BANK RECONCILIATION

Lesson Objectives

o identify the bank reconciling items for reconciliation

between the books and bank
o Construct a bank reconciliation statement using the
adjusted balance method
o Discuss the constructed bank reconciliation
statement
o Prepare the journal entries in the books in order
to record the book reconciling items
o Display critical thinking in analyzing and preparing a
bank reconciliation statement.
Cash

Checks
Three methods of preparing the bank reconciliation
1. Unadjusted Bank to Book Balance Method
2. Unadjusted Book to Bank Balance Method
3. Adjusted Balance Method
Items for Reconciliation in a Bank Statement

1. Deposits in Transit
Computation for Deposits in Transit
Deposits in transit, beginning of the month Php xxx
Add: Deposits made per books xxx
Total amount that should have been deposited Php xxx
Less: Deposits shown in the bank statement xxx
Deposits in transit, end of the month Php xxx

2. Outstanding Checks
Computation for Outstanding Checks
Outstanding checks, Beginning of the month Php xxx
Add: Checks issued per books xxx
Total checks that should have been cleared Php xxx
Less: Checks paid by the bank xxx
Outstanding checks, end of the month Php xxx
3. Bank Errors- these are items erroneously recorded
by the bank. (Example a check payment of Php
100,000 has been recorded as Php 10,000)

4. Bank Service Charge (DEBIT MEMO)

eg. Service fee, collection fee, interest fee, taxes

5. NSF CHECK- No Sufficient Fund

6. Notes Collected by Bank in Favor of

Depositor(CREDIT MEMO)
BOOK RECONCILING ITEMS
1. Bank Credits
Examples of bank credits are bank collections and
proceeds of bank loan.
2. Bank Debits
Examples of bank charges are charges for returned
checks due to no sufficient funds (NSF Checks), and
bank service charges such as for checkbook printing.
3. Book Errors
(For example, a deposit of Php 10,000 has been
recorded as Php 1,000.)
Pro-Forma Journal Entries for Book Reconciling Items
The reconciling items of the bank will be adjusted by
the bank in its records. For the company, the
following are the journal entries for the reconciling
items:
1. Bank Credits- these items are added to the balance
per book
Entry for Bank Collection:
Cash in Bank xxx
Miscellaneous Expense xxx
Notes Receivable xxx
To record collection of note less bank charges
 Entry for Proceeds of Bank Loan:
Cash in Bank xxx
Loan Payable xxx
To record proceeds of bank loan
2. Bank Debits- these items are deducted from the
balance per book
Entry for returned checks:
Accounts Receivable xxx
Cash in Bank xxx
To adjust bank account for NSF check
Entry for bank service charges:
Miscellaneous Expense xxx
Cash in Bank xxx
To record bank service charges
 A bank statement
o is a monthly report released by the bank to the
account holder of the checking account
o transactions listed in chronological order
showing the running balance after each
transaction to finally arrive at the ending
balance for the month.
o deposits, withdrawals, checks paid, interest
earned if any, service charges if any, and all
other transactions that transpired during the
month affecting the account.
 PNB Bank
Mandaue City
MCCNHS COOP Merchandising Account No. 00345
Centro, Mandaue City August 31, 2018
Date Debits Credits Balance
July 31 Php 28,000

Aug. 2 Php 10,000 38,000

Aug. 3 12,000 50,000
Aug. 5 200,000 250,000
Php 1,000 DM 249,000
Aug. 9 Chk No. 00500 30,000 219,000
Aug. 10 50,000 269,000
Aug. 16 Chk No. 00501 18,000 251,000
Aug. 17 Chk No. 00502 50,000 201,000
Aug. 18 Chk No. 00504 35,000 166,000
 Aug. 20 125,000 291,000
Aug. 27 Chk No. 00508 8,000 283,000
Chk No. 00503 40,000 243,000
Aug. 28 Chk No. 33300 10,000 233,000
Aug. 29 150,000 CM 383,000
Aug. 30 Chk No. 00505 5,000 378,000
12,000 NSF 366,000
Chk No. 00499 15,000 351,000
Aug. 31 Chk No. 00507 7,000 344,000

