96 Chapter. 3 Chapter 3 Bank Reconciliation Learning Objectives 1, Prepare a bank reconciliation. 2, Prepare a proof of cash. 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. i More specifically, bank reconciliations are prepared to: a. explain the difference between the cash balance in. the accounting records and the cash balance reported on the bank statement; : b. arrive at the adjusted (correct) cash balance to be shown in the financial statements; and c._ provide information for reconciling journal entries. Bank reconciliation is prepared on a monthly basis, immediately upon receipt of the monthly bank statement from the bank. A bank statement is a report issued by a bank that shows. the deposits and withdrawals during the period and the cumulative balance of a depositor’s bank account. When a business has more than one bank’ account, separate bank reconciliations are made for each of those accounts. Bank reconciliations are normally required only for checking accounts, Theoretically, bank reconciliation is not required for savings accounts because no checks can be drawn from them. However, if the balances of the savings account per books and per bank passbook do not tally, bank reconciliation should nonetheless be prepared to account for the difference.97 Bank Reconciliation Pro forma bank reconciliation statement A bank reconciliation statement has the following format: , ABC Co. Bank Reconciliation For the month ended August 31, 20x1 Balance per books, end. Px Bal. per bank statement,end. —Pxx Add: Credit memos (CM) © xx © Add: Deposits‘in transit (DIT) © xx Less: Debit memos (DM) (xx) Less: Outstanding checks (OC) (xx) Add/Less: Book errors —_xx_ Add/Less: Bank errors x. Adjusted balance ce Adjusted-balance Pxx e Balance per’ books, end.’ - the cash balance in the accounting records as of the end of the current month. In the pro forma statement above, “Balance per books, end.” is thé cash balance in’ the accounting records as of August 31, 20x1. ¢ Balance per bank statement, end. — the ending cash balance in the bank statement of the current month.. Inthe pro forma statement above,\“Balance per bank statement, end.” is the cash balance on the bank statement as of August 31, 20x1. © Credit memos = are additions (bank credits) made by the barik to the depositor’s bank account but not yet recorded by the depositor. Examples of credit memos include: i. Collections made by the bank on behalf of the depositor, ii, Interest income earned by the deposit. iii, Proceeds from loan directly credited or added by the bank to the depositor’s account. iv. Unrolled-over matured time deposits transferred by the bank to the entity’s account.Debit memos - are deductions (bank debits) made by the bank to the depositor’s bank account but not yet recorded by the depositor. Examples of debit memos include: i. Bank service charges representing bank charges for fees, interest, penalties, and surcharges. fi, No sufficient funds checks (NSF) or Drawn against insufficient funds checks (DAIF) - These are checks deposited and already recorded by the bank but subsequently returmed to the depositor because the drawer’s fund is insufficient to pay for the check, iii, Automatic debits, such as when the depositor and the bank agree that the bank will make automatic payments of bills on behalf of the depositor. iv, Payment of loans which the entity (depositor) agreed to be made out directly from its bank account. Book errors - errors committed by the depositor (e.g erroneous recording in the books of accounts). Deposits in transit ~ are deposits made but not yet credited by the bank 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! Outstanding checks - are checks drawn and released to payees but are not yet encashed with the bank, Outstanding checks exclude the following: » Certified checks - The bank, when certifying checks, automatically debits (reduces) the depositor’s account and assumes direct liability on paying the certified checks toBank Reconciliation ” 99 the payee. Certified checks are already deducted from the account, thus, they are no'longer outstanding. f > Stale checks (checks that remain outstanding for a relatively long period of time) are reverted back to cash, meaning they are added back to the cash balance per books, and are excluded from outstanding checks. « | Bank errors - errors committed by the bank. Credit memos, debit memos, and book errors are referred to as book reconciling. items. The depositor should make reconciling entries for these items. Deposits in transit, outstanding checks, and bank errors are referred to as bank reconciling items. The depositor does not make reconciling entries for these items. Illustration 1: Reconciling items To illustrate how the reconciling items arise, let us analyze how the depositor (entity) and the bank record transactions: 1. Anentity 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: Entity (depositor) Bank Cash in bank 1,000 Cash on hand 1,000' Cash on hand 1,000 Deposit liability - depositor 1,000 As of this date, the cash balances per books and per bank statement are equal (Cash in bank, P1,000 = Deposit liability, P1,000). These two accounts, ‘Cash in bank’ and ‘Deposit liability’, are the accounts being reconciled by the entity’s accountant. These are counterpart accounts, meaning their balances should tally at any given point of time.100 Chapter 3 Deposit in transit . 2. The entity collects P200 frorh customers and deposits it in an overnight depository on December 31, 20x1, Entity (depositor) Bank Cash on hand 200 Accounts receivable 200 Cash in bank 200 No entry yet. Deposit will be Cash on hand 200 received in January 20x2. As of December 31, 20x1, the cash balances per books and per bank statement are not equal (there is a debit to. cash in bank without a corresponding credit to deposit liability). The 200 difference is a deposit in transit; ~ The bank will update the entity’s account when it receives the deposit on January 2, 20x2. The cash balances will be equal on this date. Credit memo 3. The bank collects a:P500 receivable on behalf of the entity in January 20x2. i : Entity (depositor) Bank No entry. The entity is not yet | Cash on hand 500 aware of the collection. It will] Deposit Hability - depositor’ 500 record the collection when it receives the January bank statement on the first week of |, February. On January 31, 20x2,.the cash balances per books and per bank statement are again not equal (there is a credit to deposit liability without a corresponding debit to cash in bank). The P500 difference is a credit memo. The entity will be notified of the P500 collection when it receives the January bank statement on the first week of February: After making the necessary reconciling entry, the cash balances will be equal.Bank Reconciliation 101 Book'error 4, The entity makes payment of P1,000 but erroneously records it as P100 in February 20x2. The check cleared. the bank at