Professional Documents
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Chapter 2
Chapter 2
Chapter 2
BANK RECONCILIATION
Bank Deposits
Demand deposit
The demand deposit is the current account or checking account or commercial deposit where deposits
are covered by deposit slips and where funds are withdrawals on demand by drawing checks against the
bank.
Saving deposit
In a saving deposit, the depositor is given a passbook upon the initial deposit. The passbook is required
when making deposits and withdrawals.
Time deposit
The time deposit is similar to saving deposit in the sense that it is interest bearing.
Time deposit may be preterminated or withdrawn on demand or after a certain period of time agreed
upon.
Bank Reconciliation
A bank reconciliation is a statement which brings into agreement the cash balance per book and cash
balance from bank.
Reconciling Items
Credit memos
Credit memos refer to items not representing deposits credited by the bank to the account of the
depositor but not yet recorded by the depositor as cash receipts.
Debit memos
Debit memos refer to items not representing checks paid by the bank which are charged or debited by
the bank to the account of the depositor but not yet recorded by the depositor as cash disbursement.
The debit memos have the effect of decreasing the bank balance.
Deposit in transit
Outstanding checks
Outstanding checks are checks already recorded by the depositor as cash disbursement but not yet
reflected in the bank statement.
Proforma reconciliation
Book Balance xx
Add: Credit memo xx
Total xx
Less: Debit memos xx
Bank balance xx
Add: Deposit in transit xx
Total xx
Less: Outstanding checks xx
Adjusted bank balance xx
The adjusted balance method means that the book balance and the bank balance are adjusted to equal
the correct cash balance.
The book to bank method means that the book balance is adjusted to equal the bank balance.
The bank to book method means that the bank balance is adjusted to equal the book balance.
Illustration
The cash records of Company X show the following for the month of January.
CASH RECEIPTS CASH DISBURSEMENTS
Jan. 5 60,000 Jan. 6 Check No. 721 5,000
13 20,000 7 Check No. 722 10,000
25 30,000 10 Check No. 723 18,000
31 40,000 14 Check No. 724 2,000
150,000 28 Check No. 725 37,000
31 Check No. 726 28,000
100,000
The general ledger of the company shows the cash in bank account for January as follows:
The following data are gathered in connection with CM and DM appearing on the bank statement:
a. The CM of P15,000 on January 26 represents proceeds of note collected by the bank in favor of
the company.
b. The RT of P5,000 represents check of customer deposited previously but returned by the bank
because of “no sufficient fund” or NSF.
The adjustments are necessary to bring the cash in bank balance to its correct balance for statement
presentations purposes.
In the preparation of adjustments, an item added to the book balance is debited to cash and an item
deducted from the book balance is credit to cash.
For example, the collection from customer which is deposited amounts to P10,000 but recorded in the
book only as Pl,000.
There is an understatement of cash receipt of P9,000. The error is added to the book balance and
adjusted as follows:
For example, a cbeck in payment of account payable amounting to P20,000 is recorded in the book as
P2,000.
c. Deposit of another entity is credited by the bank to the account of the depositor.
This is a deduction from the bank balance because it erroneously increased the account balance of the
depositor in the bank. No adjustment is necessary on the book of the depositor.
This is an addition to the bank balance because it erroneously decreased the account balance of the
depositor in the bank. No adjustment is necessary on the book of the depositor.
Problems
BANK RECONCILIATION
Problem 1
In preparing the bank reconciliation for the month of August, Apex Company provided the following
information:
Balance per bank statement 1,805,000
Deposit in transit 325,000
Return of customer check for insufficient fund 60,000
Outstanding checks 275,000
Bank service charge for August 10,000
Solution: A
Balance per bank 1,805,000
Deposit in transit 325,000
Total 2,130,000
Outstanding checks (275,000)
Adjusted bank balance 1,855,000
The customer check which is returned for insufficient fund and the bank service charge are ignored
because these are book reconciling items.
Problem 2
Core Company provided the following data for the purpose of reconciling the cash balance per book with
the balance per bank statement on December 31:
Balance per book 850,000
Balance per bank statement 2,000,000
Outstanding checks, including certified check of P100,000. 500,000
Deposit in transit 200,000
December NSF checks (of which P50,000 had
been redposited and cleared on December 27) 150,000
Erroneous credit to Core's account, representing
proceeds of loan granted to another company 300,000
Proceeds of note collected by bank for Core,
net of service charge of P20,000. 750,000
The certified check of P100,000 is no longer outstanding for reconciliation purposes. Thus, the amount is
deducted from the total outstanding checks.
Note that NSF checks of P50,000 are already redeposited and cleared on December 27.
Problem 3
Boracay Company keptall cash in a checking account. An examination of the bank statement for the
month of December revealed a bank statement balance of P8,470,000.
A deposit of P950,000 placed in the bank's night depositor December 29 does not appear on the bank
statement.
The bank statement showed that on December 25 the bank collected a note for Boracay Company and
credited the proceeds ofP935,000 the entity's account which included P35,000 interest.
Included with the December 31 bank statement was an NSF check for
P250,000 that Boracay Company had received from a customer on
December 20.
Question 1 Answer A
Balance per bank 8,470,000
Deposit in transit 950,000
Checks outstanding (270,000)
Adjusted bank balance 9,150,000
Question 2 Answer B
Balance per book (SQUEEZE) 8,525,000
Note collected by bank for the depositor 935,000
Book error in recording check (183,000-138,000) (45,000)
NSF check (250,000)
Service charge (15,000)
Adjusted book balance 9,150,000
Ouestion 3 Answer C
Cash in bank 935,000
Service charge 15,000
Note receivable 950,000
Accounts payable 45,000
Accounts receivable 250,000
Service charge 15,000
Cash in bank 310,000
The two entries can be compounded and the net effect is a debit to cash in bank of P625,000.
Problem 4
Divine Company prepared the following bank reconciliation on
December 31:
The entity had cash on hand P500,000 and petty cash fund P50,000 on December 31.
a. 2,930,000
b. 3,095,000
c. 2,895,000
d. 3,130,000
Question 1 Answer c
Question 2 Answer c
Problem 5
Susan Company showed the following information on August 31:
Balance of cash in bank account 1,300,000
Balance of bank statement 1 ,200,000
Outstanding checks, August 31:
Number 555 10,000
761 55,000
762 40,000
763 25,000
764 65,000
765 70,000
Receipts of August 31, deposited September 275,000
Service charge for August 5,000
NSF check received from a customer 85,000
The stub for check number 765 and the invoice relating thereto showed
that it was for P50,000. It was recorded incorrectly in the cash
disbursements journal as P70,000.
Payment has been stopped on check number 555 which was drawn in
payment of an account payable. The payee cannot be located.
Solution Answer a
Balance per book 1,300,000
Add: Overstatement of check number 765 20,000
Check number 555 stopped for payment10,000 30,000
Total 1330,000
Less: Service charge 5,000
NSF check 85,000 90,000
Adjusted book balance 1,240,000