Fundamentals

of
Accountancy, Business &
Management

2
Fundamentals of ABM 2 by: Ferrer & Millan
 Chapter 8
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.
4. Prepare a bank reconciliation statement.

Fundamentals of ABM 2 by: Ferrer & Millan

 Bank Reconciliation Statement

• A bank reconciliation statement is a report

that is prepared for the purpose of bringing
the balances of cash (a) per records and (b)
per bank statement into agreement.

• Bank Reconciliation
the process of reconciling the cash
balance as per the bank statement with the
cash balance as per the records of the
depositor.
Fundamentals of ABM 2 by: Ferrer & Millan
Fundamentals of ABM 2 by: Ferrer & Millan
Per books and Per bank statement
• 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.

Fundamentals of ABM 2 by: Ferrer & Millan

 Credit memos
• Credit memos – are additions (bank credits)
made by the bank to the depositor’s bank
account but not yet recorded by the
depositor. Examples:
a. Collections made by the bank on behalf
of the depositor.
b. Interest income earned by the deposit.
c. Proceeds from loan directly credited or
added by the bank to the depositor’s
account.
Fundamentals of ABM 2 by: Ferrer & Millan
 Debit memos
• Debit memos – are deductions (bank debits) made by
the bank to the depositor’s bank account but not yet
recorded by the depositor. Examples:
a. Bank service charges
b. No sufficient funds checks (NSF) or Drawn against
insufficient funds checks (DAIF) – checks
deposited and already recorded by the bank but
subsequently returned to the depositor because
the drawer’s fund is insufficient to pay the check.
c. Automatic debits, e.g., automatic payments of
bills by the bank on behalf of the depositor.
d. Payment of loans
Fundamentals of ABM 2 by: Ferrer & Millan
 Book errors
• Book errors – errors committed by the
depositor (e.g., erroneous recording in the
accounting books).

Fundamentals of ABM 2 by: Ferrer & Millan

 Deposits in transit
• Deposits 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.
• Deposits in transit often occur when
deposits are mailed to the bank, placed in
an overnight depository, made through
check and the check has not yet cleared, or
made after the bank’s cut-off.

Fundamentals of ABM 2 by: Ferrer & Millan

 Outstanding checks
• Outstanding checks – These are checks
drawn and released to payees but are not
yet encashed with the bank.
• Outstanding checks exclude certified checks
and stale checks.

Interest income- the interest earned on the

deposit.

Fundamentals of ABM 2 by: Ferrer & Millan

 Bank errors
• Bank errors – errors committed by the
bank.

Fundamentals of ABM 2 by: Ferrer & Millan

Correction of errors

Fundamentals of ABM 2 by: Ferrer & Millan

Effects of Book Errors

Fundamentals of ABM 2 by: Ferrer & Millan

Effects of Bank Errors

Fundamentals of ABM 2 by: Ferrer & Millan

Basic Internal Controls over Cash
• Internal control is any action taken or
process set by management that is
designed to help the business organization
achieve its objectives.
1. Bank reconciliation
2. Imprest system
3. Check Disbursement Voucher
4. Petty Cash Voucher

Fundamentals of ABM 2 by: Ferrer & Millan

Illustrative Problem
On November 1 f the current year, the bank balance of Silvestre Traders as per checkbook showed a balance of P
97,830.The total cash deposited during the month of November amounted to P 448,250 while the total checks issued for
the month amounted to P454,410.
the bank statement for the month of November submitted by Canadian Bank showed the following entries:
Balance as of November 30 P84,100
Bank Service charge for November 125
A customer’s check returned by the bank marked DAIF 12,000
Bank Collection 4,165
The following items were discovered in the process of reconciling the balances:
1. A deposit made on November 30 for P12,660 was not reflected in the bank statement.
2. The following checks issued during the month remained outstanding:
Check # 1245 1,650
# 1256 8,400
# 1259 1,200
There were no outstanding check for the previous month.
3. Check #1260 amounting to P200 in payment of supplies expense was erroneously recorded as P2,000 in the books.
Required:
3. Bank Reconciliation statement
4. Adjusting journal entries.

Fundamentals of ABM 2 by: Ferrer & Millan

SOLUTION FOR ILLUSTRATIVE PROBLEM
Silvestre Traders
Bank Reconciliation Statement
November 30,20CY
Unadjusted balance per bank P84,100
Add: Deposit in Transit 12,660
Total P 96,760
Less outstanding Checks:
#1245 P1,650
#1256 8,400
#1259 1,200 11,250
Adjusted bank balance P 85,510

Unadjusted balance per books ( 97,830+448,250-454,410) P 91,670

Add: bank collection P 4,165
Book error(2,000-200) 1,800 5,965
Total P97,635
Less: Service Charge 125
DAIF 12,000 12,125
Adjusted book balance P 85,510

Fundamentals of ABM 2 by: Ferrer & Millan

 ADJUSTING JOURNAL ENTRIES

a. Canadian bank 4,165

Accounts Receivable 4,165
To record collection.
b. Canadian Bank 1,800
Supplies Expense 1,800
Correcting Entry
c. Miscellaneous expense 125
Canadian Bank 125
To record bank service charge.
d. Accounts receivable 12,000
Canadian bank 12,000
To record check returned by the bank marked ”DAIF”

Fundamentals of ABM 2 by: Ferrer & Millan

OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

Fundamentals of ABM 2 by: Ferrer & Millan

 END

Fundamentals of ABM 2 by: Ferrer & Millan