CHAPTER 2: BANK

RECONCILIATION
 bank deposit
There are three kinds of bank deposits, namely demand deposit, saving deposit, and
time deposit.

DEMAND DEPOSIT
The demand depositbis the current account or checking account or commercial
deposit where deposits are covered by deposit slips and where funds are withdrawable
on demand by drawing checks against the bank.
A demand deposit is usually noninterest bearing.
Howewver,some banks allow a demand deposit account as interest bearing.

SAVING DEPOSIT
In a saving deposit, the depositor is given a passbook upon the initial deposit. The
passbook is required when making deposits and withdrawals.
Withdrawals are made anytime but the bank sometimes may require notice of withdrawal.

A saving deposit is interest bearing.

 bank deposit
TIME DEPOSIT
The time deposit is similar to saving deposit in the sense
that it is interest bearing.

A time deposit is evidenced , however, by a formal

agreement embodied in an instrument called certificate
of deposit .
Time deposit may be preterminated or withdrawn on
demand or after a certain period of time agreed upon.
 what is bank
reconciliation

Incidentally, of the three kinds of deposit,a bank

reconciliation is necessary only for a demand deposit or
checking account.

When an account is opened at the bank ,the person authorized to draw

checks against the account will be required to sign cards furnished by the
bank, to show the specimen signatures to be use on the checks.
These specimen signatures will be filled by the bank so that any teller
who may be unfamiliar with a depositors signature can test the
authenticity of a check by comparing the depositor’s signature on the
card with the signature on the check.
If the depositor is a corporation , the bank will request
that the directors pass a resolution authorizing certain
officers of the corporation as signatories of checks and
that a copy of this resolution be filed with the bank .

Let us now illustrate some fundamental transactions

affecting the depositor and the bankl

Assume that Company X (the depositor) collected

P100,000 from a customer in settlement of an
account.The collection is deposited at the First Bank
Cash or cash in bank 100,000
Accounts receivable 100,000

On the book of bank, the journal entry is :

Cah 100,000
Company X 100,000

The journal entry on the books of the bank shows the credit is
Company X account. This is made, for our purpose, to facilitate the
illustration.
 In practice however, the account credited by the bank is demand depositor account but the same is
posted to the subsidiary ledger of company X .

When the bank credits the account of the depositor , Company X, it recognizes it's liability to the
depositor.

Legally, when deposit is made , there exist is a debtor-creditor relationship between the bank and the
depositor, the bank being the debtor and the depositor being the creditor .

Hence, when account of the depositor is increased the same is credited .

Let us assume further that company X subsequently issued a check for P30,000 in Payment of an account payable. On the
books or company X, the journal entry is .

Accounts payable 30,000

Cash 30,000

The journal entry on the books of the bank is :

Company X 30,000
Cash 30,000

When check is issued, the payee will present the same to the bank for payment.
 Debit memos

Debit memos refer to items not representing checks paid by bank which are charged or debited by the bank to the account of the
depositor but not yet recorded by the depositor as cash disbursements. The debit memos have the effect of decreasing the bank balance.

Typical examples of debit memos are:

n. NSF or no sufficient fund checks are checks deposited but returned by the bank because of insufficiency of fund.

The other name for NSF is DAIF or "drawn against insufficient fund".

b. Technically defective checks are checks deposited but returned by the bank because of technical defects such as absence of signature
or countersignature, erasures, mutilated checks, conflict between amount in words and amount in figures.

c. Bank service charges include bank charges for interest, collection, checkbook and penalty.

d. Reduction of loan pertains to amount deducted from the current account of the depositor in payment for loan which the depositor
owes to the bank and which has already matured.

Deposits in transit

Deposits in transit are collections already recorded by the depositor as cash receipts but not yet reflected on the bank statement.

Deposits in transit include:

a. Collections already forwarded to the bank for deposit but too late to appear in the bank statement.

b. Undeposited collections or those still in the hands of the depositor. In effect, these are cash on hand awaiting delivery to the bank for
deposit.
 Outstanding checks

Outstanding checks are e checks already record recorded by ss cash disbursements but not yet reflected statement. the depositor on the bank

Outstanding checks include:

8. Checks drawn and already given to payees but not yet presented for payment.

b. Certified checks - A certified check is one where the bank has stamped on its face the word "accepted" or "certified" indicating sufficiency of fund.

When the bank certifies a check, the account of the depositor is immediately debited or charged to insure the eventual payment of the check.

Certified checks should be deducted from the total outstanding checks if included therein because the certified checks are no longer outstanding for
bank reconciliation purposes.