Legend: DM-Debit Memo CM-Credit Memo NSF-No Sufficient Fund

Details

1. The beginning balance of Php 28,000 is the ending balance of

last month.
2. Debit Memo (DM) are deductions from the balance of the
account holder because of bank service charges made by the
bank to the account.
3. Credit Memo (CM) are additions to the balance of the account
holder such as proceeds of loan or interest if there is any.
4. No Sufficient Fund (NSF) is the check deposited by the payee
but returned by the bank because there is no sufficient fund in
the payor’s account.
5. The ending balance, Php 344,000, is the last figure in the bank
statement after all transactions are entered. This is the balance
to be forwarded to the next month’s bank statement. Hence,
this will be the beginning balance for September.
Because certain items only appear in the
company’s books and not in the bank
statement or some items appear in the bank
statement but not in the company’s books,
the cash balance per book and the cash
balance per bank are not the same.
Illustrative Problem
The following are transactions of MCCNHS COOP Merchandising
for the month of August.
Aug. 5 MCCNHS COOP Merchandising deposited Php 200,000 in the
checking account with Platinum Bank.
7 Bought merchandise from Central Trading. Issued Check No.
00500 in the amount of Php 30,000.
10 MCCNHS Coop Merchandising deposited Php 50,000 in the
checking account.
15 Bought merchandise from various suppliers and issued the
following checks.
Payee Check No. Amount
Summer Co. 00501 Php 18,000
Spring Co. 00502 50,000
Winter Trading 00503 40,000
Autumn Enterprises 00504 35,000
20 Deposited Php 125,000 in the checking account
25 Purchased merchandise from various suppliers and
issued the following checks.
Payee Check No. Amount
Planet Co. 00505 Php 5,000
Star Co. 00506 6,000
Moon Trading 00507 7,000
Sun Enterprises 00508 8,ooo
29 Issued Check No. 00509 to K9 Merchandising
Php 10,000.
31 Deposited Php 123,000 in the checking account.
Presented below is the statement of account received from PNB Bank:
PNB Bank
Mandaue City
MCCNHS Coop Merchandising Account No. 00345
Centro, Mandaue City August 31, 2017
Date Debits Credits Balance

July 31 Php 28,000

Aug. 2 10,000 x 38,000
Aug. 3 12,000 x 50,000
Aug. 5 200,000 250,000
Php 1,000 DM 249,000
Aug. 9 Chk No. 00500 30,000 219,000
Aug. 10 50,000 269,000
Aug. 16 Chk No. 00501 18,000 251,000
Aug. 17 Chk No. 00502 50,000 201,000
Aug. 18 Chk No. 00504 35,000 166,000
Aug. 20 125,000 291,000
Aug. 27 Chk No. 00508 8,000 283,000
Chk No. 00503 40,000 243,000
Aug. 28 Chk No. 33300 10,000 233,000
Aug. 29 150,000 CM
383,000
Aug. 30 Chk No. 00505 5,000
378,000
12,000 NSF
366,000
Chk No. 00499 15,000 J 351,000
Aug. 31 Chk No. 00507 7,000
344,000

Legend: DM-Debit Memo CM-Credit Memo NSF-No Sufficient Fund

Presented below are the amounts entered in the cash
receipts book and cash payments book respectively.
Cash Receipts Cash Payment
Aug. 5 Php 200,000 Check No. 00500 Php 30,000
10 50,000 00501 18,000
20 125,000 00502 50,000
31 123,000 00503 40,000
Php 498,000 00504 35,000
00505 5,000
00506 6,000
00507 7,000
00508 8,000
00509 10,000
Php 209,000
Note: In the bank statement, Check No. 33300 in the amount of
Php 10,000 is a check issued by K9 Trading erroneously recorded
by the bank under the account of MCCNHS Coop
Merchandising.
Steps in Preparing the Bank Reconciliation Statement
1. Get the ending balance per bank statement furnished by
the bank and the ending balance of the cash in bank
account in the general ledger of the company’s books.
2. Compare the deposits credited by the bank in the bank
statement against the deposits made by the company in
the cash receipts book.
3. Compare the checks issued by the company per the cash
payments book against the checks paid or cancelled by the
bank per bank statement in the current month.
The Php 15,000 is a check issued in July but paid in August.
The Php 208,000 are checks paid by the bank per August
bank statement which consist of the following:
Aug.9 Chk No. 00500 Php 30,000
Aug.16 Chk No. 00501 18,000
Aug.17 Chk No. 00502 50,000
Aug.18 Chk No. 00504 35,000
Aug.27 Chk No. 00508 8,000
Chk No. 00503 40,000
Aug.30 Chk No. 00505 5,000
Chk No. 00499 15,000
Aug.31 Chk No. 00507 Php 208,000
Note: All other items in the bank statement that do not
appear in the books are credit memos, debit memos,
NSF checks, bank charges etc. Credit memos are
added to the book balance while debit memos, NSF
checks and bank charges are deducted from the book
balance. In the case of PNB Bank, the credit memo
represents proceeds of bank loan, and the debit
memo represents the cost of the checkbook.

