Bank Reconciliation

(Intermediate Accounting 1)
3rd Trimester, AY 2020-2021
 Bank Reconciliation

Learning Objectives:
1. Prepare a bank reconciliation
2. Prepare a proof of cash
 Bank Reconciliation Statement
• 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.
More specifically bank reconciliations are prepared to:
a. Explain the difference between cash balance in the
accounting records and the cash balance reported on the
bank statement.
b. Arrive at the adjusted cash balance to be shown in the
financial statements
c. Provide information for reconciling journal entries.
• Bank reconciliation is prepared monthly upon receipt of the
monthly bank statement from the bank.
• Bank statement is a report that shows deposits and
withdrawals made on the account.
 Proforma Bank Reconciliation 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 on

the bank statement of the current month.
 Proforma Bank Reconciliation Statement

• Credit Memos – are additions (bank credits) made by the bank to

the depositor’s banks account but not yet recorded by the depositor
ü Collections made by the bank on behalf of the depositor
ü Interest income earned by the deposit
ü Proceeds from loan directly credited or added by the bank to
the depositor’s account
ü Unrolled-over matured time deposits transferred by the bank to
the entity’s account
• Debit Memos – are deductions made by the bank to the
depositor’s bank account but not yet recorded by the depositor.
ü Bank service charges
ü No sufficient funds checks (NSF)
ü Automatic debits
ü Payment of loans
 Proforma Bank Reconciliation Statement

• Book Errors – errors committed by the depositor

• Deposits in transit – deposits made but not yet credited by the
bank to the depositor’s bank account.
• Outstanding checks – are checks drawn and released to payees
but are not yet encashed by the bank.
ü Certified checks are excluded
ü Stale checks are also excluded
• Bank errors – errors committed by the bank
Illustration 1: Reconciling items
1. An entity opens a checking account on December 27, 20x1. the
entries in the respective accounting records of the entity (depositor)
and the bank are as follows:

As of this date, the cash balances per books and per bank are equal:
Cash in bank, P1,000 = Deposit liability, P1,000
Deposit in Transit
2. The entity collects P200 from customers and deposits it in an
overnight depository on Dec, 31, 20x1.
Illustration 1: Reconciling items
As of Dec. 31, 20x1 the cash balances per books and per bank
statement are not equal. The difference is a deposit in transit. The
bank will update the entity’s account when it receives the deposit on
Jan. 2, 20x1. The cash balances will be equal on that date.
Credit Memo
3. The bank collects a P500 receivable on behalf of the entity in
January 20x2.

On Jan. 31, 20x2, the cash balances per books and per bank
statement are not again equal. The P500 difference is the credit
memo. The entity will be notified of the P500 collection when it
receives the Jan. bank statement.
Illustration 1: Reconciling items
Book error
4. The entity makes payment of P1,000 but erroneously records it as
P100 in Feb 20x2. The check cleared the bank at the correct
amount of P1,000.

On Feb. 28, 20x2, the cash balances per books and per bank
statement are again not equal. The P900 difference is a book error,
which overstates the cash balance per books.
Outstanding checks
5. In March 20x2, the entity wrote checks totaling P400. However
only P100 of those checks were encashed during the month.
Illustration 1: Reconciling items
On March 31, 20x2, the cash balances per books and per bank
statement are again not equal. The P300 difference is due to
outstanding checks.

Illustration 2: Use of formula

ABC Co. receives its July 20x1 bank statement and immediately
prepares its July 20x1 bank reconciliation. Relevant information
follows:
a. Cash balance per books – P300,000
b. Cash balances shown on the bank statement – P430,000
c. Credit memo – P190,000
d. Debit memo – P30,000
e. Deposit in transit – P50,000
f. Outstanding checks – P25,000 (including certified checks of P5,000)
Requirement: Prepare the bank reconciliation.
Illustration 2: Use of formula
Illustration 3: Transaction analysis
You received your August 20x1 bank statement. The August 31, 20x1
cash balance in your accounting books is P520,000 while the cash
balance shown on the bank statement is P410,000. you determined
the following information:
a. Check no. 2345 for P45,000 issued to a supplier is not yet
presented to the bank for payment
b. A P205,000 check deposit with deposit slip no.0989, is not yet
credited to your account.
c. A customer deposited P60,000 to your bank account. You have
not yet recorded this collection of account receivable in your
accounting books.
d. The bank paid P10,000 monthly mobile phone charges directly
out of your account.
Requirements:
a. Prepare the bank reconciliation
b. Preparing the adjusting (reconciling) entries.
Illustration 3: Transaction analysis

(b) Adjusting (Reconciling) entries

Illustration 3: Transaction analysis
After posting the entries, the balance of cash is brought to its
adjusted balance. See the T-account below:

