Far Eastern University

INSTITUTEOF ACCOUNTS, BUSINESS AND FINANCE

Department of Accountancy & Internal Auditing

INTERMEDIATE ACCOUNTING 1
MIDTERM GRADING PERIOD
LECTURE 2 – BANK RECONCILIATION

Format 1
Bank Reconciliation Statement – Adjusted Balance Method
Book Bank

Unadjusted balances xxx xxx

Book Reconciling Items:

Bank credit memoranda xxx
Bank debit memoranda (xxx)
Book credit error - overstated xxx
Book credit error - understated (xxx)
Book debit error - overstated (xxx)
Book debit error - understated xxx

Bank Reconciling items:

Deposit in transit xxx
Outstanding checks (xxx)
Bank credit error - overstated (xxx)
Bank credit error - understated xxx
Bank debit error - overstated xxx
Bank debit error - understated (xxx)

Adjusted balances xxx xxx

NOTES:
A. The book records include cash receipts book (CRB) and cash disbursements/payment book (CDB). The
cash receipts book (CRB) debits CASH for all collections like collections from customers in the form of
currencies and coins and checks. The cash disbursement book credits CASH for all payments in the form
of checks which are pre-numbered.

CASH RECEIPTS BOOK CASH DISBURSEMENTS BOOK

OR Cash Check Cash
Date Transactions No. (Dr.) Date Transactions No. (Cr.)
2019 2019
Jan. 2 Cash sales 101 5,000 Jan. 2 Cash purchases 1251 3,000
Jan. 3 Customer’s account - cash 102 3,000 Jan. 3 Supplier’s account 1252 2,500
Jan. 4 Customer’s account - check 103 6,000 Jan. 4 Meralco payment 1253 4,000

B. The bank records are sent to depositors in the form of BANK STATEMENT.

The bank records presents DEPOSITS which represent depositor’s collections (like currencies and coins
and customers’ checks) and WITHDRAWALS which represent checks issued by the depositor and
presented to the bank by the named payee for collection.

The DEPOSITS is a CREDIT entry in the bank record while WITHDRAWALS is a debit entry.

Under DEPOSIT or CREDIT ENTRY, deposits of cash and checks are supported by a BANK DEPOSIT
SLIP. Other entries under this are initiated by the bank and supported by CREDIT MEMORANDUM like the
following transactions:
a) Proceeds of depositor’s bank loan or borrowings.
b) Collection of receivables by banks (direct payment by debtors or customers to the bank)
c) Interest income from depositor’s bank account or from interest-bearing notes receivable collected
by the bank in behalf of the depositor.
d) Correction of previous errors committed by bank to depositor’s account which made the total credit
entries understated like the following:

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 1) Previous deposit was recorded at a lower amount.
2) Previous deposit was not recorded (or erroneously credited to other depositor’s account)
3) Erroneous charging of other depositor’s check.

Under the WITHDRAWAL or DEBIT ENTRY, payments of cash are supported by depositor’s CHECKS
duly signed by authorized signatories (to be verified from the signature card on file of the bank). Other
entries under this are initiated by the bank and supported by DEBIT MEMORANDUM like the following
transactions:
a) Bank service charges for the cost of checkbooks, processing fees of bank loans or borrowings,
and interests on bank loans or borrowings.
b) Correction of previous errors committed by bank to depositor’s account which made the total debit
entries understated like the following:
1) Previous checks paid was recorded at a lower amount.
2) Previous checks paid was not recorded (or erroneously charged to other depositor’s
account)
3) Erroneous credit of other depositor’s deposit of cash and checks.

C. The following are counterparts between book records and bank records

BOOK RECORDS BANK RECORDS

Cash receipt or Debit Entry Deposit or Credit Entry
Cash disbursement or Credit Entry Withdrawals or Debit Entry

CASH RECEIPTS BOOK CASH DISBURSEMENTS BOOK

OR Cash Check Cash
Date Transactions No. (Dr.) Date Transactions No. (Cr.)
2019 2019
Jan. 2 Cash sales 101 5,000 Jan. 2 Cash purchases 1251 3,000
Jan. 3 Customer’s account - cash 102 3,000 Jan. 3 Supplier’s account 1252 2,500
Jan. 4 Customer’s account - check 103 6,000 Jan. 4 Meralco payment 1253 4,000

BANK STATEMENT
Check Withdrawa Deposit
Date Transactions No. l (CREDIT) Balance
(DEBIT)
2019
Jan. 3 Cash deposit 5,000 5,000
Jan. 4 Cash deposit 3,000 8,000
Jan. 4 Withdrawal 1251 3,000 5,000
Jan. 5 Check deposit 3,000 8,000
Jan. 6 Withdrawal 1253 4,000 4,000

Format 2
Bank Reconciliation Statement – Book to Bank Method
ADJUSTED BALANCE METHOD BOOK TO BANK METHOD
Book Bank

Unadjusted balances AAA BBB Unadjusted BOOK balance AAA

DO NOT CHANGE THE SIGNS

Book Reconciling Items: Book Reconciling Items:

Bank credit memoranda xxx Bank credit memoranda xxx
Bank debit memoranda (xxx) Bank debit memoranda (xxx)
Book credit error - overstated xxx Book credit error - overstated xxx
Book credit error - understated (xxx) Book credit error - understated (xxx)
Book debit error - overstated (xxx) Book debit error - overstated (xxx)
Book debit error - understated xxx Book debit error - understated xxx

Bank Reconciling items: Bank Reconciling items:

Deposit in transit xxx Deposit in transit (xxx)
Outstanding checks (xxx) Outstanding checks xxx

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 CHANGE THE SIGNS
Bank credit error - overstated (xxx) Bank credit error - overstated xxx
Bank credit error - understated xxx Bank credit error - understated (xxx)
Bank debit error - overstated xxx Bank debit error - overstated (xxx)
Bank debit error - understated (xxx) Bank debit error - understated xxx

Adjusted balances xxx xxx Unadjusted BANK balance BBB

Format 3
Bank Reconciliation Statement – Bank to Book Method
ADJUSTED BALANCE METHOD BANK TO BOOK METHOD
Book Bank

Unadjusted balances AAA BBB Unadjusted BANK balance BBB

CHANGE THE SIGNS

Book Reconciling Items: Book Reconciling Items:
Bank credit memoranda xxx Bank credit memoranda (xxx)
Bank debit memoranda (xxx) Bank debit memoranda xxx
Book credit error - overstated xxx Book credit error - overstated (xxx)
Book credit error - understated (xxx) Book credit error - understated xxx
Book debit error - overstated (xxx) Book debit error - overstated xxx
Book debit error - understated xxx Book debit error - understated (xxx)
DO NOT CHANGE THE SIGNS

Bank Reconciling items: Bank Reconciling items:

Deposit in transit xxx Deposit in transit xxx
Outstanding checks (xxx) Outstanding checks (xxx)
Bank credit error - overstated (xxx) Bank credit error - overstated (xxx)
Bank credit error - understated xxx Bank credit error - understated xxx
Bank debit error - overstated xxx Bank debit error - overstated xxx
Bank debit error - understated (xxx) Bank debit error - understated (xxx)

Adjusted balances xxx xxx Unadjusted BOOK balance AAA

PROBLEMS FOR ILLUSTRATION

PROBLEM 1:
Presented below are the records related to bank account of ABC Corporation in BPI for the month of January 2020.
The related transactions are presented below:

Jan. 1 - Opened checking account with BPI, P 100,000.

5 - Cash sales P 4,.000
15 - Paid salaries for January 1 to 15, P 18,000 (Check no 001)
17 - Payment of P 30,000 to Supplier ABC. (Check No. 002)
19 - Collected P 20,000 cash from Customer ALLAN.
23 - Cash purchases, P 10,000. (Check No. 003)
24 - Collection from credit customer Mike, P 7,000.
28 - Paid rental for the month, P 8,000 (Check No. 004)
30 - Collection from Customer Gino, P 6,000.
31 - Paid salaries for January 16 to 31, P 18,000 (Check no 005)
31 - Paid vaious utilities, P 9,000 (Check No. 006)

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 FOR JANUARY, 2020
CASH IN BANK Checking Account - ABC Corporation
Date Check Receipts Disburse. Balance Date Transactions Ref. Check No. Withdrawal Deposit Balance
Jan. 1 100,000 100,000 Jan. 1 Opening 100,000 100,000
5 4,000 104,000 6 Cash deposit 4,000 104,000
15 001 18,000 86,000 15 Check Payment 001 18,000 86,000
17 002 30,000 56,000 20 Check Payment 002 30,000 56,000
19 20,000 76,000 21 Cash deposit 20,000 76,000
23 003 10,000 66,000 24 Check deposit 7,000 83,000
24 7,000 73,000 30 Check Payment 004 8,000 75,000
28 004 8,000 65,000 31 Proceeds of loan CM 200,000 275,000
30 6,000 71,000 31 Checkbook DM 800 274,200
31 005 18,000 53,000 31 Check payment 005 18,000 256,200
31 006 9,000 44,000 31 Interest CM 1,000 257,200

Required:
1. Prepare bank reconciliation for January 2020 using the adjusted balance method.
2. Prepare the necessary adjusting journal entries at January 31, 2020.
3. Prepare bank reconciliation for January 2020 using the book to bank method.
4. Prepare bank reconciliation for January 2020 using the bank to book method.
5. Prepare a formal bank reconciliation statement for January 2020.
6. Prepare four-column bank reconciliation for January 2020 using the adjusted balance method.
7. Prepare four-column bank reconciliation for January 2020 using the book to bank method.
8. Prepare four-column bank reconciliation for January 2020 using the bank to book method.
EXERCISES SET 1 – BANK RECONCILIATION
Exercise 1 (ACP)
Indicate the effect of the following in the cash ending balance if INCREASE or DECREASE. Write your answer on
the space provided before each number.

INCREASE 1. Increase in cash receipt.

INCREASE 2. Decrease in cash disbursement.

DECREASE 3. Decrease in cash receipt.

DECREASE 4. Increase in cash disbursement.

INCREASE 5. Increase in beginning balance.

DECREASE 6. Decrease in beginning balance.

Exercise 2 (ACP)
For each of the given information, identify what is affected if it is CASH RECEIPT or CASH DISBURSEMENT.
Then, indicate if the effect is UNDERSTATED or OVERSTATED. Under the Cash Ending Balance column,
identify also the effect if UNDERSTATED, OVERSTATED or NO EFFECT.

Cash Cash Ending

No Information Cash Receipts Disbursements Balance
.

UNADJUSTED BALANCES 600,000 500,000 250,000

1. Cash sales of P 3,000 is not recorded. UNDERSTATED NO EFFECT UNDERSTATED

2. Payment of rent is omitted, P 12,000. NO EFFECT UNDERSTATE OVERSTATED

D

3. Collection of accounts of P 7,000 is OVERSTATED NO EFFECT OVERSTATED

recorded twice.

4. Payment of salaries for P 50,000 is NO EFFECT OVERSTATED UNDERSTATED

recorded twice.

5. Cash sales of P 5,600 was recorded OVERSTATED NO EFFECT OVERSTATED

as P 6,500.

6. Payment of accounts amounting to P NO EFFECT UNDERSTATE OVERSTATED

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 7,500 was recorded as P 5,700. D

7. Collection of accounts of P 3,200 was UNDERSTATED NO EFFECT UNDERSTATED

recorded as P 2,300.

8. Payment of utilities of P 11,000 was NO EFFECT OVERSTATED UNDERSTATED

recorded as P 12,000.

9. Interest income on savings deposit UNDERSTATED NO EFFECT UNDERSTATED

not recorded in the company’s books,
P 500.

10. Cost of check directly charged by NO EFFECT UNDERSTATE OVERSTATED

bank on company’s account was not D
recorded in the company’s books, P
800.

11. The bank directly credited to UNDERSTATED NO EFFECT UNDERSTATED

company’s account the proceeds of its
bank loan but not yet reflected in the
company’s books., P 500,000

12. Customer’s check of P 6,000 which OVERSTATED NO EFFECT OVERSTATED

was deposited in the bank bounced
back due to insufficiency of fund. This
was not yet recorded in the
company’s book.

Exercise 3 (ACP)
Using the same information in Exercise 2, complete the table below by indicating the appropriate amount to
determine the adjusted balances of the following: Cash Receipt, Cash Disbursements, and Cash Ending balance.

Cash Cash Ending

No Information Cash Receipts Disbursements Balance
.

Cash balance, unadjusted 600,000 500,000 250,000

1. Cash sales of P 3,000 is not recorded.

2. Payment of rent is omitted, P 12,000.

3. Collection of accounts of P 7,000 is

recorded twice.

4. Payment of salaries for P 50,000 is

recorded twice.

5. Cash sales of P 5,600 was recorded as

P 6,500.

6. Payment of accounts amounting to P

7,500 was recorded as P 5,700.

7. Collection of accounts of P 3,200 was

recorded as P 2,300.

8. Payment of utilities of P 11,000 was

recorded as P 12,000.

9. Interest income on savings deposit not

recorded in the company’s books, P
500.

10. Cost of check directly charged by bank

on company’s account was not recorded
in the company’s books, P 800.

11. The bank directly credited to company’s

account the proceeds of its bank loan

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 but not yet reflected in the company’s
books., P 500,000

12. Customer’s check of P 6,000 which was

deposited in the bank bounced back due
to insufficiency of fund. This was not yet
recorded in the company’s book.

ADJUSTED BALANCES

Exercise 4 (ACP)
Identify if the given information from the bank statement is a CREDIT MEMO (CM) or a DEBIT MEMO (DM).
Indicate WHAT TO DO in the cash ending balance if TO INCREASE or TO DECREASE. In case it has no effect
in cash ending balance, write the words DO NOTHING. Write your answer on the appropriate column provided
for each number.

DM or CM TO DO in Cash Ending Balance

1. Bank Service Charges

2. Proceeds of Bank Loan

3. Collection of notes receivable by bank

4. Interest expense on loan

5. Interest income on bank deposit

6. NSF Check of customer

Exercise 5 (ACP)
Using the same information, prepare the pro-forma adjusting journal entry. Use xxx as the amount of the
adjustments made.

Date Particulars Debit Credit

2020 (AJE NO. 1)
Jan. 3
1

(AJE NO. 2)
3
1

(AJE NO. 3)
3
1

(AJE No. 4)
3
1

(AJE No. 5)
3
1

(AJE No. 6)
3
1

PROBLEMS SET 1 – MCQ (BANK RECONCILIATION)

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Problem 1 (AICPA Adapted)
In preparing its bank reconciliation at December 31, 2019, Case Company has made available the following data:

Balance per bank statement 380,750

Deposit in transit 52,000
Outstanding checks 67,500
Amount erroneously credited by bank to Case’s account 4,000
Bank service charge for December 750

Case’s adjusted cash in bank balance at December 31, 2019 is

A. P 365,250
B. P 364,500
C. P 361,250
D. P 360,500

Problem 2 (AICPA Adapted)

The following information pertains to NU Co. at December 31, 2019:

Checkbook balance 600,000

Bank statement balance 800,000
Check drawn on Nu Co. account, payable to a vendor,
dated and recorded, December 31, 2019, but not mailed
Until January 20, 2020 90,000

On Nu Co’s statement of financial position at December 31, 2019, how much should be shown as cash?
A. P 600,000
B. P 690,000
C. P 710,000
D. P 800,000

Problem 3 (PHILCPA Adapted)

In your audit of the Mindanao Company as of December 31, 2019, you gather the following:

Balance per book 100,000

Bank charges 250
Outstanding checks 23,750
Deposit in transit 31,250
Customer note collected by bank 37,550
Interest in customer note 1,500
Customer check returned NSF 6,250
Depositor’s note charged to account 25,000

The correct cash balance amounts to

A. P 100,000
B. P 101,250
C. P 107,550
D. P 115,000

Problem 4 (AICPA Adapted)

The following information pertains to Park Company at December 31, 2019:

Bank statement balance 100,000

Checkbook balance 140,000
Deposit in transit 50,000
Outstanding checks 10,000

In Park’s December 31, 2019 statement of financial position, cash should be reported as
A. P 90,000
B. P 100,000
C. P 140,000
D. P 150,000

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Problem 5 (AICPA Adapted)
In preparing its August 31, 2020 bank reconciliation, Apex Corporation has available the following information:

Balance per bank statement, 8/31/2020 180,500

Deposit in transit, 8/31/2020 32,500
Return of customer’s check for insufficient fund, 8/31/2020 6,000
Outstanding checks, 8/31/2020 27,500
Bank service charge for August 1,000

At August 31, 2020, Apex’s correct cash balance is

A. P 185,500
B. P 179,500
C. P 178,500
D. P 175,500

Problem 6 (AICPA Adapted)

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, 2019:

Balance per bank statement 200,000

Balance per book 85,000
Outstanding checks (including certified check of P 10,000) 50,000
Deposit in transit 20,000
December NSF Checks (of which P 5,000 had been redeposited and cleared by December 27) 15,000
Erroneous credit to Core’s account, representing proceeds of loan granted to another company 30,000
Proceeds of note collected by bank for Core, net of service charge of P 2,000 75,000

The cash in bank balance to be shown on Core’s December 31, 2019 statement of financial position is
A. P 150,000
B. P 140,000
C. P 180,000
D. P 145,000

Problem 7 (IA Book Adapted)

Aries Corporation keeps all its cash in checking account. An examination of the company’s accounting records
and bank statement for the month ended June 30, 2020 revealed the following information:

a) The cash balance per book in June 30 is P 850,000.

b) A deposit of P 100,000 that was placed in the bank’s night depository on June 30 does not appear on the
bank statement.
c) The bank statement shows on June 30, the bank collected a note for Aries and credited the proceeds of
P 95,000 to the company’s account.
d) Checks outstanding on June 30 amount to P 30,000.
e) Aries discovered that a check written in June for P 20,000 in payment of an accounts payable, had been
recorded in the company’s records as P 2,000.
f) Included with the June bank statement was NSF check for P 25,000 that Aries had received from a
customer on June 26.
g) The bank statement shows a P 2,000 service charge for June.

The cash in bank to be shown on the statement of financial position on June 30, 2020 is
A. P 900,000
B. P 830,000
C. P 936,000
D. P 918,000

Problem 8 (IA Book Adapted)

The checkbook balance of Dove Company on December 31, 2019 was P 400,000. Information about certain cash
items follows:

1. A customer check amounting to P 20,000 dated January 2, 2020 was included in the December 31, 2019
checkbook balance.
2. Another customer check of P 50,000 deposited on December 22, 2019 was included in the checkbook
balance but returned by the bank for insufficiency of funds. This check was redeposited on December 26,
2019 and cleared two days later.
3. A P 40,000 check payable to supplier dated and recorded on December 30, 2019 was mailed on January
16, 2020.

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 4. A petty cash fund of P 10,000 with the following summary on December 31, 2019: coins and currencies,
P 3,000; petty cash vouchers, P 6,000; and Return value if 20 cases of soft drinks, P 1,000.
5. A check of P 6,000 was drawn on December 31, 2019, payable to Petty Cash.

What is the “cash” balance on December 31, 2019?

A. P 429,000
B. P 420,000
C. P 430,000
D. P 379,000

Problem 9 (IA Book Adapted)

Apache Corporation provides the following information for the purpose of reconciling the cash balance per book
with the balance per statement on December 31, 2019:

a) The bank statement showed a balance of P 200,000 on December 31.

b) Outstanding checks as of December 31, amounted to P 50,000, including a P 10,000 certified check.
c) Deposit in transit on December 31 was P 20,000.
d) During December, the bank charged back NSF checks of P 15,000, of which P 5,000 had been
redeposited and cleared by December 27.
e) ON December 23, the bank erroneously credited the account of Apache for P 30,000 representing
proceeds of loan granted to another company.
f) During December, the proceeds from notes collected by the bank for Apache amounted to P 75,000, net
of service charge of P 2,000.

What is the cash balance to be shown on the statement of financial position on December 31, 2019?
A. P 150,000
B. P 140,000
C. P 85,000
D. P 180,000

Problem 10 (IA Book Adapted)

Information pertaining to Grass Company appears below:

Balance per bank statement, July 31 124,000

Balance per ledger, July 31 75,000
Deposit of July 30 not recorded by bank 28,000
Debit memo – service charges 1,000
Credit memo – collection of notes by bank for Grass 30,000
Outstanding checks ?

An analysis of the cancelled checks returned with the bank statement reveals the following:
a) Check for purchase if supplies was drawn for P 6,000 but was recorded as P 9,000.
b) The manager wrote a check for traveling expenses of P 10,000 while out of town. The check was not
recorded.

What is the amount of outstanding checks on July 31?

A. P 97,000
B. P 27,000
C. P 55,000
D. P 61,000

Problem 11 (IA Book Adapted)

The following information was included in the bank reconciliation for Far Corporation. Assume all other reconciling
items listed below:

Checks and charges returned by bank in June including a June

service charge of P 2,000 420,000
Service charge made by bank in May and recorded on book in June 1,000
Total credits to cash in all journals during June 500,000
Customer’s NSF check returned as a bank charge in June
(no entry made on book) 40,000
Customer’s NSF check returned in May and redeposited in June (no
entry made on book in either May or June) 50,000

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 Outstanding checks at June 30 200,000
Deposit in transit at June 30 100,000

What was the total amount of outstanding checks at the beginning of June?
A. P 120,000
B. P 79,000
C. P 29,000
D. P 80,000

Problem 12 (AICPA Adapted)

Poe, Inc., had the following bank reconciliation at March 31, 2020:

Balance per bank statement, March 31, 2020 46,500

Add: Deposit in transit 10,300
56,800
Less: Outstanding checks 12,600
Balance per book, March 31, 2020 44,200

Data per bank for the month of April 2020 follow:

Deposits 58,400
Disbursements 49,700

All reconciling items at March 31, 2020, cleared through the bank in April. Outstanding checks at April 30, 2020
totaled P 7,000. There were no deposits in transit at April 30, 2020.

What is the cash balance per book at April 30, 2020?

A. P 48,200
B. P 52,900
C. P 55,200
D. P 58,500

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