4. Check for errors made by the bank or errors made by

the book in recording transactions.
 MCCNHS Coop Merchandising
Bank Reconciliation Statement
August 31, 2017
Balance per bank Php 344,000
Add: Deposits in transit Php 123,000
Chk 333000 erroneously drawn against
MCCNHS Coop Merchandising 10,000 133,000
Total Php 477,000
Less: Outstanding Checks 16,000
Adjusted Bank Balance Php 461,000

Balance per books Php 324,000

Add: Credit Memo 150,000
Total Php 474,000
Less: Debit Memo Php 1,000
NSF Check 12,000 13,000
Adjusted Book Balance Php 461,000
Note: The balance per books of Php 324,000 is the cash in bank balance per
general ledger.
Journal Entries to adjust the balance per books:
General Journal

Date Transaction P.R Debit Credit

.
Aug.31 Cash in Bank 150,000
Loan Payable 150,000
To record proceeds of bank loan

Miscellaneous Expense 1,000

Cash in Bank 1,000
To record bank services
charges

Accounts Receivable 12,000

Cash in Bank 12,000
To adjust bank account for
NSF check
General Ledger Balance after adjustments
Account: Cash in Bank
Date Explanation J.R. Debit Credit Balance
July 31 Adjusted Balance 35,000
Aug.31 Book Receipts CRJ 498,000 533,000
Book Payments CPJ 209,000 324,000
Entry for bank Loan GJ 150,000 474,000
(AJE 1)
Entry for DM (AJE 2) GJ 1,000 473,000
Entry for NSF Check GJ 12,000 461,000
(AJE 3)
APPLICATION
What are the book reconciling items? Discuss each
item.

What are the bank reconciling items? Discuss each

item.
The following is taken from the books of Seven Eleven
Grocers.
Cash Receipts Cash Payments
Mar.2 Php 30,000 CheckNo. 301 Php 10,000
9 40,000 302 30,000
10 20,000 303 8,000
16 80,000 304 2,000
23 40,000 305 40,000
30 80,000 306 112,000
290,000 307 6,000
308 4,000
Php 212,000
Beginning balance of cash per general ledger is Php 50,000.
 Presented below is the bank statement of BDO Bank for the
month of March.
BDO Bank
Parkmall,Mandaue City
Seven 11 Grocers Account No. 00789
Centro, Mandaue City March 31, 2018
Date Debits Credits Balance
Feb. 28 Php 60,000
Mar. 4 Php 30,000 80,000
Mar. 6 Chk No. 301 Php 10,000 70,000
Mar. 11 Chk No. 302 30,000 40,000
60,000 100,000
Mar. 12 Chk No. 304 2,000 98,000
Mar. 18 80,000 178,000
Mar. 19 Chk No. 305 40,000 138,000
Mar. 25 Chk No. 307 6,000 132,000
 40,000 172,000
Mar. 26 2,000 NSF 170,000
Mar. 26 Chk No. 299 10,000 160,000
Mar. 27 Chk No. 306 112,000 48,000
Mar. 28 100,000 CM 148,000
Mar. 31 400 DM 147,600

Legend: DM-Debit Memo CM-Credit Memo NSF-No Sufficient Fund

Note: The Php 400 DM represents bank service charges.

The Php 100,000 CM represents the proceeds of bank loan.

Required: 1. Prepare the bank reconciliation for the month of March.

2. Prepare the necessary adjusting journal entries on the
books.
GROUP ANSWER
Seven Eleven Grocers
Bank Reconciliation Statement
March 31 2017

Balance per bank Php 147,600

Add: Deposit in transit 80,000
Total: 227,600
Less : Outstanding check 12,000
Adjusted bank balance 215,600
Balance per book 128,000
Add: Credit Memo 100,000
Total 238,000
Less: Debit Memo 400
Chk No.299
erroneously
drawn against
Seven eleven
grocers 10,000
NSF Checks 2,000 12,400
Adjusted book balance 215,600
Cash in Bank 100,000
Loan Payable
100,000
To record proceeds of bank loan

Miscellaneous Expense 400

Cash in Bank 400
To record bank service charges
Accounts Receivable 2,000
Cash in Bank 2,000
To record bank account for NSF check
“ Rather fail with
Honor than Succeed
by Fraud” -Sophocles
Paper and Pencil Test
I. Given the following information, compute the correct cash
balance.
Balance per bank Php 25,600
Balance per book 26,240
Deposits in transit 11,200
Outstanding check 4,800
Debit memo 2,160
Credit memo 7,920

Correct cash balance: __________

II. Diano’s Trading’s bank statement for the month of January
showed a balance per bank of Php 81,000. Cash balance per
general ledger is Php 77,700 at the end of the month. Additional
information for the month is as follows:
1. Bank statement has Php 1,200 bank service charge.
2. Outstanding checks as of January 31 amounted to Php 18,000.
3. NSF check in the amount of Php 1,680 was returned by the bank.
4. Cash receipts in the amount of Php 15,600 recorded in the company’s
books on September 30 does not appear on the bank statement.
5. A credit memo in the amount of Php 3,780 represents a customer’s
note collected by the bank in the amount of Php 3,600 with accrued
interest of Php 180

Required: Prepare the bank reconciliation statement.

Prepare adjusting journal entries.