the correct amount of P1,000. Entity (depositor) Bank ‘Accounts payable * 100 Deposit liability - depositor 1,000 Cash in bank 100 Cash on'‘hand +» 41,000 On February 28, 20x2, the cash balances per books and per bank statement are again not. equal (the credit to cash in bank is P100 but the corresponding debit to deposit liability is P1,000). The 900 difference is a book error (error committed by the entity). This errot overstates the cash balance per books. The entity will discover, the error when it prepares the February bank reconciliation on the first week of March, immediatély after the receipt of the February bank statement. After making the necessary reconciling entry, the cash Bales will be equal. e Outstanding checks 5. In March 20x2, the entity wrote. checks totaling .P400. However, only P100 of those checks were encashed during the month. Entity (depositor) - Bank. ‘Accounts payable 400 Deposit liability - depositor 100 Cash in bank 400 Gash on hand «100 On March 31, 20x2, the cash balances per books and. per bank statement are again not equal (the credit to cash in bank is P400 but the corresponding debit to deposit liability is only .P100). The P300 difference is due to outstanding checks, Scenarios similar to those illustrated above would give rise to differences due to debit memios and bank errors.102 : Chapter 3 Illustration 2: Use of formula ‘ABC Co. receives its July 20x1 bank statement and immediately prepares its July 20xf, bank reconciliation, Relevant information follows: ‘ a. Cash balance per books - P300,000 Cash balance shown on the bank statement - 430,000 Credit memo -? 190,000 Debit memo - 30,000 Deposits in transit - 50,000" Outstanding checks - P25,000 (including certified checks of P5,000) meaoes Requirement: Prepare the bank reconciliation: Solution: ABC Co. Bank Reconciliation - Landbank (Checking account # 10009087) July 31, 20x1 Bal. per books, end. 300,000 Bal. per bank, end. 430,000 Ada: CM. 190,000 Add: DIT 50,000 Less: DM (30,000) Less: OC (25K -5K) (20,000) Add/Less: Book errors -_ Add/Less; Bank errors’ 2 Adjusted balance 460,000 Adjusted balance ‘460,000 Prepared by: Ms. Accounting Staff (signed) Approved by: Mr. Manager (siguved) Date: _8/2/x1 Date: 8/3/x1 Ilustration 3: Transaction analysis You received your August 20x1 bank statement, The August 31, 20x1 cash balance in your accounting books is 520,000 while the cash balance shown on the bank statement is 410,000. 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.Bank Reconciliation 103 c. Avcustomer deposited 60,000 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. Prepare the adjusting (reconciling) entries. Solutions: Analyses: a, The 45,000 check issued to the supplier but not yet encashed is an outstanding check. b. The P205,000 amount deposited but not yet credited to your account is a deposit in transit. c. The P60,000 deposit to your account but not yet recorded in the accounting books is a credit memo. d. ‘The 10,000 deduction from ‘your account but''not yet recorded in the accounting books is a debit memo. irement (a): Bank reconciliation Bal. per books, end. 520,000 Bal. perbank, end. —_, P410,000 Add: CM. 60,000 Add:.DIT 205,000, Less: DM (10,000) Less! OC (45,000) Add/Less: Book errors "" Add/Less: Bank errors Adjusted balance 570,000 Adjusted balance. 570,000 | ° oars \ hate Requirement (b): Adjusting (Reconciling) entries Adjusting (reconciling) entries are made only for book reconciling items (ie., credit memo, debit memo, and book errors). No adjusting (reconciling) entries are needed for bank reconciling items in the entity’s books. Only items (c) and (d) above will be adjusted in the books of accounts.104 Chapter3 The adjusting (reconciling) entries are as follows: Cash in bank Accounts receivable . record the collection va accounts eannanrenie opin Cash in bank to record the mobile phone charges for the month After posting the entries above, the balance of cash is brought equal to its adjusted balance. Analyze the T-account below: ‘. Cash in bank * Amy. 31 (unadjusted balance) 520,000 . AJE (c) 60,000] 10,000 AJE (d) Adjusted balance 570,000 Ilustration 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. % Cash in bank per accounting records: SUBSIDIARY LEDGER CASH IN BANK - BPI CURRENT ACCOUNT Debit | Credit Balance Bal. forwarded 560,000 Deposit 910,000 Check #1109 801,000 Deposit 1,281,000 ‘Check #1110 1,081,000 Check #1111 1,001,000 Check #1112 DeyBank Reconciliation i 105 Cash in bank per bank statement: BANK OF THE i 8121-0008-48 ‘Account Type t BPI Checking Account Branch i PIGGY BRANCH Period Covered ' '5/1/20X1 + 5/31/20X1. ‘ Date Description Ref Details Debit Credit__Balance BEGINNING BALANCE 60,000.00 s/30/20x1 CASHDEPOST =" 023—_—Pigay City 350,000.00 940,000.00 5/11/20X1_ CASH DEPOSIT "090° Piggy city ‘480,000.00 1,390,000.00 5/42/20 PAYMENT ” oon 31,905.00 1,358,095.00 5/15/20X1 CHECKENCASHMENT ” 040” CK# 1109, 109,000.00 1,249,095.00 ‘9/18/20 CHECKENCASHMENT.” 099 CK#.1110 200,000.00 1,049,095.00 §/26/20x1 CHECK DEPOSIT ; 067 Piggy city 190,000.00. 1,139,095.00 5/29)20X1 CHECKENCASHMENT " 077 CK 1112 280,000.00 859,095.00 Requirement: Prepare the bank reconciliation. Solution: We will determine the reconciling items simply by comparing the amounts in the ledger and the bank statement, > Amounts that are in the ledger but not in the bank statement are bank reconciling items. , > Amounts that are in the bank statement but not in the ledger are book reconciling items. For this purpose we simply cross-out items that appear in both the ledger and the bank statement. Items not crossed-out are the reconciling items.106 Chapter} SUBSIDIARY LEDGER ‘CASHIN BANK «BPI CURRENT ACCOUNT Description _|_ Debit Bal forwarded Deposit Check #1109 Deposit Check #1110 Check 1111 Check en 160,000 Pew h@O mig aa alae IN SESSA Os) cast DePOsTT S/11/20R1 CASH DEPOSIT s/i2n0a PAYMENT 5/15/20 CHECK ENCASHMENT ” S/18/20K1 CHECKENCASHMENT ” 5/26/20x1 CHECK OEPOSTT 5/29/20K1 CHECKENCASHMENT ” S88288 8 & The reconciling items are: Bank reconciling items: a. Outstanding check of P80,000 (from ledger, dated 5/21, ‘Ched #1111’) b. Deposit in transit of 160,000 (from ledger, dated 5/30 “Deposit’) Book recontciling items: a. Debit memo of P31,905 (from bank statement, dated 5/12/20X1, described as ‘PAYMENT’) b. Credit memo of P90,000 (from bank statement, dated 5/26/20X1, described as ‘CHECK DEPOSIT’)Bank Reconciliation 107 Blue Sky Co. Bank Reconciliation f May 31, 20x1 Bal. per books, end. | 881,000’ Bal. per bank, end. 859,095 ‘Add: CM 90,000: Add: DIT 160,000 Less: DM (31,905) * ‘Less: OC (80,000) Add/Less:Bookerrors __- _Add/Less: Bank errors : Adjusted balance ——-P939,095_ Adjusted balance —_P 939,095 Illustration 5: Errors i ABC Co. is preparing its September 30, 20x1 bank reconciliation. The following information was determined: a. Balance per bank statement, September 30, 20x1 — P 180,000. b. Deposit in transit, September 30, 