Forms of bank reconciliation

The following formats may be used in reconciling the book balance and the bank balance:

a. Adjusted balance method - Under this method, the book balance and the bank balance are brought a correct cash to balance that must appear on
the statement of financial position.

b. Book to bank method-Under this method, the book balance is reconciled with the bank balance.

This means that the book balance is adjusted to equal the bank balance.

c. Bank to book method - Under this method, the bank balance is reconciled with the book balance.

This means that the bank balance is adjusted to equal the book balance.

The first method is preferred over the other two.

Proforma reconciliation

xx
Adjusted balance method

xx
Book balance
xx
Add: Credit memos
xx
Total
xx
Less: Debit memos
xx
Adjusted book balance
xx
Bank balance
xx

Add: Deposits in transit

xx

Total xx

Less: Outstanding checks xx

Adjusted bank balance xx

The reconciling items of the book are simply termed as credit memos and debit
memos.

No details are shown to simplify the illustration.

In actual formal reconciliation, details will have to be shown.

Moreover, errors are excluded because no definite rule can be made whether these
are to be added or deducted.

Errors will have to be analyzed for proper treatment.

However, errors are reconciling items of the party which committed them.

Under the adjusted balance method, the credit memos are always added to the
book balance and the debit memos are always deducted from the book balance.

Deposits in transit are always added to the bank balance and the outstanding
checks are always deducted from the bank balance.
 Explanation for the foregoing procedures

The adjusted balance method means that the book balance and the bank balance are adjusted to equal the correct cash balance.

Credit memos already increased the bank balance but have no effect on the book balance because the credit memos are not yet recorded by the depositor.

Consequently, the book balance is understated in relation to the correct cash balance.

Hence, credit memos are added to the book balance.

Debit memos already decreased the bank balance but have no effect on the book balance because the debit memos are not yet recorded by the depositor.

Consequently, the book balance is overstated in relation to the correct cash balance.

Hence, debit memos are deducted from the book balance.

Deposits in transit already increased the book balance but have no effect on the bank balance because the deposits are not yet recorded by the bank.

Consequently, the bank balance is understated in relation to the correct cash balance.

Hence, deposils in transit are added to the bank balance.

Outstanding checks already decreased the book balance but have no effect on the bank balance because the checks are not yet paid by the bank.

Consequently, the bank balance is overstated in relation to the correct cash balance.

Hence, outstanding checks are deducted from the bank balance.

Book to bank method

Book balance xx

Add: Credit memos xx

Outstanding checks xx xx

Total xx

Lees: Debit memos xx

Deposits in transit xx xx

Bank balance xx

When the reconciliation starts with the book balance and ends

with the bank balance, the usual book reconciling items are treated in the same manner they are treated in the adjusted balance method. Credit memos are added and
debit memos are deducted.

However, with respect to the bank reconciling items the treatment is simply "reversed."

Thus, since the deposit in transit is added to the bank balance, it is now deducted from the book balance and since the outstanding check is deducted from the bank
balance, it is now added to the book balance.

Explanation of reversal rule

The book to bank method means that the book balance is adjusted to equal the bank balance.

Deposits in transit already increased the book balance but have no effect on the bank balance because the deposits are not yet recorded by the bank.

Consequently, the book balance is overstated in relation to the bank balance.

Hence, deposits in transit are deducted from the book balance following the book to bank method.

On the other hand, outstanding checks already decreased the book balance but have no effect on the bank balance because the checks are not yet paid by the bank.

Consequently, the book balance is understated in relation to the bank balance.

Hence, outstanding checks are added to the book balance, following the book to bank method.
Bank to book method

Bank balance xx

Add: Deposits in transit xx

Debit memos xx xx

Total xx

Less: Outstanding checks xx

Credit memos xx xx

Book balance xx

When the reconciliation starts with the bank balance and ends with the book balance, the usual bank reconciling items are treated in the
same manner they are treated in the adjusted balance method. Deposit in transit is added and outstanding check is deducted.

However, with respect to the book reconciling items, the treatment is simply "reversed".

The credit memos are added to the book balance and are thus deducted from the bank balance.

The debit memos are deducted from the book balance and are thus added to the bank balance.

Explanation of reversal rule

The bank to book method means that the bank balance is adjusted to equal the book balance.

Debit memos already decreased the bank balance but have no effect on the book balance because the debit memos are not yet recorded
by the depositor.

Consequently, the bank balarice is understated in relation to the book balance.

Hence, debit memos are added to the bank balance.

On the other hand, credit memos already increased the bank balance but have no effect on the book balance because the credit memos
are not yet recorded by the depositor.

Consequently, the bank balance is overstated in relation to the book balance.

Hence, credit memos are deducted from the bank balance.

