMENT 2
(FABM 2)
Review of the past lesson

1. What are the

common basic
bank
transactions?
2. How do
you define
bank
statement?
3. Read and analyze, then
answer the questions that comes
after.
1. Who owns the check?
2. To whom was the check written for?
3. What is the check number?
4. How much is the amount of the check?
5. Can this check be encashed over the counter? Why?
What is
Reconcile (rec·on·cile)
- restore friendly relations
between two individuals or
group.
In accounting…………….

- to check (a financial account) against

another for accuracy.
 LESSON:
BANK
RECONCILIATION
 Learning Objectives:
1. Describe the nature of a bank
reconciliation statement
2. Identify common reconciling items
and describe each of them
3. Analyze the effects of the
identified reconciling items
SPOT THE DIFFERENCE
Look at the picture and find the difference.
Find the difference:
PRO-FORMA BANK RECONCILIATION STATEMENT
ABC Co.
Bank Reconciliation
For the month ended August 31, 2016
Balance per books, end P xx Balance per bank P xx
statement, end
Add: Credit memos (CM) xx Add: Deposit in Transit xx
(DIT)
Less: Debit memos (DM) (xx) Less: Outstanding (xx)
Checks (OC)
Add/Less: Book errors xx Add/Less: Bank errors xx

Adjusted balance xx Adjusted balance xx

Balance per books, end – the cash balance
in the accounting records as of the end of the
current month.

Balance per bank statement, end – the

ending cash balance in the bank statement of the
current month.
 Bank
Reconciliation items
(book side/
company’s record)
Credit memos – These are additions (bank credits)
made by the bank to the depositor’s bank account but
not yet recorded by the depositor.
Examples:
1. Collections made by the bank on behalf of the
depositor.
2. Interest income earned from the amount deposited
3. Proceeds from loan credited or added by the bank
to the depositor’s account.
On January 1, 20X0, the company collected ₱50,000
from its accounts receivable. The collection was
deposited to open a savings account in PS Bank.
The following journal entry was made to account for
this transaction.

Cash in bank – PS Bank 50,000

Accounts Receivable 50,000
P 50,000
Debit memos – these are deductions (bank debits) made
by the bank to the depositor’s bank account but not yet
recorded by the depositor.
Examples:
1. Bank service charges representing for fees, interest,
penalties, and surcharges.
2. No sufficient fund checks (NSF) or Drawn again
insufficient fund (DAIF) – these are checks deposited
and already recorded by the bank but returned to
depositor because the drawer’s fund is insufficient to
pay for the check.
3. Automatic debits – when the depositor and the bank
agree that the bank will make automatic payments of
bills on behalf of the depositor.
4. Payment of loans - represents of loan which the
depositor agreed to be made out directly from its bank
account.

Book errors – errors committed

by the depositor (e.g., erroneous
recording in the accounting books).
Bank Reconciliation
items
(bank side)
Deposit in Transit

Are deposits already made but

not yet received by the bank, or
received by the bank but not yet
credited to the depositor’s bank
account.
Deposit in Transit

Deposit in transit refers to two

items. (1) Amount that is
deposited in the bank after cut-off
time; and (2) Amount that is
received by the company for
deposit but not yet deposited in
the bank.
Deposit in Transit - are deposits already made but
not yet received by the bank, or received by the bank
but not yet credited to the depositor’s bank account.
Reasons or it occurs when:
1. Mailed to the bank
2. Placed in an overnight depository
3. Made through check and the check has not yet
cleared or bank’s cut-off
June 28, 20X2 JECAF Marketing issued a ₱10,000 check in
favor of Claire Inc. Check was also recorded on
the accounting books on this date.
June 29, 20X2 JECAF Marketing informed Claire that their
check is ready for pick-up
June 30, 20X2 The messenger of Claire Inc. picked up the
check from the office of JECAF Marketing.
July 1, 20X2 The check was deposited in JLP Bank.
July 3, 20X2 The check cleared through the banking system.
The bank deducted ₱10,000 from JECAF’s
checking account.
Timing Differences
The accounting books may
be ahead of the bank records.
Such timing differences will
result in the reconciling items
only if the cut-off date occurs
between the date the of the
bank and the accounting books
record the transaction.
Outstanding
checks
These are checks drawn
and released to payees
but are not yet
encashed with the bank.
Bank Errors
Erroneous debits
and credits by the
bank in the entity’s
account.
-errors committed
by the bank.
Summary:

• Reconciling items on the company’s

side – book side (Ledger)

➢ Credit memorandum (CM) +

➢ Debit memorandum (DM) -
➢ Book errors +/-
• Reconciling items on the bank
side
➢ Deposit in transit (DIT) +
➢Outstanding check (OC) -
➢Bank Errors +/-
How much have you
learned?
Case 1:
On November 1, 2019, you opened a checking
account for your business for an initial deposit
of P10,000. During the month, you wrote
checks totalling P5,000 and made a P2,000
deposit on November 29, 2019. Accordingly,
the ending balance of your “Cash in bank”
account per accounting records is P7,000
(10,000 beg – 5,000 withdrawal + 2,000
deposit= 7,000 end.)
Today, December 3, 2019, you received the
November 30, 2019 bank statement and
found out that your account balance is
P16,400. You noted the following
difference:

Cash balance per books 7,000

Cash balance per bank statement 16,400
Difference 9,400
You started your investigation for
the difference and discovered the
following:
a. One of your customers
deposited P12,000 to your bank
account for a purchase.
Analysis: -------------------------
b.The bank paid your Globe
internet bill of P1,600 on your
behalf. You have agreed to this
arrangement.
Analysis: -------------------------
c. Your 2,000 deposit on November 29, 2019
was not yet reflected on the bank
statement because the deposit was through
check and it takes about 3 days for a check
to clear the bank.