20x1 - 32,000. c. Return of customer’s check for insufficiency of funds (NSF check), September 30,20x1 — 60,000, d. Balance per books, September 30, 20x1 — P143,000. e. Outstanding checks, September 30, 20x1 — 27,000. f. A collection of 320,000 was recorded in the books as 230,000. The-bank statement shows’ the correct amount of 320,000. g. The bank erroneously credited a P12,000 deposit of Eye Busy Co. to ABC’s accourit. Requirement: Prepare the bank reconciliation. Solution: Bal. per books, end. 143,000 Bal. per bank, end. 180,000 Add: CM » Add: DIT 32,000 _| Less: DM (NSF check) (60,000) Less: OC (27,000) Add/Less: Book errors: Add/Less: Bank errors: Understatement 90,000. Overstatement (12,000) Adjusted balance PL Adjusted balance P173,000 eel108 Chapter? & Notes: © Book error: . The collection of 320,000 that was erroneously recorded as 230,000 caused the cash balance per books to be understated, Thus, the correction is an addition of 90,000 (320,000 ~ 230,000) to the cash balance per books. Analyze Ge T-accounts below: —— rae pla! 230,000 a 320,000. Bal. jal. 320,000 Understated by 90,000 (320,000 SBE vs. 230,000 EM)| ‘Correction’ Cash Entry made 230,000 Correction addition 90,000 Bal, 320,000Bank Reconciliation 109 @ Bankerror: The 12,000 erroneous credit to ABC’s bank account caused the cash balance per bank to be overstated. Thus, the correction is a deduction. Analyze the T-accounts below: itry made'(EM) ‘Should be'(SBE - ABC Co. Deposit liability - ABC Co. Cr. Dr. 12,000_ (g) (8) 12,000 Bal. - Bal. Overstated by 12,000 (0 SBE vs. 12,000 EM). © “Deposit linbility” is the account title used by the bank. This dorresponds to the “Cash in bank” account maintained in the depositor’s bods. These two saccounts are the ones we are reconciling in a bank reconeiliatigh. ‘Correction’ Deposit liability - ABC Co. Entry made Correction - deduction Bal.110 Chapter 3 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 560,000 while the cash balance per bank statement is 640,000. Credit memo - 40,000 Debit memo - P30,000 Deposits in transit - 150,000 Outstanding checks - 50,000 The disbursements per books are overstated by 90,000. The bank debits are understated by 80,000. amen s Requirement; Prepare the bank reconciliation. Solution: Bal. perbooks, end. 560,000 ° Bal. per bank, end. 640,000 Add:CM + 40,000 Add: DIT 150,000 Less: DM (30,000) Less: OC 7 (50,000) Add/Less: Book errors: Add/Less: Bank errors: Understatement 90,000 . Overstatement (80,000) Adjusted balance, 660,000 Adjusted balance 660,000 ——— ——— & Notes: © Book error: The overstatement in the, book disbursements caused the ending balance of cash to be understated. Analyze the T-accounts below:Bank Reconciliqtion 11 ‘Entry made’ ‘Should be’ Cash Cash al Cr. Assumed amount ® “560,000 @é Assumed amount 560,000 ( Bal. 470,000 Bal. 560,000 Disbursements are recorded as credits to the cash account. The disbursements are overstated by 90,000. ® “Assumed amount”: We will assume these/amounts in order to show more clearly the effect of the error on/the ending balance of Assumed amount Correction Bal. ©) Remember the following: ‘> To correct an overstated credit, you need to make a debit. > To correct an overstated debit, you need to make a credit. > To correct an understated credit, you need to make a credit. > To correct an understated debit, you need to make a debit. Direct relationship112 Chapter 3 @ Bankerror: " ‘The understatement in the bank debits caused the ending balance of cash to be overstated. Analyze the T-accounts below: “Entry made’ ‘Should be’ Deposit liability Deposit liability - - ABC Co. ABC Co. Assumed 640,000 amount Assumed 640,000 amount Assumed (g)._100,000 amount _ 180,000 540,000 Bal. 460,000 Bal. Understated by 80,000. (180,000 SBE vs. 100,000 EM) The understatement in the bank debit caused the ending balance to be understated also by the same amount. (460,000 SBE vs. 540,000 EM = 80,000 under) ‘Cortrectis Deposit liability - ABCBank Reconciliation 113 BOOK ERRORS Re Nature of error Effect on enin; Correction : balance of east a Understatement | @ Understatement. | @ Debit (Addition .| in book debit. x on the pro forma reconciliation). b.. Understatement | Overstatement. @ Credit in book credit. (Deduction on the pro forma. ‘ i reconciliation). c. ‘Overstatement in’ }°% Overstatement. © Credit book debit. (Deduction on the pro forma reconciliation). -d. Overstatement in |,% Understatement. | ® Debit (Addition book credit. : on the pro forma reconciliation). BANK ERRORS: Nature of error Effect on ending Correction balance of cash ‘ e. Understatement | @ Understatement. | %. Credit (Addition © in bank credit. on the pro forma - reconciliation). f. Understatement | ® Overstatement. @ Debit (Deduction in bank debit: on the.pro forma ; Lo reconciliation). g- Overstatement in | @ Overstatement. ® Debit (Deduction bank credit. on the pro forma reconciliation). h. Overstatement in | @ Understatement. | & Credit (Addition bank debit. on the pro forma reconciliation).114 Chapter 3 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 500,000 while the cash balance per bank statement is 530,000. b. The bank collected 640,000 from a customer, representing, ~ 600,000 principal of note receivable and 40,000 interest. c. NSF check of 150,000 returned by the bank to ABC. ABC has not yet recorded the retum of the check. d. . Collections amounting to 310,000 were deposited by. mnonth- end but were not reflected on the bank statement. e. Checks isstied totaling 60,000 are not yet presented to the bank for payment. f. A book error caused the debits to be overstated by 120,000. g. Abank error caused the debits to be overstated by P90,000. - Requirement: Prepare the bank reconciliation. Solution: : - Bal. per books,end. 500,000 Bal. perbank, end. P530,000 Add: CM 640,000 Add: DIT 310,000 Less: DM-(NSF) (150,000) Less: OC (60,000) Add/Less: Book errors: Add/Less: Bank errors: Overstatement (120,000) Understatement 90,000 Adjusted balance 870,000 Adjusted balance 870,000 —= ——Bank Reconciliation 115 Illustration 8: Book to Bank/Bank to Book The following information pertains: to ABC Co.’s cash on December 31, 20x1: Balance per bank statement - 8,000 Credit memo —P5,000 Debit memo — 2,000 Deposits in transit P4,000 Outstanding checks - 3,000 oao ge Requirement: How much is the unadjusted balance of cash per books? Solution: Step 1: Place all the given information on the pro forma bank reconciliation. Per books, end. 7? Per bank, end. 8,000 Add: CM 5,000 Ada: DIT. 4,000 Less: DM (2,000) Less: OC (3,000) +/:Bankerrors: _ - Adjusted balance? oy Per books, end. 6,000 Squeeze Perbank, end. 8,000 start +/-: Book errors: Adjusted balance Step 2: Squeeze the missing (required) information. Add: CM 5,000 Add; DIT 4,000 Less: DM (2,000) Less: OC (3,000) 4¥/-:Bookerrors: —_- +/+:Bank errors: + Adjusted,balance 9,000 . Adjusted balance — 9,000 eed (8,000 + 4,000 — 3,000 = 9,000 + 2,000 - 5,000 = 6,000 