BANK RECONCILIATION

(theories)
 I. MULTIPLE CHOICE.

1. Which of the following items are not normally taken in the cash balance per ledger to arrive at the adjusted
cash balance?
a. Bank error c. Unrecorded collections made by the bank in behalf of the entity.
b. Bank service charge d. Book error

2. Which of the following items must be added to the cash balance per ledger in preparing a bank
reconciliation which ends with the adjusted cash balance?
a. Service charge
b. Erroneous bank credit
c. NSF customer check
d. Note receivable collected by bank in favor of the depositor and credited to the account of the depositor.

3. Which of the following items must be deducted from the bank statement balance in preparing a bank
reconciliation which ends with the adjusted cash balance?
a. Outstanding check c. Certified check
b. Deposit in transit d. Reduction of loan charged to the account of depositor

4. Which will not require an adjusting entry on the depositor’s books?

a. Bank service charge
b. NSF check from customer
c. Deposit of another entity credited to the account of the depositor.
d. Check in payment of account payable amounting to P50,000 is recorded by the depositor as P5,000.

5. Which statement is true?

a. Outstanding checks will cause the cash balance per ledger to be greater than the balance reported by the bank,
all other things being equal.
b. Bank service charge will cause the cash balance per ledger to be higher than that reported by the bank, all other
things being equal.
c. An error made by the bank by charging an amount to the depositor’s account requires a correcting entry in the
depositor’s own records.
d. The cash amount shown in the balance sheet must be the balance reported in the bank statement.

6. Bank reconciliation
a. Is the process of transferring money in or out of a bank account.
b. Requires that every transaction which will result in a cash payment be verified, approved, and recorded before
a bank check is prepared.
c. Is an analysis that reflects the bank transactions made by a depositor.
d. Explains the difference between the bank balance and the balance shown in the depositor’s records.

7. If the cash balance shown in a company’s accounting records 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. c. Outstanding checks
b. Deposits in transit d. Bank charges not yet recorded by the company.

8. The journal entries for a bank reconciliation ____.

a. Are taken from the balance per bank only.
b. May include a debit to office expense for bank service charges.
c. May include a credit to accounts receivable for an NSF check.
d. May include a debit to accounts payable for an NSF check.
9. When preparing a bank reconciliation, bank credits are _____.
a. Added to the bank statement balance.
b. Deducted from the bank statement balance.
c. Added to the balance per book.
d. Deducted from the balance per book.

10. Which of the following statement is false?

a. A certified check is a liability of the bank certifying it.
b. A certified check will be accepted by many persons who would not otherwise accept a personal check.
c. A certified check is one drawn by a bank upon itself.
d. A certified check should not be included in the outstanding checks.

11. Bank statements provide information about all of the following except ____.
a. NSF checks c. Errors made by the company.
b. Bank charges for the period d. Checks cleared during the period.

12. The journal entries for a bank reconciliation _____.

a. Are taken from the balance per bank only.
b. May include a debit to office expense for bank service charges.
c. May include a credit to accounts receivable for an NSF check.
d. May include a debit to accounts payable for an NSF check.

13. The cash counted on December 31, 2007 include two customers’ checks amounting to P5,000 both dated in
January 2008. These checks were recorded in the books in December and were accepted for deposit by the
bank on due dates. The adjusting entry is:
a. Dr. Cash in bank 5,000; Cr. Cash on hand 5,000 c. Dr. Cash 5,000; Cr. Accts. receivable 5,000
b. Dr. Accts. receivable 5,000; Cr. Cash 5,000 d. Dr. Accts. receivable 5,000; Cr. Sales 5,000

14. Customers’ check amounting to P4,500 were returned during December 2007 by the bank with the notation
“NSF”. Of these checks P3,000 had been redeposited and cleared by the bank during the month. No entries
were made for the return or redeposit. The adjusting entry is:
a. Dr. Cash 3,000; Cr. Accts. receivable 3,000 c. Dr. Cash 1,500; Cr. Accts. receivable 1,500
b. Dr. Accts. receivable 4,500; Cr. Cash 4,500 d. Dr. Accts. receivable 1,500; Cr. Cash 1,500

15. These are deposits made but not yet credited by the bank to the depositor’s bank account.
a. Credit memos (CM) c. Outstanding checks (OC)
b. Debit memos (DM) d. Deposit in transit (DIT)

16. In preparation of bank reconciliation, it was found out that cash sales of P9,500 were incorrectly recorded
in the books as P5,900. What entry is a reconciling entry?
a. Dr. Cash Pxx; Cr. Accounts receivable Pxx c. Dr. Cash Pxx; Cr. Sales Pxx
b. Dr. Accounts receivable Pxx; Cr. Cash Pxx d. None

17. In a bank reconciliation, a note receivable collected by bank is _______.

a. Deducted from the cash balance per bank statement.
b. Deducted from the cash balance per ledger.
c. Added to the cash balance per bank statement.
d. Added to the cash balance per ledger.
18. Which of the following reconciling items requires an adjusting entry in the books of ABC Company?
a. Amortization of loan of XYZ Inc. erroneously credited by bank to ABC Company’s account.
b. NSF 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 the cut-off date.
d. Customer payments directly remitted to the bank.