 ILLUSTRATION

The cash records of Company X showed the following data for the month of January.

CASH RECEIPT
CASH DISBURSEMENT
Jan. 5 60,000
13 Jan. 6 Check No.721 5,000
20,000
25 7 Check No.722 10,000
30,000
31 10 Check No.723 18,000
40,000
14 Check No.724 2,000
150,000
28 Check No.725 37,000
31 Check No.725 28,000
100,000

TThe general ledger of the company showed the following cash in bank account for
January:

Cash in bank - First Bank

Jan.31 CR 150,000 Jan.31 CD 100,000

The balance of the cash in bank on the depositor's book is P50,000.

 Bank Statement
The following is the bank statement for january received from the First Bank:
In account with: No. 775
Company X FIRST BANK
Quezon City Manila, Philippines
Date Check No. Withdrawals Deposits Balance
Jan. 6 60,000 60,000
8 721 5,000 55,000
11 722 10,000 45,000
12 723 18,000 27,000
14 20,000 47,000
17 724 2,000 45,000
26 30,000 75,000
26 15,000 CM 90,000
30 5,000 RT 85,000
30 1,000 SC 84,000

Code: CM-Credit memo SC-Service charge

DM-Debit memo RT-Returned check
The following data are gathered in connection with the CM and DM appearing on the bank
statement:

RT-Returned check

a. The CM of P15,000 on January 26 represents proceeds of note collected by the bank in favor
of the company.

b. The RT of P5,000 represents check of customer deposited previously but returned by the
bank because of "no sufficient fund" or NSF.

c. The SC of P1,000 represents service charge for collection of the note receivable in favor of
the company.
 General procedures in
preparing the reconciliation
a. Determine the balance per book and the balance per bank.

As mentioned earlier, the cash in bank account on the book of the depositor has a debit
balance of P50,000.
The bank balance is shown on the bank statement as the final item, P84,000.

b. Trace the cash receipts to the bank statement to ascertain whether there are deposits not
yet acknowledged by the bank.

The cash receipt of P40,000 on January 31 does not appear in the bank statement. The
amount represents deposit in transit.

c. Trace the checks issued to the bank statement to ascertain whether there are checks not
yet presented for payment.

Check Nos. 725 for P37,000 and 726 for P28,000 do not appear in the bank statement. The
said checks are outstanding checks.
 General procedures in
preparing the reconciliation

d. The bank statement should be examined to determine whether there are bank credits or
bank debits not yet recorded by the depositor.

There is CM or credit memo of P15,000 and DM or debit memo for returned check of
P5,000 and service charge of P1,000.

e. Watch out for errors. Again, errors are reconciling items of the party which committed
them. In the illustrative problem, there are no errors committed.

At this point, a formal reconciliation may be prepared because all the reconciling items
have already been determined.
 Preparation of adjusting
Adjusted balance method
entries
Only the book reconciling items require adjusting
entries on the book of depositor. This is but
Balance per book 50,000
understandable.
Add: Note collected by bank 15,000 The adjustments are necessary to bring the cash in bank
Total 65,000 balance to its correct balance for statement presentation
Less: NSF customer check purposes.
Service charge
Adjusted book balance 5,000 a. To record the note collected by bank:
1,000 6,000 Cash in bank. 15,000
Balance per bank Notes receivable. 15,000
59,000
Add: Deposit in transit b. To record the NSF customer check:
Accounts receivable 5,000
Total 84,000 Cash in bank. 5,000
Less: Outstanding checks: 40,000 c. To record the bank service charge:
Check No. 725 124,000 Bank service charge. 1,000
Check No. 726 Cash in bank. 1,000
Adjusted bank balance 37,000
28,000 65,000
59,000 In the preparation of adjustments, an item added to the
book balance is debited to cash in bank and an item
deducted from the book balance is credited to cash in
bank.
 Book to bank Bank to book
method method
COMPANY X
COMPANY X
Bank Reconciliaton
Bank Reconciliaton
January 31
January 31
Balance per bank 84,000
Balance per book 50,000
Add: Note collected 15,000 Add: Deposit in transit 40,000
Outstanding checks No. 725 37,000 NSF chec 5,000
No. 726 28,000 65,000 80,000 Service charge 1,000 46,000
Total 130,000 Total 130,000
Less: NSF check Less: Outstanding checks:
Serv ice charge 5,000 No. 725
Deposit in transit 1,000 No. 726 37,000
Balance per bank 40,000 28,000
46,000 Note collected by bank 65,000
84,000 Balance per book 15,000 80,000
50,000
 Some errors and their correction
a. Understatement of cash receipts on the book of depositor.
For example, the collection from customer which is deposited amounts to P10,000 but recorded
in the book only as P1,000.