answer)116. Chapter 3 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? Solution: squeeze | Bal. per books (P 12,950) | Bal. per bank (P13,880) | Stepi DIT 1,800 Bank charge (480) | OC (2,350) Dishonored check (1,000) Step 2 Adj. bal. (P 14,430) Ads bal. (P14,430) Answer: (P12,950) Computation of Deposits in transit & Outstanding checks Some CPA Board Exam questions require the computations of deposits in transit and outstanding checks through reconstruction of data. These types of problems may be solved through T-account analyses. Before we illustrate the T-accounts, let us recall the following concepts: Deposits in transit (DIT) 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.Bank Reconciliation 117 For example, you made total:deposits of P1,000. When you checked your account, you found out that the bank hasicredited only 800. How much are the deposits in transit? Yes, you are correct! P200 '~'the difference between. the amount you deposited (i.e, P1,000)and, the amount*actually. credited to your account (i.e., 800). . ‘There is no deposit in transit if the amount deposited is equal to the amount credited by the bank to the entity's account. Deposits in transit may be computed using the following T-account analysis. Deposits in transit DIT, beg. bal. Deposits made during current Deposits credited by bank during month: current month: . Total Credits per bank Total Debits per books xx Stotoment™ Less: CM in current Less: CM last month —, (xx) (xx) month Less: Effect of book error last month (xx) Add/Less: Effect of book error in current month _xx_. xx Less: Effect of bank , (0%) error last month Add/Less: Effect of bank XX error in current month DIT, end. bal. Outstanding checks Outstanding checks represent the difference between the amount of checks drawn and the amount of checks encashed with the bank, t For example, you :wrote checks totaling ?10,000 ‘and distributed them to various payees. When you received your bank statement, you found out that only'P7,000 ofthe checks drawn were presented for payment. How much are the outstanding checks? x Yes, you're correct again! P3,000 — the difference between the , checks drawn (i.e., P10,000) and those presented for payment (i.e., P7,000). AY " There is no outstanding check if the amount ‘of checks drawn is equal to the amount of checks encashed with the bank.18° Chapter 3 Outstanding checks may be computed using the following, T-account analysis. Outstanding checks x OG, beg. bal. ent een by bank during Checks drawn during current month: eae perbank. yy xx Total Credits per book Less: DM in current Less: DM last month (x) (0%) “month Less: Effect of bank Less: Effect of book (xx) (ox) error last month error last month Add/Less: Effect of bank =, error in current month ~~ = ~ (OC, end. bal. Add/Less: Effect of xx | xx xx book error in current month Illustration 1: Computation of DIT and OC Taken from the records of ABC Co, are the following: Balance per bank statement, October 31 - 4,600 Balance per bank statement, November 30 3,800 Total Credits per bank statement, November 1,500 Balance per books, October 31 3,700 Total Credits per books, November 5,200. Balance per books, November 30 1,600 Collection of note directly credited to ABC’s account: in October 500 Proceeds of loan directly credited to ABC’s account in November — not yet recorded in the books 300 NSF checks returned in October 900 NSF checks returned in November - not yet recorded. in the books 200 Check received from a customer amounting to P200 was recorded in the books in October as 2,000 Check issued to a supplier amounting to P100 was recorded in the books in November as 1,000Bank Reconciliation 119 Collections in November for P1,300 was recorded as . 300 Checks properly drawn for P1,900 was recorded by the bank in October as 190 Deposit amounting to P1,500 was recorded by the bank in November as ‘ 150 Deposits in transit - October 31 800 Outstanding checks - October 31 2,190 Requirements: : a. Compute for the deposits in transit and outstanding checks as of November 30. b. Prepare the bank reconciliation for the month ended November 30. Solutions: Before computing for the DIT and OC as of November 30, the book debits and bank debits should be computed first. Refer to the T-account analyses shown below: : Per books Per bank Oct. 31 3,700 4,600 Oct, 31 Book Dr. Bank Dr. ‘ (squeeze) 3,100 (squeeze) 2,300 | 1,500 Bank Cr. 5,200 Book Cr. 600_ Nov.30 | Nov. 30 _ 3,800 Requirement (a): Deposits in transit josits in transit 800 DIT, Oct. 34 Deposits credited by bank during Deposits made during current month: _ | current month: Book debits, 3,100 1,500 Bank credits CM, Oct. (500) (300) CM, Nov. Understated ‘ Understated collections in Nov, deposits in Nov. (1,300 - 300) 1,000 2,550 _.4,350 (1,500 - 150) 1,850 DIT, Nov. 30120 Chapter 3 Outstanding checks 2,190 OC, Oct. 31 Checks encashed by bank durin ; Soren pine y 9 Checks drawn during current month: Bank debits 2,300 5,200 Book’credits DM, Nov. (200) (800) DM, Oct. Overstated book Understated bank debits in Oct. debits in Oct. 1,710) 390 (1,800) (2,000 - 200) Overstated book credits in Nov. 1,600 __(900)_ (1,000 - 100) OC, Nov. 30 7 & Notes: Credit memos > When the CM last month (i.e. October) is recorded in the “ boaks this month (i.e, November), the book debits are increased. Howevei, the increase does not represent a “deposit made by ABC Co. during the current month.” Accordingly, it is deducted from the book debits in the DIT T-account above. > When the CM this month is recorded by the bank this month, the bank credits are increased. However, the increase does not represent a “deposit made by ABC Co, and credited by the bank during the current month.” Accordingly, it is deducted from the bank credits in the DIT T-account above. : Debit memos > The accounting treatments for DMs on the OC T-account parallel those of the CMs iri the DIT T-account. Notice that all CMs and DMs are deductions in the T-accounts. CMs. and DMs are direct credits and debits to the entity’s bank account. Accordingly, they could not give rise to DIT and OC. Book errors AAA ADEA AIA PARLIN YI ee Check received from a customer amounting to P20 HR RBEREE n the books in Qetober as A VARABank Reconciliation : 121 Analysis: > What happened? — Book debits last month are overstated iy 1,800. > What was the correction made this month? - A book credit was made to reverse the overstated book debit. > Effect of correction: Book credits are increased but the increase does not represent a “check drawn during current month.” > Where can I find book credits? - Outstanding checks T-account > What should I do? — deduct 1,800 from book credits in the OC T-account RAYA nn Dn I BA AN A Check issued to a supplier amounting to P100 was recorded in the books i in November as 1,000 Analysis: >. What happened? — Book credits this month are overstated by 900. > What was the correction made this month? — None yet. The