19. Which of the following may be used to compute for the adjusted balance of cash?
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 + Understatement of cash disbursements.
d. Balance per books + Credit memo – Debit memo + Overstatement of cash disbursements.

20. 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 by the company.
d. Deposit in transit

21. What is the reconciling entry in the depositor’s book to record the outstanding checks.
a. Dr. Cash Pxx; Cr. Accounts payable Pxx c. Dr. Accounts payable Pxx; Cr. Cash Pxx
b. Dr. Accounts receivable Pxx; Cr. Cash Pxx d. None

22. Certified checks should be excluded from the 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, automatically 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.

23. Which of the choices best describes the following statements?

I. Deposit in transit and credit memos are treated as deductions to balance per bank and balance per book
respectively.
II. The cash balance reported in the bank statement must be the balance reported in the balance sheet since the
bank statement is more reliable compared to the entity’s accounting records.
III. The adjusting entries for a bank reconciliation may include a debit to office expense for service charges.
IV. Bank service charge will cause balance per ledger to be higher than that reported by the bank, all other things
being equal.

a. Statements I and II are true. c. Only Statement II is not true.

b. Only Statement III is false. d. All statements are false.
II. Determine whether the given item is a book reconciling item or a bank reconciling and whether such item is added
or deducted by placing a “✔” in the appropriate column.

ITEM Book reconciling item Bank reconciling item

Added Deducted Added Deducted
1. Outstanding check ✔
2. NSF check ✔
3. Collection of P15,000 recorded as P16,000 in the cash
✔
receipts journal
4. Check of another company charged incorrectly to our
✔
company.
5. Bank service charge ✔
6. Interest income stated in the credit memo ✔
7. Issued a check as payment for liability amounting to
✔
P100,000 incorrectly journalized as P10,000.
8. Proceeds from our loan in bank directly credited to our
✔
bank account.
9. A note collected by the bank on our behalf stated in the
✔
credit memo.
10. Deposits in transit ✔

III. IDENTIFICATION.

Demand deposit 1. A type of deposit that needs preparation of bank reconciliation.

Errors 2. These are reconciling items of the party which committed them.

Debit memo 3. These are issued by the bank for transactions that reduces the depositor’s account –
these are to be deducted from the balance per book.

Deposit in transit 4. These are cash receipts already recorded by the company but reached the bank too late
to be included in the current month bank statement.

NSF checks 5. These are checks deposited in the account proved to be uncollectible because of the
maker of the check has insufficient funds in his account.

Bank service charge 6. The amount charged by the bank for handling specific transactions on behalf of the
depositor.

Bank statement 7. This shows the cash balance on deposit at the beginning of the month, the deposits
made, the checks paid, any other debits and credits during the month, and the ending cash balance which is provided
by the bank.

Bank reconciliation 8. Is a statement which brings into agreement the balance shown in the bank statement
and the balance shown in the depositor’s accounting records.

Outstanding checks 9. These are checks issued and recorded by the company but not yet presented to the
bank for payment.

Credit memos 10. These are issued by the bank to recognize an increase in the depositor’s account which
are added to the balance per book.
III. MODIFY TRUE OR FALSE. Write TRUE if the statement is correct. If the statement is incorrect,
UNDERLINE the word or phrase that makes it incorrect and write the word or phrase at the space
provided that will make it correct.

DIT or book 1. When preparing bank reconciliation, credit memos are added to the balance per bank
to get the adjusted balance.

Debit memo 2. A bank decreased a depositor’s account. To notify the depositor, the bank will issue
credit memo.

TRUE 3. In a 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.

32 4. An entity is preparing a proof of cash for November 30 and December 31. If the unadj-
usted 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.

5. In the adjusted balance method, the credit memos from the previous month are exten-
ded to the cash receipts columns of a proof of cash as an addition to the book of the company.

6. In the adjusted balance method, the debit memos from the previous month are exten-
ded to the cash disbursements columns of a proof of cash as an deduction to the book of the company.