There is an understatement of cash receipt of P9,000. The error is added to the book balance.

Cash in bank. 9,000

Accounts receivable. 9,000

b. Understatement of checks drawn by depositor.

For example, a check in payment of account payable amounting to P20,000 is recorded in the
book as P2,000.

There is an understatement of cash disbursement and a consequent overstatement of book

balance in the amount of P18,000. The error is deducted from the book balance.

Accounts payable 18,000

Cash in bank. 18,000
 Some errors and their correction

c. Deposit of another entity is credited by the bank to the account of the depositor.

The error is a deduction from the bank balance because it erroneously increased the account balance of
the depositor in the bank.

No adjustment is necessary on the book of the depositor.

d. Check of another entity charged to the account of the depositor.

The error is an addition to the bank balance because it erroneously decreased the account balance of the
depositor in the bank.

No adjustment is necessary on the book of the depositor.

 Questions
1. Explain the three kinds of bank deposits.
2. Explain a bank reconciliation.
3. What is a bank statement?
4. Explain credit memos.
5. Explain debit memos.
6. Explain deposits in transit.
7. Explain outstanding checks.
8. Define a certified check.
9. Explain the treatment of certified check for bank
reconciliation purposes.
10. Explain the three forms of bank reconciliation.
 Problems
Problem 2-1 (iaa)
Apathy Company provided the following information:
Apathy Company
Date Check No Withdrawal Deposits Balance
Dec. 2 100,000 100,000
104 10,000
18 90,000
101 5,000
20 85,000
106 25,000
22 60,000
27 50,000 110,000
29 10,000 120,000
103 40,000
29 80,000
29 CM 30,000 110,000
2,000
31 Service charge DM 108,000
 Problems
Problem 2-1 (iaa)
First bank
Dec. 1 Deposit 100,000 Dec. 4 Check No. 101 5,000
21 Deposit 50,000 6 Check No. 102 15,000
27 Deposit 10,000 8 Check No. 103. 40,000
31 Deposit 80,000 8 Check No. 104 10,000
10 Check No. 105 30,000
14 Check No. 106 25,000
28 Check No. 107 50,000

The credit made by the bank on December 29 represents the proceeds of a note
received from a customer which was given to the bank for collection by the entity on
December 26.

REQUIRED:
a. Prepare a bank reconciliation using adjusted balance method.
b. Prepare adjusting entries.
 Problem 2-2 (iaa)
Sensible Company provided the following ledger account of the cash in bank maintained with
Second Bank:
Second bank
Dec. 1 Balance 100,000 Dec; 1 Check No. 771 120,000
6 Deposit 30,000 4 772 25,000
12 Deposit 40,000 6 773 35,000
24 Deposit 50,000 10 774 15,000
31 Deposit 60,000 14 775 30,000
18 776 25,000
24 777 40,000

Sensible Company received the following bank statement from the Second Bank:
Date Checks Deposits Balance
Dec. 1 Balance 130,000
Check No. 768
1 10,000
771
4 20,000
772 30,000
6 5,000
773 40,000
12 35,000
774
12 15,000
776 50,000
24 52,000
1042 45,000 CM
28 NSF check 8,000
28 Service charge 10,000
 Problems
Problem 2-2 (iaa)

1. Sensible Company reconciled its bank balance on November 30 with two checks, No. 768
for P10,000 and No. 770 for P20,000 outstanding.
2. Check No. 1042 was drawn by Sensitive Company. The bank charged it in error to the
account of Sensible Company.
3. Check No. 776 was correctly drawn for P52,000 in paymentof account. The check was
recorded by Sensible Company for P25,000.
4. The bank credit. on December 28 represents the proceeds of a P50,000 note less a
collection fee of P5,000 collected by
the bank and credited to the account of Sensible Company.
5. The NSF check was received from a customer in payment of account.

REQUIRED:
a. Prepare a bank reconciliation statement on December 31.
b. Prepare adjusting entries on December 31.
 Problems

Problem 2-3 (iaa)

Xavier Company provided the following bank reconciliation on January 31 of the current year:

