BA NK

R ECON CILI A TION

SIR. JP MORALES
LEARNING OBJECTIVES:

• IDENTIFY AND UNDERSTAND THE CONTENT OF

BANK STATEMENT.
• DESCRIBE THE NATURE OF BANK
RECONCILIATION STATEMENT.
• ANALYZE THE EFFECTS OF THE IDENTIFIED
RECONCILING ITEMS.
BANK RECONCILIATION

A bank reconciliation is a statement which brings into

agreement the cash balance per book and cash balance
per bank (Valix, 2017). It is usually prepared on a
monthly basis as banks provide their clients bank
statement at the end of every month.
 BANK RECONCILIATION

A bank statement is a monthly report of the bank to the depositor

showing (Valix, 2017):
• the cash balance per bank at the beginning;
• the deposits made by the depositor and acknowledged by the
bank;
• the checks drawn by the depositor and paid by the bank; and
• the daily cash balance per bank during the month
 RECONCILING ITEMS

Book reconciling items

• Credit memos – These are book reconciling items not representing deposits credited by the
bank to the account of the depositor but not yet recorded by the depositor as cash receipts.
The following are examples of credit memos (Averkamp, 2018):
• » Interest earned – This is a type of credit memo that will appear on the bank statement
when a bank gives a company interest on its account balances. The amount is added to the
checking account balance and is automatically on the bank statement. Hence, there is no need
to adjust the balance per the bank statement. However, the amount of interest earned will
increase the balance in the company's Cash account on its books.
BOOK RECONCILING ITEMS

Notes receivable – This is a type of reconciliation where the

bank will increase the company's checking account for the
amount it collected (principal and interest) and will decrease
the account by the collection fee it charges. Since these
amounts are already on the bank statement, the company
must be certain that the amounts appear on the company's
books in its Cash account.
BOOK RECONCILING ITEMS

Debit memos - These are book reconciling 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 disbursements. The
following are examples of debit memos (Averkamp, 2018):
 BOOK RECONCILING ITEMS

Bank service charges – This type of debit memo comprises fees deducted
from the bank statement for the bank's processing of the checking account
activity (accepting deposits, posting checks, mailing the bank statement,
etc.) Other types of bank service charges include the fee charged when a
company overdraws its checking account and the bank fee for processing
a stop payment order on a company's check. The bank might deduct these
charges or fees on the bank statement without notifying the company.
When that occurs, the company usually learns of the amounts only after
receiving its bank statement.
 BOOK RECONCILING ITEMS

• » NSF check - This type of debit memo represents a check that was not
honored by the bank of the person or company writing the check
because that account did not have a sufficient balance. As a result, the
check is returned without being honored or paid. (NSF is the acronym
for not sufficient funds. Often the bank describes the returned check as
a return item. Others refer to the NSF check as a "rubber check"
because the check "bounced" back from the bank on which it was
written.) When the NSF check comes back to the bank in which it was
BOOK RECONCILING ITEMS

Errors - These are book reconciling items which

represent the errors made by the accountant or
another person in charge during the bookkeeping
process.
BANK RECONCILING ITEMS:

Deposits in Transit – These are collections already

recorded by the depositor as cash receipts but not yet
reflected on the bank statements (e.g., undeposited
collections).
BANK RECONCILING ITEMS:

Outstanding Checks – These checks are already

recorded by the depositor as cash disbursements but
not yet reflected on the bank statement (e.g., check
drawn but not yet presented by payee for payment and
certified checks).
BANK RECONCILING ITEMS:

• Errors - These are bank reconciling items which

represent the errors made by the bank such as
erroneously debiting the company’s account for the
transaction that does not exist.
FORMS OF BANK RECONCILIATION

Adjusted balance method - Under this method, the

book balance and the bank balance are brought to a
correct cash balance that must appear on the balance
sheet.
 ADJUSTED BALANCE METHOD
Book Balance Xxx

Add: Credit Memos Xxx

Total Xxx

Less: Debit Memos Xxx

Adjusted book balance Xxx

 

Bank Balance Xxx

Add: Deposits in Transit Xxx

Total Xxx

Less: Outstanding Checks Xxx

Adjusted bank balance Xxx

FORMS OF BANK RECONCILIATION

Book to bank method - Under this method, the book

balance is reconciled with the bank balance or the
book balance is adjusted to equal the bank balance.
BOOK TO BANK METHOD
Book Balance Xxx