Bank reconciliation 7. The bank statement is a report that is prepared for the purpose of bringing the balance
of cash per records and per bank statement into agreement.
BANK RECONCILIATION
(problems)
Problem 1. On October 31, 2012, STEVE Computer Services had a cash balance per books of P115,630. The October
bank statement reported a balance of P137,172. A comparison of the statement with the cash account revealed the
following:

1. On October 31, the bank statement showed a DAIF charge of P14,200 for a check issued by Herbert, a
customer, to Steve Computer Services.

2. The statement included a debit memo of P600 for the cost of two checks.

3. Included with the cancelled checks was a check issued by Jerry Company to Dindo for P12,000 that was
incorrectly charged to Steve Computer Services.

4. Cash sales of P16,723 on October 15 were deposited in the bank. The cash receipts journal entry and the
deposit slip were incorrectly made for P16,923. The bank credited Steve Computer Service for the correct
amount.

5. A P40,000 note receivable was collected by the bank for Steve Computer Services on October 31 plus P1,600
interest. The bank charged a collection fee of P400. The only entry made in October by the company for the
note was to accrue interest through October 31.

6. Outstanding checks at October 31, totaled P25,525 and deposit in transit were P18,723.

7. On October 20, the company issued check no. 532 for P13,160 to Cecil Company on account. The check, which
cleared the bank in October was incorrectly journalized and posted by Steve Computer Services for P13,700.

Required:
a. Prepare a bank reconciliation for Steve Computer Services.
b. Prepare journal entries to adjust the account at October 31, 2012.
c. What amount of cash in this bank account should be included in the October 31, 2012 balance sheet?

a. Bank reconciliation
Balance per book 115,630 Balance per bank 137,172
Add: Note collected with interest 41,600 Add: Deposit in transit 18,723
Error in recording check #532 540 42,140 Error in charging check 12,000 30,723
Total 155,770 Total 167,895
Less: DAIF check 14,200 Less: Outstanding checks 25,525
Bank service charge 1,000
Error in recording collection 200 15,400
ADJ. BALANCE PER BOOK 142,370 ADJ. BALANCE PER BANK 142,370

b. Journal entries
1. Cash in bank 41,200 4. Bank service charge 400
Bank service charge 400 Cash in bank 400
Note receivable 40,000
Interest receivable 1,600 5. Accounts receivable 200
2. Cash in bank 540 Cash in bank 200
Accounts payable 540
3. Accounts receivable 14,200
Cash in bank 14,200

c. P 142,370
Problem 2. The following information pertains to Bustos Company as of December 31, 2005:

Cash balance per ledger P 15,000,000

Cash balance per bank statement 14,550,000
Check outstanding (including certified check of P100,000) 1,000,000
Bank service charge shown in December bank statement 50,000
Error made by Bustos in recording a check that cleared the bank in
December (check was drawn in December for P500,000 but recorded at 200,000
P700,000)
Deposit in Transit 1,500,000

Required: Cash in bank.

Book balance P 15,000,000 Bank Balance 14,550,000

Service charge (50,000) DIT 1,500,000
Book error (700K – 500K) 200,000 Outstanding Check (900,000)
ADJ. BOOK BALANCE P 15,150,000 ADJ. BANK BALANCE P 15,150,000

Problem 3. The books of Manila’s Service Inc. disclosed a cash balance of P687,570 on December 31, 2006. The bank
statement as of December 31 showed a balance of P547,800. Additional information that might be useful in reconciling
the two balances follows:

a. Check number 748 for P30,000 was originally recorded on the books as P45,000.
b. A customer’s note dated September 25 was discounted on October 12. The note was dishonored on December
29 (maturity date). The bank charged Manila’s account for P142,650, including a protest fee of P2,650.
c. The deposit of December 24 was recorded on the books as P28,950, but it was actually a deposit of P27,000.
d. Outstanding checks totaled P98,850 as of December 31.
e. There were bank service charges for December of P2,100 not yet recorded in the books.
f. Manila’s account had been charged on December 26 for a customer’s NSF check for P12,960.
g. Manila properly deposited P6,000 on December 3 that was not recorded by the bank.
h. Receipts of December 31 for P134,250 were recorded by the bank on January 2.
i. A bank memo stated that a customer’s note for P45,000 and interest of P1,650 had been collected on December
27, and the bank charged a P360 collection fee.

Required: (a) Net adjustment to cash as of December 31, 2006, (b) Adjusted cash in bank, (c) Adjusting journal entries
on December 31, 2006.