Bank balance 300,000

Add Deposit in transit 600,000
Total 900,000
Deduct Outstanding checks:
No. 114
115 240,000
116 160,000
Adjusted bank balance 60,000 460,000
440,000
 Problem 2-3 (iaa)
All receipts of cash are deposited in the bank account. The bank statement for the month of February
is presented below.
Third bank
Checks Deposit Date Balance
Balance forwarded Jan. 31 300,000
240,000
600,000 Feb. 1 660,000
2,000,000 3 2,660,000
200,000
5 2,460,000
900,000
400,000 7 1,960,000
160,000
9 1,800,000
1,000,000 10 2,800,000
500,000
13 2,300,000
1,200,000 16 3,500,000
1,300,000 21 4,800,000
550,000
23 4,250,000
5,000 SC
24 4,245,000
1,000,000
550,000 27 3,795,000
800,000
270,000 CM 28 3,265,000
 Problem 2-3 (iaa)
The following information was taken from the
The following data were taken from the cash
credit memo of February 28:
journals of Xavier Company:
Face of the note 250,000
Cash Receipt Journal
Interest on the note 30,000
Maturity value of the note 280,000 Date Debit Cash
Collection charge 10,000 Feb. 2 2,000,000
Credit to your account 270,000 6 400,000
9 800,000
Cash Disbursement Journal 10 200,000
Check No. Credit Cash 15 1,200,000
117 200,000 20 1,300,000
118 900,000 24 550,000
119 800,000 28 450,000
120 500,000 6,900,000
121 550,000
122 180,000 Required:
123 1,000,000 a. Prepare bank reconciliation on February 28, showing the book
124 120,000 balances before and after adjustment.
125 250,000
b. Prepare journal entries to record the adjustments that are
4,500,000
indicated by the bank reconciliation.
 Problem 2-4 (iaa)
Carefree Company prepared the following bank reconciliation on
March 31:
1,405,000
Book balance
Add: March 31 deposit 750,000
Collection of note 2,500,000 Check No. 175 was made for the proper amount
Interest on note 150,000 3,400,000
of P249,000 in payment of account.
Total 4,805,000
Less: Careless Company's deposit to
However the check was entered in the cash
credited our account
1,100,000 disbursements journal as P294,000.
Bank service charge
Adjusted book balance. 45,000 1,145,000
Bank balance Carefree Company authorized the bank to
Add: Carefree Company error on check No. 175 3,660,000 automatically pay its light and water bills as
Total submitted directly to the bank.
Less: Preauthorized payment for 5,630,000
light and water 45,000 REQUIRED:
NSF check 5,675,000 a. Prepare a corrected bank reconciliation.
Outstanding checks
205,000
220,000 b. Prepare adjusting entries on March 31.
Adjusted bank balance
1,650,000
2,075,000
3,600,000
 Problem 2-5 (iaa)
Zodiac Company provided the following information:
Balance per book, March 31 800,000
Cash receipts for April 4,100,000
Cash disbursements for April 3,800,000
Outstanding checks as of April 30 of
which No. 1333 had been certified:
No. 1331 40,000 REQUIRED:
No. 1332 30,000
No. 1333 50,000 Prepare a bank reconciliation on April
No. 1334 60,000 30 following the book to bank approach
No. 1335 10,000. and prepare adjusting entries.
April debit memós were:
For bank service charge 5,000
For NSF check 25,000
April credit memo for note collected
by bank in the name of Zodiac Company 60,000
Undeposited collections 270,000
Balance per bank, April 30 1,000,000
 Problem 2-6(iaa)
Virgo Company provided the following data for the month of January:

Balance per book, January 31 3,130,000 REQUIRED:

Balance per bank statement, January 31 3,500,000
Collections on January 31 but undeposited 550,000 Prepare a bank reconciliation on
NSF check received from a customer January 31 and prepare adjusting
returned by the bank on February 5 entries.
with the January bank statement 50,000
Checks outstanding on January 31 650,000
Bank debit memo for safety deposit box
rental not recorded by depositor 5,000
A creditor's check for P30,000 was incorrectly
recorded in the depositor's book as 300,000
A customer's check for P200,000 was
recorded by the depositor as 20,000
The depositor neglected to make an entry in
its books for a check drawn in payment of an
account payable 125,000
 Problem 2-7 (iaa)
Beta Company provided the following information for the month of December:
Balance per bank statement 4,000,000
Balance per cash book 2,700,000
Outstanding checks 600,000
Deposit in transit 475,000
Service charge 10,000
Proceeds of bank loan, December 1,
discounted for 6 months at 12%, not recorded on company books
Customer's check charged back by bank 940,000
for absence of counter signature REQUIRED:
Deposit of P100,000 incorrectly recorded by bank as 50,000
a. Prepare a bank reconciliation
Check of Beth Company charged by bank 10,000
against Beta Company account using the adjusted balance approach.
Customer's note collected by bank in favor of Beta Company 150,000
Face b. Prepare adjusting entries on
Interest
400,000 December 31.
Total
Collection fee 40,000
Erroneous debit memo on December 28 440,000
to charge Beta Company's account with settlement of 5,000
bank loan
435,000
Deposit of Beth Company
credited to the account of Beta Company
200,000

