Republic of the Philippines

Department of Education
Region VII - Central Visayas
Schools Division of Mandaue City
Centro, Mandaue Ci

SUPPLEMENTARY
LEARNING MODULE FOR
SENIOR HIGH SCHOOL
LEARNERS
Grade Level :Grade 11
Core Subject: Fundamentals of Accountancy, Business and Management 2
Semester: 2nd
Grading: Final Grading
Week: 2
Module 2

ABM_FABM11-IIC-10
ABM_FABM11-IIC-12
ABM_FABM11-IIC-13
 INTRODUCTION

In this module the students are introduced to a bank reconciliation statement, its
nature and structure, and reconciling items and methods of preparation.
Banks generally require that every deposit is accompanied by a signed and dated
deposit slip. Every withdrawal must be paired with a signed and dated check. These
documents are kept by the bank to resolve any disputes may arise regarding a
transaction. The bank sends the business a monthly statement that summarizes the
activity associated with the account. This statement lists all deposits and withdrawals

OBJECTIVES:
➢ Describe the nature of a bank reconciliation statement.
➢ Identify common reconciling items and describe each of them.
➢ Analyze the effects of identified reconciling items.
➢ Prepare a bank reconciliation.

Nature of a Bank Reconciliation Statement

A bank reconciliation is an internal control that ensures that the cash in its accounts
is equal to what it has recorded in its book. Bank reconciliation is necessary because
legitimate transactions that a business has recorded in its books might not be listed on its
bank statements and vice versa.
Bank reconciliation consists of a book balance column and a bank balance column.
One column is adjusted by adding all of the legitimate transactions that the bank
statement and the book do not show. The reconciliation is complete when the two
columns equal each other.
When a legitimate transaction that was not recorded in the books is discovered, it
must be added by recording a journal entry.
A bank statement reflects only a specific period of time, such as one month.
However, it takes the banks time to prepare the statement and send it out. Therefore,
while a bank may prepare a statement for the month of April, a business might not receive
it until a week later.
As a result, a bank statement will generally not reflect the amounts that a company
has in its own books. This can be due to a few reasons:
 a. The business could have also received some cash amounts before the end of the
period covered b the statement, but was unable to deposit those amounts until
after the period ended.
b. Or the difference could also be due to mistakes, either by the bank or in the
company’s books.
c. The difference could also be due to something more problematic such as theft.
Bank reconciliation is a process that explains the difference between the bank
statement and the amount shown in the organization’s own financial records. This
process is important because it ensures that any differences are due to the timing of
payments and not because of a mistake or theft.
RECONCILIATION PROCESS
A bank reconciliation consists of two columns:
a. One for the book balance
b. The other for the bank balance.
The person reconciling the accounts then adjusts the column by adding deposits that had
not yet been recorded and deduct checks and other outlays that had not yet been cashed
when the statement had been prepared. The reconciliation is complete only until the
adjusted column equals the unadjusted columns.
There may be some cases where the process reveals a legitimate transaction that
was not record
ed in the books. When this occurs, the person responsible for the business books must
record the transaction by making use of a journal entry.

Check for understanding:

1. What is a bank reconciliation? Describe its nature.
2. What is a bank statement?

BANK RECONCILING ITEMS

Bank reconciliation are prepared by bank depositors when they receive their
monthly bank statements. The reconciliation is made to check any required adjustments
to the cash balance.

TYPES OF RECONCILING ITEMS IN BANK RECONCILITATION

Type A: Reconciling items do not require adjusting journal entries
1. Outstanding checks – checks already recorded in the book as cash disbursement
but not yet reflected on the bank statement.
Note: Deduct from the balance per bank.
2. Deposit in transit – collections already recorded in the books as cash receipts but
not yet reflected on the bank statement.
Note: Add to balance per bank.
3. Bank errors – errors made by bank in debiting and crediting the account of the
depositors.
Type B: Reconciling items which require adjusting journal entries.
1. Deposited collections in check returned by bank due to no sufficient funds. The
other term for this is “NSF check”.
Note: Deduct from balance per books
Reason: it has been deducted by the bank but still remains as an addition to the
company’s books. If it cannot be re-deposited in the immediate future, it should be
reverted back to “Accounts Receivable”.

