Fundamentals of

Accountancy, Business
& Management 2
Quarter 2

Prepared by:
Mary Mildred de Jesus
Let us Pray

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 OBJECTIVES
1. Describe the nature of a bank.
2. Analyze the effects of the identified
reconciling items reconciliation
statement.
3. Prepare a bank reconciliation
statement
ABM_FABM12-IId-10-13

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 A Bank Statement
At the end of every month, the bank releases
a statement to the depositor showing the
different transactions of the account.
 It contains all the withdrawals, deposits and
balance of your account after every
transaction. It may also indicate bank
charges that were deducted by the bank
automatically. Also, interest earned by the
account is likewise reflected.
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 A Bank Statement
The bank statement helps the depositor in
documenting and monitoring the movements
on his bank account. This will also serve as
the basis in the preparation of bank
reconciliation statement, wherein the records
of the bank are compared with records of the
depositor.

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A Bank Statement

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 A Bank Statement
DATE COLUMN - indicates the dates of transaction
CHECK NO. - indicates the details of the check paid by the
bank
TRANSACTION CODE - indicates the names of the
transactions involving the account
DEBIT COLUMN - represents all deductions made by the
bank to the account
CREDIT COLUMN - represents the additions and deposits
made by the bank to the account
BALANCE COLUMN - represents the remaining money (or
balance) after a transaction has been made to the account
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 Samples of Debit transaction:
BANK SERVICE CHARGE - monthly fee charged by the
bank for its services (Ex. cost of printing checks, writing
funds to other locations, etc.)
NSF - (NO SUFFICIENT FUND) – Banks also use a debit
memorandum when a deposited check from a customer
“bounces” because of insufficient funds.
o Nowadays bank refer to this as DAIF (Drawn Against
Insufficient Fund) or DAUD (Drawn Against Uncleared
Deposits)
Samples of Credit transactions
Collection of cash proceeds from notes receivables.
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Interest income earned by the deposit.
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.
 It is prepared on a monthly basis,
immediately upon receipt of monthly
bank statements from banks.

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A Bank Reconciliation Statement
When a business has more than one
bank account, separate bank
reconciliation is made for each of those
accounts.

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A Bank Reconciliation Statement
More specifically, bank
reconciliations are prepared to:
Explain the difference between
the cash balance reported on
the bank statement and the
cash balance in the accounting
books.
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A Bank Reconciliation Statement
More specifically, bank reconciliations are
prepared to:
Arrive at the adjusted
(correct) cash balance to be
shown in the financial
statements.
Provide information for
reconciling journal entries.
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A Bank Reconciliation Statement
Balance per books, end – the cash balance in
the accounting records as of the end of the
current month.
In the pro forma statement, “balance
per books, end” is the cash balance in
the accounting records as of March 31,
2020.
Unadjusted Book Balance March 31,
2020.
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 Book Balance
Bank Debit Memos (DM) – these are
deductions made by the bank to the
depositor’s bank account but not yet
recorded by the depositor (bank debits) .
Examples of debit memos include:
Bank service charges representing
bank charges for fees interest, penalties,
and surcharges.
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 Book Balance
Examples of debit memos include:
• A subtraction for a customer's check
that did not clear the customer's bank
account or returned checks.
• A bank fee for handling a check that
was returned for insufficient funds.
• Bank service charge for maintaining
the checking account.
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 Book Balance
Examples of debit memos include:
No Sufficient funds (NSF) or Drawn
against insufficient funds checks
(DAIF) these are checks deposited and
already recorded by the bank but
subsequently returned to the depositor
because the drawer’s fund is insufficient
to pay for the check.
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 Book Balance
Examples of debit memos include:
Payment of loans this represents
payment of loan which the depositor
agreed to be made out directly from its
bank account.
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
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 Book Balance
Bank Credit Memos (CM) – a credit memo
is a statement issued by a financial
institution to notify a depositor that an
account balance was increased for a
transaction, such as:
these are additions (bank credits) made by
the bank to the depositor’s bank account but
not yet recorded by the depositor.
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 Book Balance
Book errors – errors committed by the
depositor (e.g., erroneous recording in the
accounting books.)
• Recording errors should be added or
subtracted from the book balance.
• If the item cleared the bank for less than the
amount in the books, add the amount of the
error.
• If the item cleared the bank for more than the
amount in the books, subtract the amount of
the error. 22
A Bank Reconciliation Statement
 Balance per bank statement, end – the
ending cash balance in the bank statement
of the current month.
 In the pro forma statement above,
“balance per bank statement, end” is the
cash balance on the bank statement
records as of March 31, 2020

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 Bank Balance
Deposit in Transit (Addition) - 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.
Outstanding cheques (Deduction) - These
are the checks the company had issued and
recorded in its Cash account, but they have
not been paid by the bank (not cleared the
bank account) as of the date of the bank
reconciliation. 24
 Bank Balance
Outstanding checks exclude the following:
• 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.

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 Bank Balance
Outstanding checks exclude the following:
• Certified checks - the bank, when
certifying checks, automatically
debits(reduces) the depositor’s account
and assumes directly liability on paying
the certified checks to the payee.
Certified checks are already deducted
from the account; thus, they are no
longer outstanding.
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 Bank Balance
Uncleared checks (Deductions) - There will
be a residual number of checks that either
are not presented to the bank for payment
for a long time, or which are never presented
for payment.
Bank Errors (add/subtract) - other items
with amounts that were incorrectly recorded
by the bank.
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 Bank Balance
Bank Service Charge (addition) - Banks
often require customers to pay monthly
account fees, check printing fees,
safe‐deposit box rental fees, and other fees.
Unrecorded service charges must be
subtracted from the company's book balance
on the bank reconciliation.

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Pro forma bank reconciliation statement

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 Key Areas:
Credit memos, debit memos, and book
errors are referred to as BOOK
RECONCILING ITEMS.
Deposits in transit, outstanding
checks, and bank errors are referred to
as BANK RECONCILING ITEMS.

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 Effects on Errors
Add:
 Bank error (Overstatement)
Subtract:
 Bank error (Understatement)
Add:
 Book error (Overstatement)
Subtract:
 Book error (Understatement)
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Adjusting Reconciling entries

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 Thanks!

Any questions?
You can find me at @username & [email protected]

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