300,000
 Problem 2-8 (iaa)
Alpha Company provided the following information for
the month of December:

Cash balance per ledger

Cash balance per bank statement 5,000,000
Proceeds of bank loan discounted on 5,500,000
December 1 for one year at 14%
Undeposited collection on December 31 516,000
300,000
Check of Omega Company had been incorrectly
deducted by bank from Alpha Company 270,000
account

Check of Alpha Company in payment of an

account payable had been recorded by the
depositor as P20,000. The correct amount is

The ledger account for cash was the only cash

account kept by the entity and included a petty
cash account comprised of the following items:
Currency and coin 4,000
Supplies 2,000
Transportation 3,000
Postage 1,000 10.000
Deposit of Omega Company credited by hank to 130,000
the account of Alpha Company
Deposit of December 27 omitted from bank statement 150,000
Outstanding checks 5-4-4,000

Required:
a. Prepare bank reconciliation on December 31.
b. Prepare one journal entry only necessary to adjust the cash account.
 Problem 2-9 (iaa)
Susan Company revealed the following facts on August 31:

Balance of cash in bank account 1,300,000

Balance of bank statement 1,200,000 The check was recorded incorrectly in the cash disbursements
Outstanding checks, August 31: journal as P70.000. The check was drawn in payment of an
Number 555 10,000 account payable
761 55,000
762 40,000 Payment has been stopped on check number 555 which was
763 25,000
drawn in payment of an account payable. The payee cannot be
764 65,000
located.
765 70,000
Receipts of August 31, deposited September 1. 275,000 Required:
The bank statements showed the following charges.
a Prepare a bank reconciliation on August 31 using the adjusted balance method
a. Service charge for August 5,000 b Prepare adjusting entries to correct the cash m bank account on August 31
b. NSF check received from customer 85,000

The cashier-bookkeeper had misappropriated P30,000 and an

apdditional P10,000 by charging sales discounts and crediting
accounts receivable.

The stuh for check number 765 and the invoice Nating thereto
show that it was for P50,000.
 Problem 2-10 (iaa)
Advent Company kept all cash in checking account. An examination of the
accounting records and bank statement for the month of June revealed the
following information:

•The cash balance per book on June 30 is P8,500,000,
•The cash balance per bank statement on June 30 is
P8,200,000.
•A deposit of P1,000,000 that was placed in the bank's
nigin depository on June 30 does not appear on the
bank statement.
•The bank statement showed on June 30, the bank
collected note for Advent Company and credited the
proceeds of P950,000 net of collection change of
P50,000 to the entity's account.
•Checks outstanding on June 30 amounted to
P300,000 including certified check of P100,000.
* Advent Company discovered that a check written in
June for P200,000 in payment of an account payable
had been recorded as P20,000.
* Included with the June bank statement was NSF eheck
for P250,000 that Advent Company had received from
a customer on June 26.
* The bank statement showed a P20,000 service charge
for June.
Required:
1. Prepare a bank reconciliation on June 30 using the
adjusted balance method.
2. Prepare the adjusting entries on June 30 to correct
the accounts of Advent Company.
 Problem 2-11 (iaa)
Pearl Company maintains a checking account at the City Bank. The bank provides a bank statement
along with canceled checks on the last day of each month. The July bank statement included the
following information:

Balance, July 1 3,200,000 Required:

Deposits 8.600.000
Checks processed 7,500,000 1. Determine the balance per bank sttaement on July 31.
Service charge 50,000
NSF check 150,000
Monthly loan payment deducted by bank from account 500.000
2. Prepare a bank reconciliation on July 31 using the
adjusted balance method.
Deposits outstanding totaled P400,000 and all checks
written by Pearl Company were processed by the bank 3. Prepare the necessry adjusting entries to correct the
except for check of P500,000. accounts of Pearl Company on July 31.

A P200,000 July deposit from a credit customer was

recorded by Pearl Company as P20,000 debit to cash
and credit to accounts receivable.

A check correctly recorded by Pearl Company as

P30,000 disbursement was incorrectly processed by the
bank as P300,000 disbursement

The cash balance per ledger on July 31 is P4,290,000.

 Problem 2-12 (philcpa Adapted)
Divine Company prepared the following bank reconciliation
on December 31:
3. What amount should be reported as cash in bank on December 31?
Balance per bank statement 2,800,00
195,000 a. 2,930,000
Add: Deposit in transit
Checkbook printing charge 5,000
b. 3,095,000
Error made by Divine Company in recording 35,000
check issued in December 110,000 345,000 c. 2,895,000
NSF check 3,145,000
Total
d. 3,130,000
Less: Outstanding check 100,000
Note collected by bank including 215,000
4. What total amount of cash should be reported on December 31?
P15,000 interest 315,000
Balance per book 2,830,000
a. 3,395,000

The entity had cash on hand P500,000 and petty b. 3,350,000

cash fund P50,000 on December 31.
c. 3,445,000
Required:
1. Prepare a bank reconciliation using adjusted
d. 3,380,000
balance method.

