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Module
BANK RECONCILIATION

Sec. 1. Scope.

This Chapter covers the preparation of the bank reconciliation statements for “Cash in Bank – local
currency, current account ” and “Cash-Modified Disbursement System (MDS)” accounts including the
proposed adjusting entries.

Sec. 2. Definition of Terms.

a. Bank Charges –

charges imposed by the bank for various services rendered excluding interest charges. This also includes
cost of checkbooks, penalties and surcharges on overdrafts.

b. Bank Reconciliation –

settlement of differences contained in the bank statement and the cash account in the agency’s/entity’s
books of accounts.

c. Bank Statement –

reflects the transactions in the agency’s/entity’s (depositor’s) bank account for a period such as deposits
made to the account as well as checks/ADAs drawn on the account, bank charges, returned items, etc.

d. Canceled Check/ADA –

checks/ADAs issued and chargeable to the agency bank account but was later voided due to expiration of
validity, and other valid reasons.

e. Credit Memorandum –

document issued by the bank informing an increase in the depositor’s (Agency’s/Entity’s) account, such
as previous bank debit errors and
collection directly deposited to the agency’s/entity’s bank account.

f. Debit Memorandum –

document issued by the bank informing a decrease in the account, such as previous bank credit errors or
service charges and fees.

g. Deposits-in-Transit –

are amounts of agency/entity deposits in the bank but which are yet to be recorded by the bank until
the next period. These usually pertain to late deposits in the last day of business for a period.

h. Lapsed NCAs –
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NCAs which are no longer valid or its validity has expired but remain unadjusted by the bank or the
agency/entity.

i. Notice of Cash Allocation –

authority issued by the DBM to central, regional and provincial offices and operating units to cover the
cash requirements of the
agency/entity.

j. Outstanding Checks –

checks the agency/entity has issued and recognized but which have not been presented to the bank for
payment.

k. Returned Check –

a check returned by the bank due to errors or deficiencies in the maker’s or agency’s/entity’s account.

l. Unrecorded Deposits –

are collections of the agency/entity which are directly deposited by the debtor/client to the bank account
of the agency/entity but remain
unrecorded by the agency/entity as at the period under reconciliation.

j. Government Servicing Banks (GSBs) –

Government banks authorized to receive NCA from the Bu. Of Treasury and to pay checks issued by the
NGAS thru the MDS . They are also authorized to receive collections for these government agencies.

Under a Memorandum of Agreement , these includes three government banks namely:

i. Development Bank of the Philippines

ii. Land Bank of the Philippines
iii. Philippine Veterans Bank

Cash (MDS), Regular 1010404000

Cash(MDS), Special Account 1010405000
Cash (MDS),Trust 1010406000

k. Authorized Government Depository Banks (AGDBs) –

Local Commercial Banks authorized to receive collections/remittances either in cash or in check on behalf
of government agencies under their jurisdiction. Ex. Taxes, fines etc.

For this purpose, the government maintains a local currency ,current account in a local bank.
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Cash in Bank, Local currency , current account 1010202000

(the last 2 digits will specify the name of the bank -refer to p.62-63 of textbook for the list)

Sec. 3. Objectives.

The Bank Reconciliation Statement (BRS) shall be prepared in order to:

a. check correctness of both the bank’s and agency’s/entity’s records,

b. serve as a deterrent to fraud, and

c. enable the agency/entity or bank to take up charges or credits recognized by the bank or
agency/entity but not yet known to the agency/entity or bank.

This shall be used in the reconciliation of bank and treasury accounts maintained with Government
Servicing Bank (GSB).

Sec. 4. Method of Bank Reconciliation.

The monthly BRS shall be prepared by the Chief Accountant/designated staff for each of the bank accounts
maintained by the agency/entity
using the Adjusted Balance Method.
Under this method, the book balance and the bank balance are brought to an adjusted cash balance that
must appear on the Statement of Financial Position.