correction will be made next month (i.e., December). Effect of error: Book credits are overstated. Where can I find book credits? - Outstanding checks T-account What should I do? — deduct #900 from book credits in the OC T- account Vw Anan en nen Ae een [Gotlectons in November or 7.300 was recorded as 300 |. Analysis: > What happened? ~ Book debits this month are ‘idlechaead by 1,000. > What was the correction made this month? - None yet. The correction will be made next month (i.e., December). > Effect of error: Book debits are understated. > Where can I find book debits? - Deposits in transit T-account122 . Chapter} > What should I do? - add 1,000 to book debits in the. DIT ‘. account Bank errors DAA Ann, rnnnnmr~ww AA WA hecks properly drawn for P1,900 was recorded by _the bank in October as 190 NANA AAI IA AA Analysis: > What happened? - Bank debits last month are understated by 1,710. ; > What was the correction made this month? - A bank debit was made to supplement the deficiency. > Effect of correction: Bank debits are increased but the increase does not represent a “check encashment.” > Where can I find bank debits? - Outstanding checks T-account > What-should I do? — deduct 1,710 from bank debits in the OC T-account aren wren nn A A Deposit amounting to P1,500 was recorded by the bank i ‘in! November as 150 aw NAA ANA AA AANA Analysis: > What happened? - Bank credits this month are understated by 1,350, 5 > What was the correction made this month? - None yet. Thi correction will be made next month (i.e., December). Effect of error: Bank credits are understated. Where can J find bank credits: Deposits in transit T- account > What should I do? - add 1,350 to bank credits in the DIT T- account vvBank Reconciliation * 123 & Guide on errors: Errors last month are presumed to have been corrected this month. Accordingly: An overstated debit last month is corrected this month by a credit, 50 its effect is on this month's credits. An overstated credit’ last month would have an opposite effect. : ¥ — Anunderstated debit last month is corrected this month by a debit; so its effect is on this month’s debits. An understated credit last month would have an opposite effect. Errors this month are presumed to be corrected next month. Accordingly, an error this month is corrected on the T-accounts using the error’s direct effect on this month’s debits and credits rather than the effect of its correction. Errors can only be considered once in the computation of either DIT or OC. For example, if the error affects DIT, it will not affect OC (and vice- versa). Requirement (b): Bank reconciliation Bal. pet books, Nov. 30 P7,600 | Bal, per bank statement, Nov. 303,600 Add: Credit memos : Add: Deposits in transit 1,850 Proceeds from loan 300 | Less: Outstanding checks (3,400) Less: Debit memos: Add/Less: Bank errors: NSF check (200) | Understatement of deposit 1,350 Add/Less: Book errors: Overstatement of payments 900 Understated collections _ 1,000 Adjusted balance P3,600 | Adjusted balance 3,600 Illustration 2; Reconstruction of information. ABC Co. had the following bank reconciliation on May 31, 20x1: Balance per bank statement - May 31 ; 100,000 Add: Deposits in transit - May 64,000 Less: Outstanding checks - May 12,000) Adjusted balance (equal to cash bal. per books) - May 31 152,000 ' The bank statement for the month of June 20x1 shows the following:124 4 Chapter 3 Deposits f 120,000 Disbursements 90,000 All reconciling items in May cleared the bank in June. There are no reconciling items on June 30 other than for a deposit in transit of 30,000, \ Requirements: \ a. How muchis the cash receipts per books in June 20x1? b. How muchis the cash balance per books on June 30, 20x1? Solutions: Requirement (a): . Deposits per bank - June 120,000 Less: DIT in May that cleared in June (64,000) Add; DIT as of June 30 30,000 +Cash receipts per books - June 86,000 Requirement (b): The cash disbursements per books in June are computed as follows: Disbursements per bank ~ June 90,000 Less: OC in May that cleared in June (12,000) Add: OC as of June 30 - Disbursements per books ~ June 78,000 ——_ The cash balance per books on June 30 is computed as follows: Cash in bank. beg, bal. - May 31 (given) 152,000 Receipts in June 86,000 |__78,000_ Disbursements in June 160,000_ end. bal. - June 30Bank Reconciliation 2 125 Proof of cash A proof of cash is an expanded bank reconciliation that includes proof of cash.receipts and cash disbursements. Proof of cash is useful in discovering discrepancies in the handling, cash over a certain period of time. Unlike the bank reconciliation which is prepared monthly, proof of cash is prepared only when needed - usually i in fraud investigations involving cash. ‘ Illustration: Information. relating to ABC Co.'s cash in bank is as follows: _____| November 30 | December 31 Book balance 5,600 2 Book debits 31,900 Book credits 28,200 Bank balance _ pate a 15,000 20,400 Bank debits : 2 Bank credits ch ; 27,300 Notes collected by bank 2,250 3,000 Bank service charge pt 20 100 NSF checks ae 880 * 1,400 Overstatement of check in -|- paymenitof salaries’ __1,900 1,200 | Deposit in transit 6,000 11,250 Outstanding checks 9,750 17,850 Deposit of 123 Corp. erroneously credited to ABC Co.'s account ___ 2,400 1,800 Requirements: Compute for the following by preparing a proat of cash. Unadjusted book balarice as of December 31. Unadjusted bank disbursements in’ December. Adjusted cash balance as of November 30, Adjusted cash receipts in December. Adjusted cash disbursements in December: Adjusted cash balance as of December 31. pepe ge126 , Chapter Solutions: . We will prepare the proof of cash “per books” first, then the proo of cash “per bank” - similar to ‘the preparation of bani reconciliation. + Per books Step 1: Unadjusted balances Nov. 30 | Receipts | es 31 Balance per books| 5600 .| 31,900 | 28,200 2 A ARN ANAAAN PAANY DAVIDA The proof of cash is similar to a T-account. The sum of th amounts in the first two columns (Nov. 30 and Receipts) is equa to the sum of the amounts in the last two columns (Disbursement and Dec: 31). Accordingly, we can squeeze for the missing valu as follows: 5,600 + 31,900 — 28,20 Balance 5,600 | 31,900 Pat books The computation above is depicted in a T-account as follows: Cash ini bank Nov. 30 Receipts _31,900_| 28,200 _ Disbursements 9,300__ Dec. 31 Step 2: Credit memos i The proof of cash that we are preparing in this illustration is calle a “two date” bank reconciliation. The Nov. 30 and Dec, 31 columt are simply bank reconciliations for the months of November ar’ December, respectively, These ,are prepared using the sav! procedures as those we have performed earlier. Accordingly, simply place the CMs as additions in these columns.Bank Reconciliation 127 Balance per books Note collected by bank: November 2,250 December | Arann whoa asa arena Shaan 5,600 The proof of cash above is also called a “four-column” bank reconciliation. The Receipts and Disbursements columns pertain to the current month of December. Thus, items pertaining to November's (last month) receipts or disbursements that were only recorded in December are excluded (deducted) from these columns. On the other hand, those that represent receipts and disbursements during December that are not yet recorded are included (added) in these columns. The credit memos are placed in the Receipts and Disbursements columns as follows: Nov. 30| Receipts | Disbursements |Dec. 31 Balance per books| 5,600 | 31,900 28,200. 