2. Bank service charges – unrecorded bank charges. This should be deducted from
company’s books.
Reason: they are charges recognized by the company but have not yet been
recorded.
3. Collections made by bank-this should be added to balance per company’s book’
Reason: these have been added by the bank but not yet added on the company’s
books.
4. Errors in the cash account -errors made in the books when recording transaction
affecting the cash account.
5. Cost of checkbooks – these should be deducted from the company’s book.
Reason: it has already deducted by the bank but not yet deducted by the
company’s book.
6. Interest earned by the clients – these should be added to the balance of the
company’s book.
Reason: it has already been added by the bank but not yet added to the company’s
book.
Reconciling items must be analyzed to determine whether they are included in:
a. Balance per book or
b. Balance per bank
If they are to be include in one, but not in other, an adjustment is required. Types A and
B adjustments can be either be added or deducted depending upon the type of format
and the nature of the item.
Format of a bank reconciliation:
Name of the company
Name of the report
Date

Balance per book xxx

Add/(deduct) reconciling items xxx
Adjusted balance per book xxx

Balance per bank xxx

Add/(deduct) reconciling items xxx
Adjusted balance per bank xxx

Note: the balance per bank and balance per book are reconciled directly with the
corrected balance.

Adjusting journal entries. All of the reconciling items per book of bank reconciliation(type
B) requires adjusting entries. The pro-forma adjusting journal entries for the type B
reconciling items are as follows:

1. Deposited collections in check returned by bank due to No Sufficient Fund or

NSF
Debit- Account Receivable xxx
Credit – Cash in Bank xxx
2. Unrecorded bank charges
Debit – Bank Charges(expense xxx
Credit – Cash in Bank xxx
3. Errors in cash account
a. Collection from charges account customers amounting to P13,000.00 was
recorded in the book as P31,000.00
Journal entry made:

Cash in Bank 31,000.00

Accounts Receivable 31,000.00

Adjusting entry:

Accounts Receivable 18,000.00

Cash in Bank 18,000.00

The adjusting entry corrected the overstatement in Cash in Bank account and
understatement in Account Receivable account.
 b. Payment of Accounts Payable amounting to P4,500.00 was recorded as
P5,400.00.

Journal entry made:

Accounts Payable 5,400.00

Cash in Bank 5,400.00

Adjusting entry

Cash in Bank (5,400.00 – 4,500.00) 900.00

Accounts Payable 900.00

The adjusting entry corrected the understatement in Cash in bank account

and understatement of Accounts Payable

4. Unrecorded collection of notes receivable by the bank.

Debit – Cash in Bank xxx

Credit – Notes Receivable xxx

PREPARATION OF BANK RECONCILIATION

Guidelines in preparing a Bank Reconciliation

1. Determine the balance per book and the balance per bank.
2. Trace the cash receipts to the bank statement to ascertain whether there are
deposits not yet acknowledged by the bank for these represents “Deposit in
Transit”.
3. Trace the checks issued by the bank statement to ascertain whether there are
checks not yet presented for payment as these represents “Outstanding
Checks”.
4. The bank statement should be examined to determine whether there are bank
credits of bank debits not yet recorded by the company’s books.3
5. Watch out for errors. Errors are reconciling items or the party which
committed them.