2. Prepare adjusting entries to correct the accounts

of Divine Company.
 Problem 2-13 (aicpa Adapted)
In preparing the bank reconciliation for the month of August, Apex
Company provided the following information:

Balance per book 850,000

Balance per bank statement 10,000 Balance per bank statement 2,000,000
Outstanding checks, including certified check of P100,000 500,000
Deposit in transit 1,805,000 Deposit in transit December NSF checks, of which P50,000 200,000
had
Return of customer check for insufficient fyd 325,000 been redeposited and cleared on December 27 Erroneous 150,000
credit to Core's account, representing proceeds of loan
Outstanding checks 275,000 granted to another company Proceeds of note collected by 300,000
bank for Core Company net of service charge of P20,000 750,000
Bank service charge for August 60,000

What amount should be reported as adjusted cash in

What amount should be reported as cash in bank at
bank?
year-end?

a. 1,855,000
a. 1,500,000
b. 1,795,000
d. 1,755,000
b. 1,400,000

Problem 2-14 (IAA)

c. 1,800,000

Core Company provided the following data for the

d. 1,450,000
purpose of reconciling the cash balance per book
with the cash balance per bank statement on
December 31.
 Problem 2-15 (aicpa Adapted)
In preparing the bank reconciliation for the month of December, Case
Company provided the following data:
Problem 2-16 (AICPA Adapted)
Balance per bank statement 3,800,000
Deposit in transit 520,000 Able Company received the bank statement for th March. However,
Amount erroneously credited by bank to Case's 40,000 the closing balance of the ac unreadable.
account Bank service charge for December 5,000 Attempts to contact the bank after office hours did the desired
NSF check 50,000 information.
Outstanding checks 675,000
February 28 book balance 1,460,000
Note collected by bank 100,000
Interest earned on note 10,000
What amount was reported as unadjusted cas
NSF check of customer 130,000
balance per book?
Bank service charge on NSF check 2,000
Other bank service charge 3,000
a. 3,550,000
Outstanding checks 200,000
Deposit of February 28 placed in night depository 85,000
b. 3,660,000
Check issued by Axle Company charged to Able's account 20,000
c. 3,610,000
What amount was reported as cash balance per bank
statement?
d. 3,655,000
1,435,000
1,530,000
1,340,000
1,550,000
 Problem 2-17 (iaa)
Jade Company received the bank statement for the month of April
which included the following information:
Problem 2-18 (IAA)
Bank service charge for April 15,000
Check deposited by Jade Company during April was not Balance per bank statement December 31 2,800,000
collectible and has been marked "NSF" and returned 40,000 Bank service charge for December 12,000
Deposits made but not yet recorded by bank Checks written and 130,000 Interest paid by bank to Sapphire Company for December 10,000
mailed but t not yet recorded by bank 100,000 Deposits made but not yet recorded by the bank Checks 350,000
written but not yet recorded by the bank 650,000
The entity found a customer check for P35,000 payable to
Jade Company that had not yet been deposited and had not been Sapphire Company discovered that it had drawn and
recorded. erroneously recorded a check for P46,000 that should have
The general ledger showed cash in barik account with balance of recorded for P64,000.
P920,000.
What amount was reported as cash balance per ledger on
What amount should be reported as adjusted cash in bank on April December 31?
30?
a. 900,000 a. 2,500,000
b. 865,000 b. 2,520,000
c. 930,000 c. 2,540,000
d. 965,000 d. 2,800,000
 Problem 2-19 (iaa)
Grass Company provided the following information:

Problem 2-20 (IAA)

Balance per ledger, July 31 750,000
Balance per bank statement, July 31 1,240,000
Gallant Company showed a cash account balance of
Deposit of July 30 not recorded by bank 280,000
P4,500,000 at the month-end.
Debit memo-service charge 10,000
Credit memo-collection of note by bank for Grass 300,000
The bank statement did not include a deposit of P230,000
Outstanding checks 550,000
ma on the last day of the mouth

An analysis of the canceled checks returned with the bank statement

The bank statement showed a collection of a note receivable
revealed the following:
the bank of P94,000 for the depositor and a customer check
o P32,000 returned because it was NSP.
•Check for purchase of supplies was drawn for P60,000 but was
recorded by Grass Company as P90,000.
A customer check for P45,000 was recorded by the depositor

•The manager of Grass Company wrote a check for traveling

P54,000 and a check written for P79,000 was recorded
expenses of P100,000 while out of town. The check was not
P97,000.
recorded

What amount should be reported as cash in bank?