9,300 Note collected by bank: a November 2,250 (2,250) * [December va BM nnn ear ROO > The *2,250 November CM. was only recorded in December. This has increased the December book debits (receipts) but this does not represent a December receipt but: rather a November receipt that was only recorded: in December. Accordingly, it is deducted from the December receipts. > The 3,000 CM this month represents a December receipt that is already recorded by the bank but not yet in the books. It will only be recorded in the books next month (i.e., January). Accordingly, it is added to the December receipts.128 > Observe that the proof of cash remains balanced. 2,250 — 2,250 = 0+0 Chapter Receipts | Disbursements Note collected by bank: November | 2,250 | (2250) 0 0 December | 3,000 0 3,000 _| | works wren ran Step 3: Debit memos, Nov. 30 || Receipts | Disbursements | Dec. 31. Balance per books| 5,600 | 31,900 28,200 \| 9,300 Note collected by bank: November 2,250 (2,250) December 3,000 3,000 Bank service charges: November 20) (20) : December 100 (100) NSF checks: November (680) (880) December i, 1, (4,400) LARA ni aeaniwanlinnnann Wannnnnanntannrn! > The November DMs: are deducted from the Decembet Disbursements (book credits). because these are last month’: disbursements that were only recorded in the current month. » The December DMs are added to the December Disbursemen# (book credits) because these are December disbursements bu! were not yet recorded, > Observe that the proof of cash remains balanced.Bank Reconciliation Step 4: Book errors “November error Overstatement of check in LaPayment of salaties oc nvnnvann oO Analysis: : > What happened? - Book credits last month are overstated by 1,900. ; i > What was the correction made this month? — A book debit was made to reverse the overstated book credit. > ARIA ANY not represent a “December receipt.” 1,900 129 _ November 30 December 31 °1,200 annie Effect of error: Book debits are increased but the increase does > What should I do? — deduct 1,900 from book debits (Receipts column). Nov. 30 |_ Receipts | Disbursements |Dec, 31 Balance per books 5,600 | 31,900 | 28,200 9,300. Note collected by ba November 2,250 _| (2,250) December 3,000 3,000 Bank service charges: November (20) (20) December ales 100" | (100) NSF checks: hi November __.:|, (880) (880) “December. 1,400 (1,400) Book.errors: e [November 1 1900 000 bmn J “December error ; \y November 30. December 31 | AKA AAA SARA SARA AANA ER REESE Overstatement of check in pelrmetel mass. 1900 00 AAW IAN AAA130 Chapter 3 Analysis: > What happened? — Book credits this month are overstated by 1,200. > What was the correction made this month? - None yet. The correction will be made next month (i.e., January). > Effect of error: Book credits are overstated. > What should I do? - deduct 1,200 from book credits (Disbursements column), The completed proof of cash is as follows: Per books: : Nov. 30 | Receipts _| Disbursements | Dec. 31 Balance per books|_5,600 31,900 28,200 9,300 Note collected by bank: November 2,250_| (2,250) December 3,000 3,000 Bank service charges: November (20) (20) December 100 (100) NSF checks: | November (880) __(880) December 1,400 (1,400) Book errors: 1,900 | (1,900) (1,200) 1,200 8,850 | 30,750 27,600 12,000 > Observe that the equilibrium of the proof of cash is maintained all throughout its preparation. % Per bank Using similar procedures, the proof of cash per bank is prepared as follows:Bank Reconciliation 131 Per bank: Nov. 30 Receipts Disbursements | Dec. 31 | Balance per bank | 15,000 27,300 21,900 20,400 _| Deposits in transit: 2 | November 6,000 (6,000) | Senses 11,250 11,250 Outstanding checks: _ November | (9,750) (9,750) December 17,850 | (17,850) Bank errors: : November (2,400) (2,400) December (1,800) (1,800) Adjusted balances| 8,850 30,750 27,600 12,000 > Observe that the adjusted balances per books and per baink are equal. > A proof of cash that covers more than two months can also be prepared, for example, a proof of cash that covers the months of October, November and December. Such a proof of cash is - called a “three date bank reconciliation” and a “seven- column” bank reconciliation. It is also possible to.prepare a one-hundred date bank reconciliation. You might want to give this a try. © Answers to requirements: (amounts taken from the proof of cash) Unadjusted book balance as of December 31.. Unadjusted bank disbursements in December. Adjusted cash balance as of November 30. . Adjusted cash receipts in December... Adjusted cash disbursements in December. Adjusted cash balance as of December 31 mepanogp132 Chapter 3 Chapter 3: Summary ¢ 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. Pro forma bank reconciliation: Bal. per books, end. xx —_ Bal. perbank, end. xx Add: CM. xx Add: DIT XK Less: DM - (xx) Less:OC (x) +/Bookerrors: » __xX__+/-: Bank errors: Adjusted balance xx_» Adjusted balance xX. © Credit memos (CM) - are additions (bank credits) made by the bank to the depositor’s bank account but not yet recorded by the depositor, e.g., collections made by the bank on behalf of the depositor. «Debit memos (DM) - are deductions (bank debits) made by the bank to the. depositor’s bank account but not yet recorded by the depositor, e.g., NSF checks, bank service charges. © Deposits in transit (DIT) - are deposits made but not yet credited by the bank to the depositor’s bank account. © Outstanding checks (OC) - are checks drawn and released to payees but are not yet encashed with the bank. .Bank Reconciliation 133 PROBLEMS PROBLEM 1: TRUE OR FALSE 1. The bank statement is a report that is prepared for the purpose of bringing the balances of cash per records. and per bank statement into agreement. 2. When preparing bank reconciliation, credit memos are added to the balance per bank statement to get the adjusted balance. 3. A bank ‘decreased a depositor’s account. To notify the depositor, the bank will issuea credit memo, 4, Bank memorandums not recorded by the depositor require reconciling entries in the depositor’s books of accounts, 5. A bank statement has a balance of ?200. If the credit memos _ are P20 while the outstanding checks are P10, the adjusted cash balance is P190. . 