Senior High School

Fundamentals of
Accountancy,
Business and
Management 2
Quarter 2 – Module 7.1:
\
Bank Reconciliation Statement

Writer:
NESSA B. DIMALANTA
Teacher-II BACOLOR HIGH SCHOOL

Editors:
JANE P. VALENCIA, ED. D., EPS Mathematics
CHAIRMAN
BETHEL GRACE M. GUIAO- Teacher-III
VIENNAH MARIE M. BUSTOS Teacher-II
 What I Need to Know
This module was designed and written with you in mind. It is here to help you
master the Bank Reconciliation Statement. The scope of this module permits it to
be used in many different learning situations. The language used recognizes the
diverse vocabulary level of students. The lessons are arranged to follow the
standard sequence of the course. But the order in which you read them can be
changed to correspond with the textbook you are now using.
The module has one lesson, namely:
Lesson 1: Describe and identify the common reconciling items of a bank
reconciliation statement and its nature

After going through this module, you are expected to:

1. describe the nature of a bank reconciliation statement;
2. identify common reconciling items and describe each of them.

Describe and identify the common

Lesson
reconciling items of a bank
1 reconciliation statement and its
nature
The word “reconcile,” which, according to Merriam-webster dictionary, means
“to cause people or groups to become friendly again after an argument or
disagreement.” This concept is related to the bank reconciliation statement,
which resolves two different account balances: the book of the business and
its bank account balance.

What is It

Nature of Bank Reconciliation Statement

Bank reconciliation statement is a monthly report that is prepared to reconcile
two reciprocal accounts: the cash balance per book records and the cash per
bank balance to show that there is no discrepancy. These reciprocal accounts
should have the same balance after an adjustment has made. In preparing a
bank reconciliation, we compare the cash balance of the business records
corresponding to the amount of the bank statement, which determines the
differences between the two to correct the accounting records, check fraudulent
transactions and resolve discrepancies. When a bank statement was received,
it should be reviewed and compared with the business accounting records. A
business that has two or more bank accounts will have separate bank
reconciliations statements.

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The common causes of discrepancy are as follows:
Timing differences - prevent either the company or the bank from
recording the transaction in the same period. For example, a bank statement
that ends March 31, 2019, the company collected the cash of P50,000 at 5:00
in the afternoon. Bank usually closes at 4:00 in the afternoon. In this
scenario, it was recorded in the company’s book the cash collected but not
reflected in the bank as a deposit.

Errors- erroneously record the transaction either of the company or the

bank. For example, a check was issued by the company to PLDT, amounting
to P5,000. Erroneously the company recorded this as P500. The check
amounting to P5,000 was cleared at the bank. In this scenario, there is an
error between the company's records and the bank records.

These three methods of preparing a bank reconciliation statement of

business as follows:
a. The adjusted method is a method that adjusts both balances per bank
and balances per book to determine the correct cash balance separately.
b. Book to Bank Method is a method that adjusts the book balance to agree
with the bank balance.
c. Bank to Book Method is a method that adjusts the bank balance to
agree with the book balance.

Bank Reconciliation Format using Adjusted Method

PER BOOK
Unadjusted Book Balance PhpXX
Add: Credit Memo
Interest Income XX
Collection received by the bank XX
Total XX
Less: Debit Memo
NSF Checks (XX)
Bank Service Charge (XX)
Add/Less: Book errors XX
Adjusted Book Balance PhpXX

Reconciling Items per Book

PER BANK
Unadjusted Bank Balance PhpXX
Add: Deposit in Transit (DT) XX
Total XX
Less: Outstanding Checks (OC) XX
Add/Less: Bank errors XX
Adjusted Bank Balance XX

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Credit Memo- are additions made by the bank to the account of the
depositor. Examples are bank collections and interest income.
a. Bank Collections collection of receivables made by the bank on
behalf of the depositor.
b. Interest Income appears as an addition to the depositors' account
given by the bank as an interest to the depositors' account balance.

Debit Memo - are deductions made by the bank to the account of the
depositor. Examples are bank charges for returned checks due to no
sufficient fund (NSF Checks), automatic debits or payment of bills made by
the bank on behalf of the depositor and bank service charge such as for
printing, checkbooks, and mailing the bank statement.