What amount of cash in bank should be reported on July 31?

a. 4,765,000
a. 970,000
b. 4,571,000
b. 270,000
c. 4.819,000
c. 550,000
d. 4,801,000
d-610,000
 Problem 2-21 (aicpa adopted)
The bank statement showed a P15,000 service charge for
December.
Boracay Company kept all cash in a checking account. An
examination of the bank statement for the month of December 1. What amount should be reported as adjusted cash in bank
revealed a bank statement balance of P8,470,000. A deposit of on December 31?
P950,000 placed in the bank's night depository
9,150,000
on December 29 does not appear on the bank statement. Checks b. 9,240,000
outstanding on December 31 totaled P270,000. c. 9,195,000
d. 9,215,000
The bank statement showed that on December 25 the bank 2. What amount was reported as unadjusted balance per book
on December 317
collected a note for Boracay Company and credited the proceeds of
P935,000 to the entity's account net of P15,000 service charge. a.8,480,000
Boracay Company discovered that a check written in b.8,525,000
c.8,435,000
December for P183,000 payment of an account had been d. 8,510,000

recorded as P138,000. 3. What amount should be recorded as net adjustment to cash

in bank on December 31?
Included with the December 31 bank statement was an NSF
a. Net debit 935,000
check for P250,000 that Boaracay Company had received from b. Net credit 310,000
c. Net debit 625,000
a customer on December 20. d. Net credit 25.000
 Problem 2-22 multiple choice (iaa)
1. A bank reconciliation is 3. Which of the following would be added to the balance per
bank statement to arrive at the correct cash balance?
a. A financial statement that lists all of the bank account balances of
an entity. a. Outstanding check

b. A merger of two banks that previously were competitors. b. Bank service charge

c. A statement sent by the bank to depositor on a monthly basis. c. Deposit in transit

d. A schedule that accounts for the differences between cash d. A customer note collected by the bank on behalf of the
balance shown on the bank statement and the cash balance shown depositor
on the general ledger.
4. Which of the following must be deducted from the bank
2. Which of the following items must be added to the cash balance statement balance in preparing a bank reconciliation which
per ledger in preparing a bank reconciliation which ends with ends with adjusted cash balance?
adjusted cash balance?
a. Deposit in transit
a. Note receivable collected by bank in favor of the depositor and
credited to the account of the depositor b. Outstanding check

b. NSF customer check c. Reduction of loan charged to the account of the depositor

c. Service charge d. Certified check

d. Erroneous bank debi

5. If the balance shown in the bank statement is less than the correct
cash balance and neither the entity nor the bank has made any
errors, there must be
a. Deposits credited by the bank but not yet recorded by the
depositor
b. Outstanding checks
c. Deposits in transit
d. Bank charges not yet recorded by the depositor
6. If the cash balance shown in the accounting record is less than the
correct cash balance and neither the entity nor the bank has made
any errors, there must be
a. Deposits credited by the bank but not yet recorded by the
depositor
b. Deposits in transit
c. Outstanding checks
d. Bank charges not yet recorded by the depositor
7. Bank reconciliations are nally prepared on a monthly basis
to identify adjustments needed in the depositor's records and
to identify bank errors. Adjustments on the part of the
depositor should be recorded for
a. Bank errors, outstanding checks and deposits in transit
b. All items except bank errors, outstanding checks and
deposits in transit.
c. Book errors, bank errors, deposits in transit and outstanding
checks.
d. Outstanding checks and deposits in transit.
8. Bank statements provide information about all of the
following, except
a. Checks cleared during the period
b. NSF checks
c. Bank charges for the period
d. Errors made by the depositor
9.. Which statement in relation to a certified check is not true?

a. A certified check is a liability of the bank certifying it

b. A certified check will be accepted by many persons wh would not otherwise accept a
personal check.

c. A certified check is one drawn by a bank upon itself.

d. A certified check should not be included in the total outstanding checks for bank
reconciliation purposes

10. Which statement in relation to bank reconciliation is true?

a. Bank service charge will cause the cash balance per ledger to be higher than that reported by
the bank. all other things being equal.

b. Credit memos will cause the cash balance per ledger to be higher than that reported by the
bank, all other things being equal.

c. Outstanding checks will cause the cash balance per ledger to be higher than the balance
reported by the bank, all other things being equal.

d. The cash in bank reported in the statement of financial position must be the balance
reported in the bank statement
Thank
You