Unadj. balance per books 687,570 Balance per bank 547,800

Adj. book balance 589,200 December 31 receipts 134,250
(a) Net adjustment to cash - credit 98,370 Deposit in transit 6,000
Outstanding checks (98,850)
(b) Adjusted cash in bank 589,200
(c) Adjusting journal entry on Dec. 31, 2006.
a. Accounts receivable 15,000 e. Bank service charge 2,100
Cash in bank 15,000 Cash in bank 2,100
b. Accounts receivable 142,650 f. Accounts receivable 12,960
Cash in bank 142,650 Cash in bank 12,960
c. Cash in bank 1,950 i. Cash in bank 46,290
Accounts receivable 1,950 Bank service charge 360
Notes receivable 45,000
Interest income 1,650
Problem 4. In preparing the bank reconciliation for the month of December, MNO Company provided the following data:

Balance per bank statement P3,500,000

Deposit in transit 580,000
Amount erroneously credited by bank to MNO’s account 50,000
Bank service charge for December 8,000
NSF Check 50,000
Outstanding checks 700,000

Required: (a) Cash in bank and (b) Unadjusted cash in bank per ledger.

Bank Balance 3,500,000 Unadjusted Book balance (SQUEEZE) P 3,388,000

Deposit In Transit 580,000 NSF Check (50,000)
Outstanding Check (700,000) Bank Service Charge (8,000)
Error: credited to MNO (50,000)
ADJ. BANK BALANCE 3,330,000 ADJ. BOOK BALANCE 3,330,000

Problem 5. CC Company’s bank statement for the month of December included the following information:

Ending balance, December 31 3,000,000

Bank service charge for December 12,000
Interest paid by the bank to CC Company for December 10,000

In comparing the bank statement to its own cash records, CC Company found the following:
Deposits made but not yet recorded by the bank 250,000
Checks written and mailed but not yet recorded by the bank 550,000

In addition, CC Company discovered that it had drawn and erroneously recorded a check for P46,000 that should have
been recorded for P64,000.

Required: (a) Adjusted bank balance and (b) Cash balance per ledger on December 31.

Solution:
Unadjusted bank balance 3,000,000 (b) Balance per ledger (SQUEEZE) 2,720,000
Deposit in Transit 250,000 Interest income 10,000
Outstanding checks (550,000) Service charge (12,000)
ADJUSTED BANK BALANCE (a) 2,700,000 Book error (64,000 – 46,000) (18,000)
ADJUSTED BOOK BALANCE 2,700,000

Problem 6. Cone Company provided the following data for the purposes of reconciling the cash balance per book with
the balance per bank statement on December 31:

Balance per book P 1,700,000

Balance per bank statement 4,200,000
Outstanding checks, including certified check of P300,000 1,000,000
Deposit in transit 200,000
December NSF checks, of which P100,000 had been deposited and cleared on Dec. 27 300,000
Erroneous credit to Cone’s account, representing proceeds of loan granted to another company 700,000
Proceeds of note collected by bank for Cone, net of service charges 1,500,000

Required: The amount should be reported as cash in bank at year-end.

Solution:
Bank statement P 4,200,000 Book balance P 1,700,000
Deposit in transit 200,000 CM: proceeds of note 1,500,000
Outstanding check (700,000) NSF Check (200,000)
Error (700,000)
ADJ. BANK STATEMENT P 3,000,000 ADJ. BOOK BALANCE P 3,000,000
Problem 7. Baguio Corporation showed its cash in bank below:

Balance per bank statement, Dec. 31, 2020 P 38,830

Collections recorded but not yet deposited in the bank 4,353
NSF Check – not recorded on books 1,820
Bank charges not yet recorded 35
Note collected by bank and not yet recorded in the books 1,790
Outstanding checks 2,200

Required: Cash balance per books of Baguio Company on December 31, 2020.

Solution:
BOOK BANK
Unadjusted balances P 41,048 P 38,830
Undeposited collections 4,353
NSF check – not recorded in the books (1,820)
Bank charges not yet recorded (35)
Unrecorded collection of note 1,790
Outstanding checks (2,200)
ADJUSTED BALANCE 40,983 40,983

Problem 8. In preparing its bank reconciliation on December 31, 2020, Allison Company had made available the
following information:

Balance per bank statement P 380,750

Deposit in transit 52,000
Outstanding checks 67,500
Amount erroneously credited by Bank to Allison’s account 4,000
Bank service charge for December 750
Check drawn, dated and recorded Dec. 31, 2020, but not mailed until Jan. 10, 2021
(included in the total outstanding checks above) 9,000
Check of Allyson Company charged by bank to the account of Allison Company 12,000

Required: Unadjusted cash in bank on December 31, 2020.

Solution:
BOOK BANK
Unadjusted balances 374,000 380,750
Deposit in transit 52,000
Outstanding checks (67,500 – 9,000) (58,500)
Erroneous bank credit (4,000)
Bank service charge (750)
Unreleased check 9,000
Erroneous bank charge 12,000
ADJUSTED BALANCES 382,250 382,250