Analysis: -------------------------
d. Of the total P5,000 checks you
have written, only P4,000 were
encashed by the payees.

Analysis: -------------------------
 Your Business
Bank Reconciliation Statement
For the month ended ________________
Balance per books, end P xx Balance per bank P xx
statement, end
Add: Credit memos (CM) xx Add: Deposit in Transit xx
(DIT)
Less: Debit memos (DM) (xx) Less: Outstanding (xx)
Checks (OC)
Add/Less: Book errors xx Add/Less: Bank errors xx

Adjusted balance xx Adjusted balance xx

 Activity 2
Book and Bank
Errors
Yuzi Co., is preparing its September 30, 2023
bank reconciliation. The following
information was determined:
a. Balance per bank statement, September 30,
2023 – P180,000
b. Deposit in transit, September 30, 2023-
P32,000
c. Return of customer’s check for
insufficiency of funds (NSF check),
September 30, 2023 – P60,000
d. Balance per books, September 30, 2023-
P143,000
e. Outstanding checks, September 30, 2023-
P27,000
f. A collection of P320,000 was recorded in
the books as P230,000. The bank
statement shows the correct amount of
320,000.
g. The bank erroneously credited a P12,000
deposit of Hair Busy Co. to Yuzi’s account.
 Yuzi Company
Bank Reconciliation Statement
For the month ended September 30, 2023
Balance per bank
Balance per books, end 143,000 statement, end 180,000
Add: CM - Add: DIT 32,000
Less: OC (27,000)
Less: DM (NSF check) (60,000)
Add/Less: Book errors Add/Less: Bank errors (12,000)
Understatement 90,000 Overstatement

Adjusted balance 173,000 Adjusted balance 173,000

Book Errors: T-accounts (Ledger)
‘Entry Made’ (EM) ‘Should be’ (SBE)
Cash Cash
Dr. Cr.
Dr. Cr.
(f) 230,000
(f) 320,000
Bal. 230,000
Bal. 320,000
Understated by P90,000
(320,000 SBE vs 230,000 EM)
 ‘Correction’
Cash
Dr. Cr.
(f) 230,000
Correction: Addition 90,000
Bal. 320,000
 Bank Errors:
‘Entry Made’ (EM) ‘Should be’ (SBE)
Deposit Liability – Yuzi Co. Deposit liability – Yuzi Co.
Dr. Cr. Dr. Cr.
12,000 (g) -
Bal. 12,000 Bal. -
Overstated by P12,000 (0
SBE vs 12,000 EM).
 ‘Correction’
Deposit Liability –Yuzi Co.
Dr. Cr.
12,000
Correction: Deduction 12,000
Bal. -
Yuzi Co. is preparing its October 31, 2023
bank reconciliation. The following
information was determined:
a. The cash balance per books is P560,000,
while the cash balance per bank statement
is P640,000.
b. Credit memo – P40,000
c. Debit memo – P30,000
d. Deposit in Transit – P150,000
e. Outstanding checks – P50,000
f. The disbursement per books are
overstated by P90,000
g. The banks debits are
understated by P80,000

Requirement: Prepare bank

reconciliation.
Book Errors: T-accounts (Ledger)
‘Entry Made’ (EM)
Cash ‘Should be’ (SBE)
Cash
Dr. Cr.
560,000 90,000
Dr. Cr.
Bal. 470,000
560,000 -
Disbursements are recorded
Bal. 560,000
as credits to the cash
account. The disbursement
are overstated by 90,000
 ‘Correction’
Cash
Dr. Cr.
470,000
Correction: 90,000
Bal. 560,000
 Bank Errors:
‘Entry Made’ (EM)
Deposit Liability – Yuzi Co. ‘Should be’ (SBE)
Dr. Cr. Deposit liability – Yuzi Co.
640,000 Dr. Cr.
640,000 80,000 640,000
Understated by P80,000 (80,000 SBE
vs 0 EM) The understatement in the Bal. 560,000
bank debit caused the ending balance
to be overstated also by the same
amount 560,000 SBE vs. 640,000
EM=80,000 over)
 ‘Correction’
Deposit Liability – Yuzi Co.
Dr. Cr.
640,000
Correction: 80,000
Bal. 560,000
 Activity 3
Bank
Reconciliation
(Real Ledger
vs. Real Bank
Statement)
Determine the reconciling items
simply by comparing the
amounts in the ledger and the
bank statement.
➢ Amounts that are in the
ledger but not in the bank
statement are bank reconciling
items.
➢ Amounts that are in the
bank statement but not in
the ledger are book
reconciling items.
For this purpose, simply cross-out items
that appear in both ledger and the bank
statement. Items not crossed-out are the
reconciling items.
The reconciling items are:
Bank reconciling items
a. OC – P80,000 (from ledger, dated 5/21, check #1111)
b. DIT – P160,000 (form ledger, dated 5/30, “deposit”)

Book reconciling items are

a. DM – P31,905 (from bank statement, dated 5/12/2021, described as “PAYMENT”)
b. CM - P90,000 (from bank statement, dated 5/26/2021, described as “CHECK DEPOSIT”)