Sec. 5. Preparation of the Bank Reconciliation Statement.

The Chief Accountant/Designated Staff shall within ten days from receipt of the monthly Bank Statement
(BS) together with the paid checks, original copies of Debit Memoranda (DM)/Credit Memoranda(CM)
from the GSB, reconcile the BS with the GL and prepare the BRS in four copies.

Sec. 6. Recognition of Adjustments.

The Chief Accountant/Designated Staff shall prepare a JEV to recognize all reconciling items that require
adjustment and correction in the books of accounts.

Sec. 7. Reporting.

The Chief Accountant shall submit the BRS within twenty days after receipt of the monthly BS to the
following:

Original – COA Auditor (with all the supporting documents and JEVs)
Copy 2 – Head of Agency/Entity
Copy 3 – Accounting Division/Unit file
Copy 4 – Bank, if necessary
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Sec. 8. Procedures for the Preparation of the Bank Reconciliation Statement for “Cash-Modified
Disbursement System (MDS)” accounts tranche

Area of Responsibility : Accounting Division/ Unit Designated Staff

1 Secures/Gathers the monthly BS, GL and SLs of accounts “Cash-Modified Disbursement System
(MDS), Regular”, “Cash-Modified Disbursement System (MDS), Special Account”, “Cash-Modified
Disbursement System (MDS), Trust” and previous month’s BRS.

2 Ensures that the unadjusted ending book and bank balances per previous month’s BRS are the
current month’s beginning book and bank balances, respectively.

3 Reviews the previous month’s BRS to determine reconciling items needing adjustments by the
agency/entity which remain unadjusted.

4 Lists or marks the previous months’ unadjusted items for inclusion in the current month’s reconciling
items.

5 Compares the NCAs recognized in the books with those reflected in the bank statements to determine
the unrecognized, lapsed or unused NCA and/or any errors.

6 Compares the checks/ADAs recognized in the books with those in the bank statements.

7 Adds to the unadjusted balance per bank the following:

a. NCAs received by the agency/entity but not yet recognized by the bank; and
b. errors discovered in the BS that understates the cash balance.

8 Subtracts from the unadjusted balance per bank the following:

a. NCAs which are no longer valid/lapsed NCA;
b. outstanding checks;
c. outstanding ADA; and
d. errors in the BS that overstates the cash balance.

9 Calculates the correct/adjusted balance per bank.

10 Adds to the unadjusted balances of accounts “Cash Modified Disbursement System (MDS), Regular”,
“Cash-Modified Disbursement System (MDS), Special Account” and “Cash-Modified Disbursement
System (MDS), Trust” the following:
a. NCAs received but not yet recognized by the agency/entity;
b. cancelled checks; and
c. errors discovered in the agency’s/entity’s records that understates the cash balance.
11 Subtracts from the unadjusted balances of accounts “Cash-Modified Disbursement System (MDS),
Regular”, “Cash-Modified Disbursement System (MDS), Special Account” and “Cash-Modified
Disbursement System (MDS), Trust” the following:
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a. lapsed NCA not yet adjusted by the agency/entity;

b. errors in the agency’s/entity’s records that overstate the cash balance; and
c. bank charges.

12 Calculates the adjusted balances of accounts “Cash Modified Disbursement System (MDS), Regular”,
“Cash-Modified Disbursement System (MDS), Special Account” and “Cash-Modified Disbursement
System (MDS), Trust”.