Add: Credit Memos Xxx

Outstanding Checks Xxx

Total Xxx

Less: Debit Memos Xxx

Deposits in Transit Xxx

Bank balance Xxx

FORMS OF BANK RECONCILIATION

• Bank to book method - Under this method, the

bank balance is reconciled with the book
balance or the bank balance is adjusted equally
with the bank balance.
 BANK TO BOOK METHOD
Bank Balance Xxx

Add: Debit Memos Xxx

Deposit in Transit Xxx

Total Xxx

Less: Credit Memos Xxx

Outstanding Checks Xxx

Book balance xxx

ILLUSTRATIVE PROBLEM – ADAPTED (Robles & Empleo, 2016)

The following unadjusted cash balances are available for JK Company for
the month ended November 30, 201A.
• Cash balance per bank statement, November 30, 201AP 62, 305.75
• Cash balance per company records, November 30, 201A 62,189.70 The
bank statement disclosed the following information:
• Charges by bank included a returned customer’s check for P 690.70
because of insufficient funds (NSF) and service charge of P75 for
November.
• Credits by the bank included a customer’s note for P6,000 plus interest of
P60 that was collected on November 29, 201A.
A review of the company records disclosed the following information:
• A deposit for P5,714.35 made on November 29, 201A did not appear on the bank
statement.
• A deposit for P1, 637 made on November 30, 201A did not appear on the bank
statement.
• The following company checks were still outstanding as of November 30, 201A:
• Check #145243 480.95
• Check #145247 735.90
• Check #145250 1,316.25
• Check #145257 for P456 in payment of a creditor account and included with the
canceled checks in the bank statement has been erroneously recorded in the company
records as P 96.
Required:
• Prepare a bank reconciliation statement for JK
Company as of November 30, 201A. Use the three
(3) forms of bank reconciliation.
 ADJUSTED BALANCE METHOD JK Company    
Bank Reconciliation Statement November 30, 201A

     
Balance per bank statement P 62,305.75
Add: Deposit in transit P 5,714.35  
Receipts not yet deposited 1,637.00 7,351.35

Total   P 69,657.10
Deduct: Outstanding checks:    
Check #145243 P 480.95  
Check #145247 735.90  
Check #145250 1,316.25 2,533.10

Adjusted cash balance   P 67,124.00

Balance per books   P62,189.70
Add: Notes collected by the bank P 6,000.00  
Interest on notes collected 60.00 6,060.00

Total   P68,249.70
Deduct:    
Bank service charge P 75.00  
Customer’s NSF check returned 690.70  
Check #145257 for P456 was erroneously recorded as P96 360.00 1,125.70

Adjusted cash balance   P 67,124.00

 BANK TO BOOK JK Company    
Bank Reconciliation Statement November 30, 201A

Balance per bank statement   P 62,305.75

Add: Deposit in transit P 5,714.35  

Receipts not yet deposited 1,637.00  
Bank service charge 75.00  
Customer’s NSF check returned 690.70  
Check #145257 for P456 was erroneously recorded as P96 360.00 P 8,477.05

Total   P70,782.80

Deduct: Outstanding checks:    

Check #145243 P480.95  

Check #145247 735.90  
Check #145250 1,316.25  
Notes collected by bank 6,000.00  
Interest on notes collected 60.00 P8,593.1
Balance per book   P62,189.70
 BOOK TO BANK JK Company    
Bank Reconciliation Statement November 30, 201A

     
Balance per bank statement P 62,189.70

Add: Outstanding checks:    

Check #145243 P 480.95  
Check #145247 735.90  
Check #145250 1,316.25  
Notes collected by bank 6,000.00  
Interest on notes collected 60.00 8,593.10
Total   P 70,782.80
Deduct: Deposit in transit P 5,714.35  
Receipts not yet deposited 1,637.00  
Bank service charge 75.00  
Customer’s NSF check returned 690.70  
Check #145257 for P456 was erroneously recorded as P96 360.00 P8,477.05
Balance per book   62,305.75
 SEATWORK:
The cash records of Company X shows the following for the month of January.

Cash Receipts Cash Disbursements

Jan. 5 60,000 Jan. 6 Check No. 721 5,000
Jan. 13 20,000 Jan. 7 Check No. 722 10,000
Jan. 25 30,000 Jan. 10 Check No. 723 18,000
Jan. 31 40,000 Jan. 14 Check No. 724 2,000
Jan. 28 Check No. 725 37,000
Jan. 31 Check No. 726 28,000
150,000 100,000
 The following is the bank statement for January received from the first bank.
In account with No. 775
Company X FIRST BANK
Quezon City Manila, Philippines

DATE CHECK No. Withdrawals deposits balance

Ja