6. The ledger balance of cash is P100. If the credit memos are P20, deposits in transit are P20, outstanding, checks are P10, and .NSF checks are P5, the adjusted cash balance is P110, 4 7. Ina proof of cash, if the June 30 cash balance is P20. while the July cash receipts and disbursements are P10. and ‘P18, respectively, the July 31 cash balance must be P12. ‘ 8. An entity is preparing a proof of cash for November 30 and December 31. If the unadjusted bank statement balance on November 30 is P30, the unadjusted deposits and withdrawals during December are P5 and P3, respectively, the unadjusted bank statement balance on December 31 must be P28, 9. The credit memos from, the previous month are extended to the cash receipts column of a proof of cash.as an addition. 10. The debit memos from the previous month are extended to the cash disbursements column of a proof of cash as a deduction. * PROBLEM 2: MULTIPLE CHOICE - THEORY 1. These are deposits made but not yet credited by the bank to the depositor’s bank account, ; a, Credit memos (CM) ¢. Outstanding checks (OC) b. Debit memos (DM) d. Deposits in transit (DIT)AneP ee ce 2. Inthe preparation of bank reconciliation, it was found out that cash sales of P9,500 were incorrectly recorded in the books as 75,900. What entry is reconciling journal entry? a. (Drt.) Cash; (Cr.) Accounts Receivable b. (Dr) Cash; (Cr.) sales ¢ (Dr.) Accounts Receivable; (Cr.) Cash d, none 3. What is the reconciling entry in the depositors books to record outstanding checks? a. (Dr.) Cash; (Cr.) Accounts Payable b. (Dr.) Accounts Receivable; (Cr.) Cash ¢. (Dr.) Accounts Payable; (Cr.) Cash d, none 4, In a bank reconciliation, a note receivable collected by the bank is . deducted from the cash balance per bank statement. deducted from the cash balance per ledger: added to the cash balance per bank statement. . added to the cash balance per ledger. aes 5. Which of the following reconciliation items requires an adjusting journal entry in the books of ABC Co.? a. Amortization of loan of XYZ, Inc. erroneously credited by » thebank to ABC Co,’s account b. NGF check returned by bank and re-deposited by ABC Co. during the period and appropriately cleared the bank in the same period c. Cash deposits made but were not yet credited to ABC Co's bank account as of cut-off date d, Customer payments directly remitted to the bank 6. Which of the following may be used to compute for the adjusted balance of cash?Bank Reconciliation 135 a. Balance per books + Credit memo - Debit memo - Understatement of cash collections b. Balance per books + Credit memo - Debit memo + Overstatement of cash collections c. Balance per books + Credit memo - Debit memo + Overstatement of cash disbursements i d. Balance per books + Credit memo’ — Debit memo Overstatement of cash disbursements 7. If the balance shown’ on a company's bank’ statement is less than the correct cash balance, and neither the company nor the bank has made any errors, there must be a. deposits credited by the bank but not yet recorded by the company. b. outstanding checks. * c. bank charges not yet recorded ne the company. d. deposits in transit. (aicra) 8. Certified checks should be excluded from outstanding checks when preparing bank reconciliation. The rationale for this treatment is that : a. the bank, when certifying checks, draws the check in its account, b. the bank, when certifying checks, hatte debits the depositor’s account. c. the bank, when certifying checks, automatically credits the depositor’s account. d. the bank, when certifying checks, assumes the obligation to pay the drawee when the check is presented for payment. 9. When preparing a proof of cash, a credit memo from the previous month is a. extended to the book receipts column as an addition. b. extended to the bank receipts column as an addition.136 Chapter 3 ¢.. extended to the book receipts column as a deduction. d. not extended in any of the book columns. 10. When preparing a proof of cash, an overstated book debit in the previous month is a. extended to the book receipts column as an addition. b, extended to the book receipts column as an addition. c. extended to. the book, disbursements column as a deduction. d, not included in the proof of cash if the error, is already corrected in the current month. PROBLEM 3: EXERCISES . 1 ABC Co. is preparing its September 30, 20x1 bank reconciliation. Relevant information is shown below: Balance per books | 5,313 Balance per bank statement . 6,200 Collection of note receivable by bank (including P155 interest) 3,565 NSF check returned by bank 1,860 Bank service charges for December 62 Deposits in transit 2418 Outstanding checks (including certified checks of P310) 3,100 A P1,395 collection of accounts receivable was erroneously recorded in the books as'P1,593. The.actual amount deposited to the bank is P1,395. A P930 loan amortization of AVC Co, was erroneously debited. by the bank to ABC Co,’s account, Requirements: a. b. Prepare the bank reconciliation, Prepare the month-end adjusting entry. Entify A’ is preparing its March 31, 20x1 bank reconciliation. The following information was determined:Bank Reconciliation 137 The cash balance per books is 280,000, while the cash balance per bank statement is 320,000. Credit memo ~ 20,000 Debit memo — P 15,000 Deposits in transit - 75,000 Outstanding checks — 25,000 The disbursements per books are overstated by 45,000. The bank debits are understated by 40,000. amoeaos Requirement: Prepare the bank reconciliation. 3. Entity A is preparing its February 28, 20x1 bank reconciliation statement. The following information was determined: ¢ Cash balance per accounting books, Feb. 28, 20x1, 260,000 «Cash balance per bank statement, Feb. 28, 20x1, 205,000 Additional information: a, A,customer deposited P30,000 to Entity A’s bank account as \ payment for an account receivable. This is not yet recorded in the books of accounts. b. ,A.P102,500 check deposited by Entity A during the month is not yet credited to Entity A’s account. cA check drawn in the amount of P22,500 is not yet presented to the bank for payment. d,. The bank returned a check deposit amounting to P5,000 because of insufficiency in the funds of the drawer, The check was received from a customer as payment for accounts receivable. Requirements: ¢. Prepare the bank reconciliation. d,_ Prepare the adjusting (reconciling) entries.Requirement: Prepare a proof of cash. 138. Chapter 3 4, Information on ABC Co. is shown below: 30-Jul Aug. 31 Book balance 132,200 180,000 Book debits (receipts) 60,000 Book credits (disbursements) 2 Bank balance : 100,600 + 169,000 Bank debits (disbursements) 20,600 Bank credits (receipts) i * Notes collected by bank 10,000 35,000 Debit memos 7,800 8,900 Understatement of book receipts : 2,800 © Deposit in transit 45,000 43,800 Outstanding checks 11,200 3,900 5. The accountant of the DEF Co. gathered the following data: 31-Mar Book balance 400,000 Book debits Book credits Bank balance ~ 280,000 Bank debits Bank credits Credit memos 36,000 Bank charges 10,000 Deposit in transit 169,000 Outstanding checks 23,000 Additional information: 