13 Prepares the BRS in accordance with the format shown in Appendix 80.

14 Prepares JEVs to recognize the necessary adjustments for all items affecting the cash balance per
books.

Area of Responsibility : Chief Accountant/Head of Accounting Division/Unit

15 Reviews and approves the BRS and JEVs.

Area of Responsibility : Accounting Division/ Unit Designated Staff

16 Records the adjustments in the General Journal based on the approved JEVs.

17 Submits the BRS to the following:

Original – COA Auditor (with all the supporting documents and JEVs)
Copy 2 – Head of Agency/Entity
Copy 3 – Accounting Division/Unit file
Copy 4 – Bank, if necessary

Sec. 9. Procedures for the Preparation of the Bank Reconciliation Statement for Authorized
Government Depository Bank accounts

Area of Responsibility : Accounting Division/Unit Designated Staff

1 Secures/Gathers the BS, GL and SLs of “Cash in Bank” accounts and previous month’s BRS.

2 Ensures that the unadjusted balance per book and balance per bank in the previous month’s BRS are
the current month’s beginning book and bank balances, respectively. If not the same, determines the
cause of the difference and effects the appropriate adjustments, if necessary.

3 Reviews the previous month’s BRS to determine reconciling items needing adjustments by the
agency/entity which remain unadjusted. Lists or marks the previous months’ unadjusted items for
inclusion in the current month’s reconciling items.

4 Compares the deposits per book with those reflected in the BS.

5 Compares the checks issued per book with those negotiated as reflected in the BS.
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6 Adds to the unadjusted balance per bank, the following:

a. unrecorded deposits or deposit-in-transit; and
b. errors discovered in the BS that understates the bank balance.

7 Subtracts from the unadjusted balance per bank, the following:

a. outstanding checks; and
b. errors in the BS which overstates the bank balance.

8 Calculates the adjusted balance per bank.

9 Adds to the balance of the “Cash in Bank” account per GL:

a. deposits per BS which were not yet recorded in the books;
b. cancelled checks; and,
c. errors discovered in the agency’s records that understates the book balance.

10 Subtracts from the balance of the “Cash in Bank” account per GL:
a. returned check deposits;
b. errors in the agency’s records which overstate the cash balance; and
c. bank charges.

11 Calculates the adjusted balance per books.

12 Prepares the BRS in accordance with the format shown as Appendix 81.

Area of Responsibility : Chief Accountant/Head of Accounting Division/Unit

13 Reviews and approves the BRS.

Area of Responsibility : Accounting Division/Unit Designated Staff

14 Prepares JEVs to record the necessary adjustments affecting the balance per books as follows:
Chief Accountant/Head of Accounting Division/Unit

15 Reviews and approves the JEVs.

16 Records the adjustments in the GJ based on the approved JEVs.

17 Submits the BRS to the following:

Original – COA Auditor (with all the supporting documents and JEVs)
Copy 2 – Head of Agency/Entity
Copy 3 – Accounting Division/Unit file
Copy 4 – Bank, if necessary
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Sec. 10. Transactions for Adjustments in the Bank Reconciliation Statement for “Cash-Modified
Disbursement System (MDS)” accounts.

a. Unrecognized/Understatement of NCA for regular and special account with allotment

release order

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

Cash (MDS), Regular OR 1010404000 XXX
Cash(MDS), Special Account OR 1010405000 XXX
Cash(MDS), Trust 1010406000 XXX
SUBSIDY FROM NATIONAL GOVERNMENT 4030101000 XXX

b. Unrecognized/Understatement of NCA for special account without allotment release order and trust
account

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

Cash(MDS), Special Account OR 1010405000 XXX
Cash(MDS), Trust 1010406000 XXX
CASH-TREASURY/AGENCY DEP. SPECIAL OR 1010402000 XXX
CASH-TREASURY/AGENCY DEP. TRUST 1010403000 XXX

c. Cancelled MDS checks/ADAs (without intention to replace)

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

Cash (MDS), Regular OR 1010404000 XXX
Cash(MDS), Special Account OR 1010405000 XXX
Cash(MDS), Trust 1010406000 XXX
EXPENSES OR OTHER APPROPRIATE ACCOUNT 4XXXXXXXXX XXX

d. Understatement of “Cash in Bank” account due to erroneous recording of amount of

checks issued

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

Cash (MDS), Regular OR 1010404000 XXX
Cash(MDS), Special Account OR 1010405000 XXX
Cash(MDS), Trust 1010406000 XXX
ACCOUNTS PAYABLE OR OTHER LIABILITIES 2XXXXXXXXX XXX
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e. Lapsed NCA or unused NCA at yearend

