Bank Reconciliation Statement

Nature of Bank Reconciliation Statement

• Bank reconciliation involves using two sets of records, the company's ledger and the bank's records, to ensure all figures are accurately recorded
• Reconciliation confirms the amount of money leaving equals the amount that has been spent, and that both the company and bank records are balanced at the end of a recording period

Bank Reconciliation Statement Report

• A bank reconciliation compares the bank balance with the balance stated in the bank statement according to the company's accounting records
• Complete regularly to ensure the company's cash records are correct to avoid issues like bounced checks or overdraft fees
• Identifies differences between balances to correct errors

Importance of Bank Reconciliation

• Basis for cash adjustments at the period's end
• Describes banking and business transactions and reconciles a company's bank account with its financial records
• Lists deposits, withdrawals and other events affecting a bank account for a period
• Summarizes activities, reconciling the bank account with financial records

Benefits of Bank Reconciliation Statements

• Identifies errors in the business or bank accounting records
• Offers a necessary control mechanism to safeguard resources by highlighting irregularities
• Gives assurance that the bank transactions were correctly recorded
• Helps the company monitor its monthly cash flows

Reconciliation Form

• Assumes no recording errors by the bank or depositor, but provides space if errors occur
• Enlists outstanding checks
• Cash flows must be reconciled to ensure accuracy, and should be done regularly

Reconciliation Classifications

• Timing Differences and Errors are the different causes reconciliation is needed
• Timing Differences occur when the bank's record is more up-to-date, resulting in differences
• Reconciliation should be done monthly, and can help prevent the company or bank from failing to record a transaction in the same period as the other party

Reconciling Items on the Book Side

• Credit memos are collections made by the bank and credited to the company's account, which sometime include loan proceeds
• Debit memos are charges the bank makes to the depositor's account, such as service charges
• Debit memos decrease while credit memos increase the checking account balance

Bank Service Charges

• Bank service charges include fees for processing checking account activity, and are deducted from bank statements
• These include fees for accepting deposits, posting checks, mailing statements, overdrafts, and stop payment orders

NSF (Non-Sufficient Funds)

• NSF is a status for accounts without enough money to cover transactions
• Check printing charges are fees for a company to have its bank handle check recording

Notes on Check Printing & Interest Earned

• There is no balance adjustment per bank, and the deduction is made from the company's cash account
• Interest earned is generated from deposited amounts, reflecting on the bank's statement and added to the checking or cash balance

Notes Receivable

• Notes receivable refers to assets a company holds that are payable to them by another party
• When due, the company may ask bank to collect notes receivable, for a fee
• The bank increases the checking account, less the collection fee

Bank Errors

• Bank errors include incorrect recording of an amount, entering incorrect amounts, or failing to reflect company amounts
• Must be analyzed by both parties, adjustments done by the party that committed the errors
• Company must notify the bank of any errors at once

Bank Reconciliation Methods

• Adjusted Method: Balances per bank record and company record are determined separately
• Book to Bank Method: Company's book balance is adjusted to match bank balance
• Bank to Book Method: Bank balance is adjusted to match company's book balance

Bank Reconciliation Statement

• Process of reconciling the bank account balance in an entity's books with the balance in the bank statement
• Any differences are examined and, if needed, rectified

Effects of Reconciling Items

• Company reconciles its records by comparing details with the bank's records
• Book adjusted method used to prepare the bank reconciliation statement
• Assume both the company and the bank conduct reconciliation separately

Debit & Credit Memos

• A debt memorandum informs the depositor of debit adjustments to their account
• Charges by the bank to the depositor, such as a service charge
• Credit memos are collections the bank credits to the company's account and can include loan proceeds

No Sufficient Funds

• NSF is written checks not accepted by the bank due to insufficient funds

Check Printing Charges

• Check printing occurs when a company arranges for its bank to handle recording of checks
• The printing costs get deducted from the company's checking accounts
• There is no balance adjustment per bank

Interest Earned Notes

• Appears with banks giving companies interest on account balances
• The amount gets added to the checking account balance and is on the bank statement
• Amounts increase balances in the company's cash accounts

What Are Errors

• Errors are when a company enters an incorrect amount, or omitting a transaction that should have been in the account
• Correction is either an increase or decrease to the Cash account balance
• Unadjusted Balance per Book modified by Bank Service Charges, NSF Checks/Fees, Check Printing Charges, Interest Earned, Notes Receivable, and Errors to find the Adjusted/Corrected Balance

Deposits in Transit

• Deposits in Transit are amounts already received/recorded by the company but not the bank
• Appear on the company's books but not the bank statement
• Unadjusted Balance per Bank Statement adjusted for Deposits in Transit and Outstanding Checks to find the Adjusted/Corrected Balance

Bank Reconciliation Steps

• Adjust the bank balance, the company's cash account, and then compare the adjusted balances to prepare journal entries

Business and Income Taxation

• Taxation is a fee governments require from people or corporations; it is the lifeblood of government and the source to finance projects
• Taxation is the act of taxation is collecting money from individuals/corporations to finance government expenses

Entities Involved

• Bureau of Internal Revenue implements the law
• National Internal Revenue Code (NIRC) of 1997 governs the Philippines' tax laws
• One must pay taxes if they are an earning individual or corporation

Types of Taxpayers

• Resident citizens pay for both sources inside and outside the Philippines
• Resident aliens are foreigners living in the Philippines who earn inside the borders
• Non-resident aliens do not live in the Philippines, but engage in business within the country
• Domestic and foreign corporations are also taxpayers

Filing Income Tax

• Employers must file tax withheld from employee salaries
• Individuals may file taxes on business gross income
• Taxes collected are used for infrastructures, education, and healthcare

What Is It?

• Self-Employed is a sole proprietor, independent contractor, or professional earning through their own practice
• Trade, Business, or Profession doesn't cover services performed as an employee per NIRC of 1997

Differences in Income Type

• Business Income is taxed after deducting expenses while Compensation Deductions are taxed with personal exemptions
• Business Income is net income while Compensation Income taxes income on gross
• Business/Professional incomes and compensation are regarded as gross income

Filing Income Taxes

• Individuals receiving self-employed income must file declaration by April 15

Ways to Compute

• Two ways to compute taxable income are itemized and optional deduction
• Itemize through expenses in the statement of comprehensive income

Optional Standard Deduction

• Entrepreneurs can take deductions up to 40% of gross receipts
• Available to individual taxpayers excluding non-resident aliens
• An individual who is entitled of OSD shall not be required to submit the tax return such as Financial Statement otherwise required under Tax Code, stated in R.R. 8-2018.