ILLUSTRATIVE PROBLEM:

The cash records of ABC Corporation for the month of July are as follows:
Cash Receipts Cash Disbursements
July 3 P54,000 July 4 Check# 54011 P 4,500
 11 18,000 5 Check# 54012 9,000
23 27,000 8 Check# 54013 16,200
31 36,000 12 Check# 54014 1,800
135,000 28 Check#54015 33,300
31 Check#54016 25,200
90,000
The general ledger of the company shows the cash in bank account for July as follows:

Cash in Bank – FDA Bank

July 30 CR 135,000 July 30 CD 90,000

The balance of the cash account on the depositor’s book is P45,000.00

Bank Statement
The following is the bank statement for July received from the FDA Bank

In account with 200211

ABC Corporation
Cebu City

Date Check no. Withdrawals Deposits Balance

Jul 4 54,000 54,000
Jul 5 54011 4,500 49,500
Jul 8 54012 9,000 40,500
Jul 11 54013 16,200 24,300
Jul 12 18,000 42,300
Jul 14 54014 1,800 40,500
Jul 24 27,000 67.500
Jul 25 13,500 CM 81,000
JUL 30 4,500 RT 76,500
Jul 30 900 SC 75,600
Legend CM – Credit Memp RT – Returned Check
DM – Debit Memo SC – Service Charge

The following information is gathered in connection to the CM and the DM as shown

in the bank statement.

1. The CM P 13,500on July 25 represents proceeds of the note collected by the

bank in favor of the company.
2. The RT of P4,500 represents check of customer deposited previously but
returned by the bank due to “no sufficient funds” or NSF.

Below is the solution given:

 ABC CORPORATION
BANK RECONCILIATION

JULY 30, 2020

Balance per book. P 45,000

Add: Note collected by the bank 13,500
Total P 58,500
Less: NSF check 4,500
Service Charge 900 5,400
Adjusted balance per book P 53,100

Balance per bank P75,600

Add: Deposit in transit 36,000
Total P111,600
Less: Outstanding checks
Check#54015 33,300
Check#54016 25,200 58,500
Adjusted balance per bank P53,100

Preparation of adjusting entries

a. Cash in bank 13,500

Notes Receivable 13,500
To record notes collected by the bank

b. Accounts Receivable 4,500

Cash in Bank 4,500
To record the NSF check

c. Bank Service Charge 900

Cash in Bank 900
To record bank service charge.

: Only the reconciling items per book require adjusting entries on the book
of the depositor. The adjustments are necessary to bring the cash in bank
balance to its correct balance for statement presentation purposes.

-END OF THE LESSON-

 ASSESSMENT

TEST I. Answer the following

1. What are deposits in transit?

2. What are outstanding checks?
3. What is bank service charge
4. What is NSF check?
5. What is the adjusting entry to record in the book the following:
a. Deposit in Transit
b. Outstanding Check
c. Bank service charge
d. NSF check
e. Note collected by the bank
f. Errors committed by the bank

TEST II: Multiple Choice. Select the letter of the correct answer.