30-Apr 540,000 180,000 40,000 440,000 30,000 190,000 23,000 16,000 136,000 30,000 a. Disbursements in April of P45,000 were recorded as P54,000. b. Deposit in April amounting to P10,000 was erroneously credited by the bank to another company’s account. Requirement: Prepare a proof of cash,Bank Reconciliation 6. Information on Yano Co. is shown below: : 30-Jun Book balance 382,500 Book debits Book credits Bank balance 365,380 Bank debits Bank credits Credit memos 74,200 Bank charges 2,000 Deposit in transit 169,000 Outstanding checks 23,000 Additional information: 139 31-Jul 527,000 180,900 36,400 653,700 108,020 396,340 262,800 6,000 136,000 30,000 © The book disbursements in June were overstated by P36,340. The book disbursements in July were understated by P54,280. . e The bank receipts in June were overstated by P20,340. © The bank receipts in July were overstated by P30,180. * Requirement: Prepare a proof of cash. 7. The following Information relates to XYZ, Inc. 31-Mar Book balance 396,600 Book debits Book credits Bank balance 280,900 " Bank debits Bank credits Credit memos 36,000 Debit memos 10,920 Deposit in transit 46,780 Outstariding checks - 28,000 30-Apr 540,000 180,000 36,600 445,380 26,900 191,380, 42,000 16,020 131,400 19,800140 Chapter; Additional information: ¢. The outstanding checks in March include certified checks oj 5,000. These were certified in March but w were presented fo, payment in April. * Collections in March of P14,000 were recorded as P41,000. * Checks drawn in April amounting to P12,000 cleared the bani for P21,000. Investigation shows that the company committed the error. * Deposit in March amounting to P100,000 was erroneous]} credited by the bank as ? 10,000. Requirement: Prepare a proof of cash. PROBLEM 4: MULTIPLE CHOICE - COMPUTATIONAL 1.; In preparing its August 31, 2004 bank reconciliation,. Cloud Corp. has made available the following information; Balance per bank statement, 8/31/04 P25,650 Deposit in transit, 8/31/04 5,900 Return of customer's check for insufficient funds 600 Outstanding checks, 8/31/04 -750 Bank service charges for August . 100 Erroneous credit by bank . 2,000 At August 31, 2004, Cloud's correct cash balance is a, 28,800. b, P28,200. cc. P28,100. d.P26,500. (Adapted) {i As The books of Steve's Service, Inc. disclosed a cash balance a! 68,757 on Jyne 30. The bank statement as of June 30 showed # balance of P54,780. Additional information that. might bé useful in reconciling the two balances follows: a. Check number 748 drawn for P3,000 was originally recorded on the books as 4,500, b. A customer's note dated March 25 was discounted o1 April 12. The note was dishonored on June 29 (maturityBank Reconciliation 141 date). The bank charged Steve's account for P14,265, including a protest fee of P42. c. The deposit on June 24 was recorded on the books as P2,895 but it was actually a deposit of P2,700. d. Outstanding checks totaled P9,885 as of June 30. e. There were bank service charges for June of P210 not yet recorded on the books. f. Steve's account had been charged on June 26 for a customer's NSF.check for P1,296. g. ‘Steve properly deposited P600 on June 3 but it was not recorded by the bank. h. Receipts on June 30 for P13, Paes were recorded by the bank on July 2. i. A bank memo stated that a customer's note ie 4,500 and interest of P165 had been collected on June 27, and the bank charged a P36 collection fee. How much is the adjusted balance of cash on June 30? a. 34,890 b. 41,230 b. 58,920 d. 62,890 (Adapted) 3. If the month-end bank statement shows a balance of P28,000, outstanding checks are P12,000, a deposit of P4,000 was in transit at ‘month end, and a check for P500 was erroneously charged by the bank against the account, the correct balance in ‘the bank account at month end is a. 19,500. b. P20,500. cc, P12,500. d. 35,500. + (Adapted) 4, Inpreparing its April 2004 bank reconciliation, Gregg, Inc. has made available the following infortnation. Balance per bank statement, 4/30/04 30,140 NSF check returned with 4/30/04 bank statement 450 Deposits in transit, 4/30/04 4,000 Outstanding checks, 4/30/04 5,200 Bank service charges ‘for April 20142 i Chapter3 What should be the correct balance of cash at April 30, 20047 a, 29,370 ‘b, P28,940 ¢. P28,490 d. P28,470 (Adapted) 5. Stinér, Inc.’s checkbook balance on December 31,.2004 was 27,200. In addition, Stiner held the following items in its safe on December 31: . (1) A check for,P450 from Peters, Inc. received (and dated) on December 30, 2004; not included in the checkbook balance. (2) An NSF check from Garner Co. amounting to: P700 that had been deposited with the bank but was returned on December 29. due to lack of sufficient funds. The check was to be redeposited on January 3, 2005. The original deposit has been included in the December 31 checkbook balance. (3) Coins and currencies amounting to P1,450. The proper amount to be reported on Stiner's balance sheet for cash at December 31, 2004 is a. 27,500. c, P28,400. b. P26,950. d. 27,950. (Adapted) ’ 5 6. The cash account shows a balance of P38,000 before reconciliation, The bank statement, does not include a deposit of P2,300 made on the last day of the month. The bank ‘statement shows a collection by the bank of P940 and @ customer's check for P20 was returned because it was NSF. A customer's check for P450 was recorded on the books as P540, and a check written for P79 was recorded as P97. The correc! balance in the cash account was a. 38,612. ¢, P38,828. b. 38,648, d. P40,948, (Adapted) 7. Assume the following facts for Kurt Company:. The month: end bank statement shows a balance of P40,000; outstandingBank Reconciliation 143 checks total P2,000; a deposit of P8,000 is in transit at month- end; and a check for P400 is erroneously charged by the bank against the account, What is the correct cash balance at the end of the month? / a. P33,600 c. P45,600 b. P34,400 d. 46,400 (Adapted) 8. In preparing the bank reconciliation of Crews ‘Co. for the month of July, the following information is made available: Balance per bank statement, 7/31 54,075 Deposits in transit, 7/31 9,375 Outstanding checks, 7/31 8,625 Deposit erroneously recorded by bank to Crews 375, account, 7/18 Bank service charges for July : 5 What is the correct cash balance at July 31? a. P52,875 cc. P54,450 b. P54,375 d. P54,825 (Adapted) 9. The August 31 bank statement of Kelvin Inc. showed a balance of P113,000. Deducted in arriving at this amount was a customer's NSF check for P2,400 that had been returned. Kelvin had received no prior notice concerning this check. In addition to the bank statement, other records showed there were deposits in transit totaling P17,200 and that outstanding checks totaled P10,800. What is the cash balance per books at August 31 (prior to adjustments)? a. P121,800 cc. P117,000 b. 119,400 d, P115,400 (Adapted) 10, Sandy, Inc. had the following bank reconciliation at March 31, 2004: