Bank Reconciliation Credit memos – deposits credited by the bank the the

account of the depositor but not yet recorded by the

Bank deposits depositor in the ledger.
 Demand deposit
 Saving deposit  Notes receivable
 Time deposit  Proceeds of the bank
 Matured time deposits
Demand deposit – current account, checking account
where deposits are covered by deposit slips. Usually Debit memos – checks paid by the bank which are
noninterest bearing already debited to the account of the depositor but not
yet recorded by the depositor.
Saving deposit – depositor is given a passbook upon the
initial deposit. Interest bearing.  NSF
 Technically defective checks
Time deposit – evidenced by a formal agreement  Bank service charges
embodied in an instrument called certificate of deposit.  Reduction of loan

When deposit is made, debtor-creditor relationship
exists.
When the account of the depositor is increased, the
same is credited.
When the account of the depositor id decreased, the
same is debited.
Bank reconciliation – a statement which brings into
agreement the cash balance per book and cash balance
per bank.
- Reconciliation is usually prepared monthly
Bank statement - a monthly report of the bank to the
deposito
Canceled checks – checks issued by the depositor and
paid by the bank during the month.
Reconciling items
Deposit in transit – collections already recorded by the
depositor but not yet reflected on the bank statement
 Collections already forwarded to the bank for
deposit but too late to appear in the bank
statement
 Undeposited collections. Cash on hand awaiting
delivery to the bank for the deposit
Outstanding checks – are checks already recorded by
the depositor as cash disbursements but not yet
reflected on the bank statement.
 Checks drawn and already given to payees but
not yet presented for payment
 Certified checks – accepted checks
Certified checks are deducted from the total
outstanding checks

1. Book reconciling items: Forms of bank reconciliation

a.) Credit memos
b.) Debit memos a. Adjusted balance method – book bal and bank bal are
c.) Errors brought to a correct cash balance
b. Book to bank method – book bal is reconciled with
2. Bank reconciling items the bank bal
a.) Deposits in transit c. Bank to book method – bank bal is reconciled with
b.) Outstanding checks the book bal
c.) Errors
Adjusted balance method is the preferred method CHAPTER 3 – PROOF OF CASH

Two-date bank reconciliation – literally involves two

PROFORMA RECONCILIATION dates.

Book balance a. Book balance – beginning and ending

Add: Credit memos b. Bank balance – beginning and ending
Total c. Deposits in transit – beginning and ending
Less: Debit memos d. Outstanding checks – beginning and ending

Adjusted book balance Book balance compu

Balance per book – beg
Bank balance Add: book debits* during the month
Add: Deposit in transit Less: book credits* during the month
Total Balance per book – ending
Less: Outstanding checks
*book debits – cash receipts
Adjusted bank balance *book credits – cash disbursements

Errors are reconciling items of the party which Bank balance compu
committed them Balance per bank –beg
Add: bank credits* during the month
BOOK TO BANK METHOD Less: bank debits* during the month
Balance per bank – end of month
Book balance
Add: Credit Memos *bank credits – deposits acknowledged by bank and CM
Outstanding checks *bank debits – checks paid by bank and DM
Total
Less: Debit Memos Deposits in transit compu
Deposit in Transit Deposit in transit – beginning of the month
Bank Balance Add: Cash receipts deposited
Total deposits to be ack by bank
Less: deposits ack by bank during the month
BANK TO BOOK METHOD Deposits in transit – end of month