1. If the balance shown on an entity’s bank statement is less than the correct cash
balance and neither the entity nor the bank has made any errors, there must
be________.
a. Deposits credited by the bank but not yet recorded by the entity.
b. Outstanding checks
c. Deposits in transit
d. Bank charges not yet recorded by the entity.
2. If the cash balance shown on an entity’s accounting records is less than the
correct cash balance and neither the entity nor the bank has made any errors,
there must be______.
a. Deposits credited by the bank but not yet recorded by the entity.
b. Deposits in transit
c. Outstanding checks
d. Bank charges not yet recorded by the entity.
3. Bank reconciliations are normally prepared on a monthly basis to identify
adjustments needed in the depositor’s records and to identify bank errors.
Adjustments on the part of the depositor shall be recorded for____.
a. Bank errors, outstanding checks and deposits in transit.
b. All items except bank errors, outstanding checks and deposit in transit,
c. Book errors, bank errors, deposits in transit and outstanding checks.
d. Outstanding checks and deposit in transit.
4. The adjusting entries for a bank reconciliation____
a. Are taken from the balance per bank section only.
b. May include a debit to office expense for bank service charge.
c. May include a credit to accounts receivable for NSF customer check.
d. May include a debit to accounts payable for NSF customer check.
5. Bank statement provide information abunt all of the following, EXCEPT_____
a. Checks cleared during the period.
b. NSF checks.
c. Bank charges for the period
d. Errors made by the depositors.
6. What is true of a bank reconciliation?
a. Formal financial statement that lists all of the bank account balances of an
entity.
b. A merger of two banks that previously were competitors.
c. A statement sent by the bank to depositor on a monthly basis.
d. A schedule that accounts for the differences between an entity’s cash balance
shown in its general ledger.
7. Which of the following items must be added to the cash balance per book in
preparing a bank reconciliation which ends with the corrected cash balance per
book?
a. Notes receivable collected by the bank in favour of the depositor and credited
to the account of the depositor.
b. NSF customer check
c. Bank service charge
d. Erroneous bank debit.
8. Which of the following must be deducted from the bank statement balance in
preparing a bank reconciliation which ends with the corrected cash banlance per
bank?
a. Deposit in transit
b. Outstanding checks
c. Reduction of loan charges to the account of the depositor
d. Certified check.
9. In preparing monthly bank reconciliation, which of the following items would be
added to the balance per bank statement to arrive at the correct cash balance?
a. Outstanding checks
b. Bank service charge
c. Deposits in transit
d. A customer’s note collected by the bank on behalf of the depositor.
10. What happens to bank credits when preparing a bank reconciliation?
a. Added to the bank statement balance
b. Deducted from the bank statement balance
c. Added tot the balance per book
d. Deducted from the balance per book
II. ANSWER THE FOLLOWING:
1. Describe the nature of a bank reconciliation statement.
2. Identify common reconciling items and describe each.

III. ILLUSTRATIVE PROBLEM

The XYZ Corporation provided the following information.

CASH IN BANK – BNP Bank

Jan 1 Deposit 90,000 Jan 4 Check#32401 4,500
12 deposit 45,000 6 check#32402 13,500
23 deposit 9,000 8 check#32403 36,000
27 deposit 72,000 9 check#32404 9,100
12 check#32405 27,000
20 check#32406 22,500
28 check#32407 45,000

XYZ Corporation – Bank Statement

Date Check no Withdrawals Deposits Balance

Jan 1 90,000 90,000
10 32404 9,100 80,900
20 32401 4,500 76.400
22 32406 22,500 53.900
27 45,000 98,900
29 9,000 107,900
29 32403 36,000 71,900
29 27,000CM 98,900
31 1,800 SC 97,100
Legend: CM – Credit Memo SC- Service Charge
DM – Debit memo RT – Returned Check

The credit made by the bank on January 29 represents the proceeds of a note
received from a customer given to the bank by the entity on Januaryr 26.

Required:
1. Prepare bank reconciliation for the month of January 2020.
2. Prepare adjusting entries.
References:

Fundamentals of Accountancy, Business and Management 2

By: Angeles A. De Guzman, DBA, CPA
Published by:LORI MAR 2018

Bookkeeping
By: Nenita D. Mejorada
Published by: Katha Publishing CO>< Inc.

DISCLAIMER

I do not own or license any copyright in the

texts, images, photographs, graphics and other
content provided in this module. This module is
solely for non-commercial, informational and
educational purposes. There is no intention on
my part to claim ownership as the contents or
make profit out of this module.

Prepared by: Sheila O. Pielago

Teacher 1
Canduman National High School
SCHOOLS DIVISION OF MANDAUE CITY

SHEILA O. PIELAGO
Writer/Illustrator

KENN NORWAY B. MARZADO, EdD

Education Program Supervisor – EPP/TLE

JAIME P. RUELAN, EdD

Chief, Curriculum Implementation Division

ISMAELITA N. DESABILLE, EdD

Education Program Supervisor – (LRMDS)

ESTELA B. SUSVILLA, EdD CESO VI

Assistant Schools Division Superintendent

DR. NIMFA D. BONGO,EdD CESO V

Schools Division Superintendent