For regular and special account with allotment release order

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

SUBSIDY FROM NATIONAL GOVERNMENT 4030101000 XXX
Cash (MDS), Regular 1010404000 XXX

OR

Cash(MDS), Special Account 1010405000 XXX

For special account without allotment release order and trust account

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

CASH TREAS./AGENCY DEPOSIT, SPECIAL OR 1010402000 XXX
CASH TREAS./AGENCY DEPOSIT, TRUST 1010403000 XXX
Cash (MDS), Regular 1010404000 XXX

OR
Cash(MDS), Special Account 1010405000 XXX

f. Overstatement of “Cash in Bank” account due to erroneous recording of the amount of checks issued

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

EXPENSES OR ACCOUNTS PAYABLE OR LIABILITIES 5XXXXXXXXX XXX
CASH, MDS, REGULAR 1010404000 XXX

CASH, MDS, SPECIAL OR 1010405000

XXX
CASH, MDS TRUST 1010406000 XXX

g. Overstatement of “Cash in Bank” account due to erroneous recording of the amount of NCA received
For regular and special account with allotment release order

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

SUBSIDY FROM NATIONAL GOVERNMENT 4030101000 XXX
CASH(MDS), REGULAR OR 1010404000 XXX

Cash(MDS), Special Account 1010405000 XXX

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For special account without allotment release order and trust account

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

CASH, TREAS. AGENCY DEPOSIT, SPECIAL ACCT OR 1010402000 XXX
CASH, TREAS. AGENCY DEPOSIT, TRUST ACCT 1010403000 XXX
CASH(MDS), REGULAR OR 1010404000 XXX

Cash(MDS), Special Account 1010405000 XXX

h. Bank Charges

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

BANK CHARGES OR ANY APPROPRIATE ACCT 4xxxxxxxxx XXX
Cash(MDS), Regular OR 1010404000 XXX
Cash(MDS), Special Account OR 1010405000 XXX

Cash(MDS), Trust 1010406000 XXX

Sec. 11. Transactions for Adjustments in the Bank Reconciliation Statement for “Cash in Bank- Local
Currency, Current Account” or the AGDB account

a. unrecorded deposits
ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT
Cash in Bank, Local Currency, Current Acct. 1010202000 XXX
Income/ Other payables or appropriate acct 4xxxxxxxx XXX

b. understatement in Cash in Bank due to erroneous recording of amount of checks issued

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT
Cash in Bank, Local Currency, Current Acct. 1010202000 XXX
Expenses/ Other payables or appropriate acct 5xxxxxxxx XXX

c. understatement of cash in Bank due to erroneous recording of deposits

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT
Cash in Bank, Local Currency, Current Acct. 1010202000 XXX
Revenue/ Other payables or appropriate acct XXX
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d. checks deposited but returned by the bank

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT
Revenue/ other Payables 2110000000 XXX
Cash in Bank, local currency , current acct or 10102020 XXX

e. overstatement of cash in bank due to errors or understatements in recording checks issued

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT
Expenses or accounts Payables or other liabilities 5XXXXXXXXX XXX
Cash in Bank, local currency , current acct or 1010202000 XXX

f. overstatement of book balances due to erroneous recording of deposits

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT
Revenue/ other Payables 2110000000 XXX
Cash in Bank, local currency , current acct or 1010202000 XXX

g. Bank charges imposed by the bank.

ACCOUNT TITLE ACCOUNT CODE DEBIT CREDIT

Bank Charges or any other appropriate acct OR XXXXXXX XXX
Cash in Bank, local currency , current acct 1010202000 XXX