Bank service charges - are fees such as check printing and processing
that the bank deducts from the depositor.

NSF (no sufficient fund) check - is a check that was dishonored and
returned by the bank to the person or company writing the check because
that account did not have enough funds.

Book Errors - are items erroneously recorded by the company. For example,
the company deposit P20,000 but recorded it P2,000.

Reconciling Items per Bank

Deposit in Transit- amounts received and recorded by the company but
not yet deposited or the amount deposited after the bank's cut-off time. It
often happens where deposits were mailed to the bank or checks were
cleared after the cut-off. For example, on January 30, 2019, at 2:00 PM,
HUGOT Company received a P4,000 check from a customer is recorded at
the book. The company deposited the check at 3:30 PM and were informed
that their cut-off time is 11:30 AM. In this scenario, the check was credited
to HUGOT Company on February 1, 2019.

Outstanding Checks - checks issued by the company to payees but not yet
encashed with the bank or cleared by the bank. For example, on April 27,
2019, AKO Company issued and recorded a P1,000 check in favor of IKAW
Company. April 28, 2019, IKAW Company picked -up the check and was
deposited on May 1, 2019, and cleared by the bank on May 2, 2019. In this
scenario, the check deducted to the book cash balance in April; however,
deduction in the bank was made in May. Therefore, comparing the balance
of the company's book and bank records shows that bank records have a
higher balance than the company's book. Which of the two records is
correct? The company's accounting record is correct that aims to
determine the amount of cash it can use, and it was already promised to
the payee the amount of P1,000 on April 28, 2019.

Bank Errors - are items erroneously recorded by the bank. For example, a
check deposit of P10,000 was recorded P1,000.
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 Notes to the
Teacher
The adjusted method will be used for our learners. As they wish to pursue
an accounting degree, the two remaining method will be discussed in their
higher accounting subjects. The adjusted method is commonly used in
actual accounting practice.

What’s More

Activity 1: LET US DO SOME EXERCISES

A. WORD SEARCH!
Search the corresponding word to identify what is asked below. Write your
answer on a separate sheet of paper.
1. What are checks that have been issued by the company but have not
yet presented to the bank?
2. What check received then recorded by the company but not deposited
in the bank due to the cut-off time?
3. An example of this fee is a check printing deducted to the company's
bank account. What kind of check is it?
4. What is the amount added to the company's bank account made by the
bank?
5. What is the amount deducted to the company's bank account made by
the bank?

I P K Q R L V X P U H A Z Q E R L O J C

T U S B E X M R W N S U B N F I V M I W
J T Q X L B K W D U A W X K S M E E L I

N P R G E U F P H Y E S I C I U W M I D

X B L C F T T F H L A R B V C B N T F F

J Z S X T C D D M L P I K M H E K I W G

S K C E H C G N I D N A T S T U O D G N
E G R A H C E C I V R E S K N A B E V V

L T I S N A R T N I T I S O P E D R O D

D E B I T M E M O V A F D F A C F C W N
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B. CROSSWORD PUZZLE
Fill in the blank of the correct answer by answering the crossword
puzzle provided below. Write your answer on a separate sheet of
paper.
Down: Across:
1. ______________ ex: payment of loans 4. ____________ex. Interest income
2 . NSF is no sufficient _______________ 5. Time difference and _________
3. Deposit in _____________ 6. Compared ___________reciprocal account

ACTIVITY 2: WHAT AM I?
Identify what reconciling item of the book or bank the following independent
transaction. Write your answer on a separate sheet of paper.

RECONCILING
TRANSACTION ITEM
1. ABC company deposited a check
paid by the customer but was returned
by the bank due to the issuer's lack of
funds.
2. ABC Company received P2,000 from
Romel. The bookkeeper recorded the
amount as P200.
3. The deposits of ABC Company earned
an interest of P200 for the month.
4. The bank charges a fee for its services of
P45.

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5. ABC Company received cash of P1,450
on March 31 and was recorded on the
company's books. Due to an unforeseen
event, the liaison officer was able to
deposit the P1,450 in the bank on April
1.
6. ABC Company issued a check of
P30,000 to a supplier. Supplier not yet
deposited to the bank for payment.
7. ABC Company bank statement for the
month of March shows that bank
charges of P45 have been incorrectly
recorded twice by the bank.