Bank balance Outstanding checks

Add: Deposit in Transit Outstanding checks –beginning
Debit memos Add: checks drawn by the depositor during the month
Total Total checks to be paid by bank
Less: Outstanding checks Less: Checks paid by bank during the month
Credit memos Outstanding checks – end of month
Book balance
Proof of cash – expanded reconciliation includes proof
of receipts and disbursements
a. adjusted balance method
b. book to bank method
c, bank to book method
The proof of cash pertains to the receipts and
disbursements for the current month of February
CHAPTER 4 – ACCOUNTS RECEIVABLE
Trade receivables – claims arising from sales of
merchandise
a. accounts receivable
b. notes receivable
Accounts receivable – open accounts arising from the
sale of goods not supported by promissory notes.
(aka customer’s accounts, trade debtors and trade AR)
Notes receivable – supported by formal promises to pay
in the form of notes
Nontrade receivables - claims arising from sources other
than the sale of merchandise
PAS 1, paragraph 66
“An entity shall classify an asset as current when the
entity expects to realize the asset or intends to sell or
consume it in the entity’s normal operating cycle, or
when the entity expects to realize the asset within
twelve months after the reporting period.”
Trade and other receivables – current trade receivables
+ nontrade receivables
Customer’s credit balances – credit balances in A/R
resulting from overpayment, returns and allowances
and advance payments from customers. (Current liab)
Pag may credit balance sa or sobra yung binayaran sa
A/R, i dedebit lang ulit yung A/R (sobra) and credit yung
customer’s credit balances (for worksheet purposes)
PFRS 9, paragraph 5.1.1, financial asset shall be
recognized intially at fair value plus transaction costs
that are directly attributable to the acquisition.
For short-term receivables...
Fair value = face amount
... and they are not discounted
Accordingly, accounts receivable shall be measured
initially at face amount or original amount.
SUBSEQUENT MEASUREMENT...
PFRS 9, paragraph 5.2.1, after initial recognition,
accounts receivable shall be measured at amortized
cost.
Amortized cost = net realizable value
Net realizable value - amount of cash expected to be
collected or the estimated recoverable amount.
Deductions from trade accounts receivable
a. Allowance for freight charge
b. Allowanc for sales return
c. Allowance for sales discount
d. Allowance for doubtful accounts
FREIGHT CHARGE
 FOB destination – si seller ang magbabayad ng
freight charge hanggan sa lugar kung saan
idedeliver yung goods, ownership will be
transferred once natanggap na ni buyer.
 FOB shipping point - si buyer ang responsible sa
freight charge pag ishiship na, ownership is
already vested to te buyer the moment na
niship yung goods papunta sa kanya.
 Freight collect – hindi pa nabayaran. Binayaran
muna ni carrier saka niya sisingilin si buyer
pagdating.
 Freight prepaid – goods shipped ay nabayaran
na ni seller.
Ang freight charge ay miniminus sa mismong A/R. After
iminus ang FC, saka itatimes ang sales discount percent.
Account receivavle 100,000
Freight out 5,000
Sales 100,000
Allowance for freight charge 5,000
To record the sale
Cash 93,000 Cash 100,000
Sales Discount 2,000 A/R 100,000
Allowance for FC 5,000 To record the collection beyond the discount period.
Accounts receivable 100,000
To record the collection within discount period ALLOWANCE FOR SALES DISCOUNT
Sales discount 50,000
ALLOWANCE FOR SALES RETURNS Allowance for sales discount 50,000
Sales 50,000
Allowance for sales returns 50,000 ACCOUNTING FOR BAD DEBTS
a. Allowance method
SALES DISCOUNT b. Direct writeoff method
5/10, n /30
5% - discount if paid within 10 days Allowance method
If not paid within discount period, gross amount will be Doubtful accounts xx
paid within 30 days Allowance for doubtful accounts xx

Methods of recording credit sales Allowance for doubtful accounts – deduction from A/R
a. Gross method – recorded at gross amount of the ... if worthless, accounts are written off as uncollectible
invoice. Common and widely used method.
b. Net method – recorded at the net amount of the Allowance for doubtful accounts xx
inovice. (invoice price – cash discount) Accounts receivable xx

Example – gross method GAAP require the use of the allowance

A/R 100,000 method because it conforms with
Sales 100,000 the matching principle
To record the sale of merchandise (5/10, n/30).

Cash 95,000 Recoveries of accounts written off

Sales discount 5,000 ...written off – ibig sabihin narecord mo na as
Accounts receivable 100,000 uncollectible, tapos pag unexpectedly narecover,
To record the collection within the discount period. idedebit mo lang cash and credit A/R.
Baliktarin muna yung unand nirecord para sa
Cash 100,000 uncollectible account
Accounts receivable 100,000
To record the collection beyond the discount period. A/R xx
Allowance for doubtful accounts xx
Example (2) – Net Method
A/R 95,000 Cash xx
Sales 95,000 A/R xx
To record the sale, 5/10, n/30
Direct writeoff method
Cash 95,000 This method is not permitted under IFRS
A/R 95,000
To record the collection within the discount period
Illustration
1. Accounts of 30,000 are considered doubtful of
collection
No entry is necessary.
2. The accounts proved to be worthless
Bad debts 30,000
A/R 30,000
3. The same accounts that are previously written off as
worhtless are recovered or collected

Doubtful accounts in the income statement

1. Distribution cost
2. Administrative expense

Wohoooo!

ESTIMATION OF DOUBT