Illustration 4: Actual Procedures

You are the accountant of Blue Sky Co.You obtained the following
information for the purpose of preparing the bank reconciliation for the
month of May 20x1.
Illustration 4: Actual Procedures
Bank Reconciling items:
a. Outstanding check of
P80,000 (dtd 5/21Check #1111)
b. Deposit in transit of
P160,000 (dtd 5/30 “Deposit”)

Book Reconciling Items

a. Debit memo of P31,905 (dtd 5/12/20x1
described as payment)
b. Credit memo of P90,000 (dtd
5/26/20x1 described as check deposit)
Illustration 5: Errors
ABC Co. is preparing its September 30, 20x1 bank reconciliation. The
following information was determined:
a. Balance per bank statement, September 30, 20x1 – P180,000
b. Deposit in transit, September 30, 20x1 – P32,000
c. Return of customer’s check for insufficiency of funds (NSF check)
September 30, 20x1, P60,000
d. Balance per books, September 30, 20x1 – P143,000
e. Outstanding checks, September 30, 20x1 – P27,000
f. A collection of P320,000 was recorded in the books as P230,000.
The bank statement shows the correct amount of P320,000
g. The bank erroneously credited a P12,000 deposit of Eye Busy
Co., to ABC’s account.

Requirement: Prepare the bank reconciliation.

Illustration 5: Errors
Illustration 6: Errors
ABC Co. is preparing its October 31, 20x1 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. Deposits in transit – P150,000
e. Outstanding checks – P50,000
f. The disbursements per books are overstated by P90,000
g. The bank debits are understated by P80,000

Requirement: Prepare the bank reconciliation

Illustration 6: Errors

Book Error:
The overstatement in the book
Disbursements caused the ending
Balance of cash to be understated.
Illustration 6: Errors
Illustration 7: Errors
ABC Co. is preparing its November 30, 20x1 bank reconciliation. The
following information was determined:
a. The cash balance per books is P500,000 while the cash balance
per bank statement is P530,000
b. The bank collected P640,000 from a customer, representing
P600,000 principal of note receivable and P40,000 interest.
c. NSF check of P150,000 returned by the bank to ABC. ABC has
not yet recorded the return of the check.
d. Collections amounting to P310,000 were deposited by month-end
but were not reflected on the bank statement.
e. Checks issued totaling P60,000 are not yet presented to the bank
for payment.
f. A book error caused the debits to be overstated by P120,000
g. A bank error caused the debits to be overstated by P90,000
Requirement: Prepare the bank reconciliation.
Illustration 7: Errors
Illustration 8: Book to
Bank/Bank to Book
The following information
pertains to ABC Co., cash on
December 31, 20x1:
a. Balance per bank statement
– P8,000
b. Credit memo – P5,000
c. Debit memo – P2,000
d. Deposit in transit – P4,000
e. Outstanding checks – P3,000
Requirement: How much is the
unadjusted balance of cash
per books?
Illustration 9: Bank reconciliation of overdraft
The overdraft per bank statement of ABC Co. was P13,880 as of
March 31, 20x1. The following information was gathered.
• Interest on overdraft for the quarter ended March 20x1 – P480 (not
yet entered in cash book)
• Check deposited with the bank but did not yet clear - P1,800
• Check issued but not yet presented for payment – P2,350
• A check for P1,000, discounted with the bank earlier, was
dishonored. ABC Co., is not yet aware of the dishonor.
What is the overdraft per ABC’s cashbook on March 31, 20x1?
 Computation of Deposits in Transit &
Outstanding Checks
Deposits in Transit – represent the difference between the amount of
deposits recorded in the books and the amount of deposits actually
credited by the bank to the entity’s account.
Example:
You made a total deposit of P1,000 but when you checked your
account, you found out that the bank credited only P800. How much is
the deposit in transit? Answer: P200.
 Computation of Deposits in Transit &
Outstanding Checks
Outstanding Checks – represent the difference between the amount
of checks drawn and the amount of checks encashed with the bank.
Example:
You wrote checks totaling P10,000 and distributed them to various
payees. When you received your bank statement, you found out that
only P7,000 of the checks drawn were presented for payment. How
much are the outstanding checks? Answer P3,000.
 Proof of Cash
• A proof of cash is an extended bank reconciliation that
incudes proof of cash receipts and cash disbursements.
• Proof of cash is useful in discovering discrepancies in
the handling of cash over a certain period of time.
• This is prepared only when needed, usually in fraud
investigations involving cash.
Illustration:
Information relating to ABC Co.’s cash in bank is as follows:
OPEN FORUM

•QUESTIONS????
•REACTIONS!!!!!
END OF PRESENTATION