Bank Reconciliation Statement PDF

 Fundamentals of Accountancy, Business and Governor Pack Road, Baguio City, Philippines 2600 Management 2 Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786; 442-2564; 442-821...

 Fundamentals of Accountancy, Business and Governor Pack Road, Baguio City, Philippines 2600 Management 2 Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786; 442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM-12 Email: [email protected]; Website: www.uc-bcf.edu.ph MODULE 5 – FABM2 Subject Teacher: Bank Reconciliation Statement Learning Objectives: At the end of the modules, the student should be able to: a. Explain the reasons for preparing bank reconciliation statement; b. Perform analysis of bank and book reconciling items; c. Prepare a bank reconciliation statement and the related journal entries. A bank reconciliation statement is a report that is prepared for the purpose of bringing the balances of cash per records and per bank statement into agreement. More specifically, bank reconciliations are prepared to a. Explain the difference between the cash balance reported on the bank statement and the cash balance in the accounting books. b. Arrive at the adjusted (correct) cash balance to be shown in the financial statements. c. Provide information for reconciling journal entries. Bank reconciliations are prepared on a monthly basis, immediately upon receipt of monthly bank statements from banks. When a business has more than one bank account, separate bank reconciliations are made for each of those accounts. Pro forma bank reconciliation statement A bank reconciliation statement has the following format: ABC Co. Bank Reconciliation For the month ended August 31, 2016 Balance per books, end. Pxx Balance per bank statement, end. Pxx Add: Credit memos (CM) xx Add: Deposits in transit (DIT) xx Less: Debit memos (DM) (xx) Less: Outstanding checks (OC) (xx) Add/less: Book Errors xx Add/Less: Bank errors xx Adjusted balance Pxxx Pxxx Balance per books, end – the cash balance in the accounting records as of the end of the current month. In the pro forma statement above, Balance per books, end” is the cash in the accounting records as of August 31, 2016. Balance per bank statement, end. – the ending cash balance in the bank statement of the current month. In the pro-forma statement above, “balance per bank statement, end” is the cash balance on the bank statement as of August 31, 2016. Credit memos – These are additions (bank credits) made b the bank to the depositor’s bank account but not yet recorded by the depositor. Examples of credit memo include: i. Collections made by the bank on behalf of the depositor. ii. Interest income earned by the deposit. iii. Proceeds from loan directly credited or added by the bank to the depositor’s account. Debit memos- These are deductions (bank debits) made by the bank to the depositor’s bank account but not yet recorded by the depositor. Examples of debit memos include: i. Bank service charges representing bank charges for fees, interest, penalties, and surcharges. ii. No sufficient funds check (NSF) of Drawn against insufficient funds check (DAIF) – These are checks deposited and already recorded by the business but subsequently returned to the depositor because the drawer’s fund is insufficient to pay for the check. iii. Automatic debits, such as when the depositor and the bank agree that the bank will make automatic payments of bills on behalf of the depositor. FUNDAMENTALS OF ACCOUNTANCY, BUSINESS & MANAGEMENT - 2 Page 1 of 5  Fundamentals of Accountancy, Business and Governor Pack Road, Baguio City, Philippines 2600 Management 2 Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786; 442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM-12 Email: [email protected]; Website: www.uc-bcf.edu.ph MODULE 5 – FABM2 Subject Teacher: iv. Payments of loans- This represents payment of loan which the depositor agreed to be made out directly from its bank account. Book errors- errors committed by the depositor (e.g., erroneous recording in the accounting books). Deposits in transit – are deposits already made but not yet received b the bank, or received by the bank but not yet credited to the depositor’s bank account. Deposits in transit often occur when deposits are mailed to the bank, placed in an overnight depository, made through check and check has not yet cleared, or made after the bank’s cut off. Outstanding checks- These are checks drawn and released to payees but are not yet encashed with the bank. Outstanding checks exclude (deduct) the following: Certified checks- The bank, when certifying checks, automatically debits (reduces) the depositor’s account and assumes direct liability on paying the certified checks to the payee. Certified checks are already deducted from the account, thus, they are no longer outstanding. Stale checks (checks that remain outstanding for a relatively long period of time) are reverted back to cash, meaning they are added back to the cash balance per books, and are excluded from the outstanding checks. Bank errors- errors committed by the bank. ❖ Credit memos, debit memos, and book errors are referred to as book reconciling items. ❖ Deposits in transit, outstanding checks, and bank errors are referred to as bank reconciling items. Sample Problem 1: Use of formula You received our July 2019 bank statement. The July 31, 2019 cash balance in your accounting books is ₱300,000 while the cash balance shown on the bank statement is ₱430,000. You determined the following reconciling items: a. Credit memo- ₱190,000 b. Debit memo- ₱30,000 c. Deposit in transit- ₱50,000 d. Outstanding checks-₱20,000 Requirement: Prepare the bank reconciliation. Solution: ABC Co. Bank Reconciliation For the month ended August 31, 2019 Balance per books, end. ₱300,000 Balance per bank statement, end. ₱430,000 Add: Credit memos (CM) 190,000 Add: Deposits in transit (DIT) 50,000 Less: Debit memos (DM) (30,000) Less: Outstanding checks (OC) (20,000) Add/less: Book Errors Add/Less: Bank errors Adjusted balance ₱460,000 Adjusted balance ₱460,000 Sample Problem 2: Transaction analysis You received your August 2019 bank statement. The August 31, 2019 cash balance in your accounting books is ₱520,000 while the cash balance shown on the bank statement is ₱410,000. You determined the following information: a. Check NO. 2345 for ₱45,000, issued to a supplier, is not yet presented to the bank for payment. b. A ₱205,000 check deposit, with deposit slip no. 0989, is not yet credited to your account. c. A customer deposited ₱60,000 to your bank account. You have not yet recorded this collection of account receivable in your accounting books. d. The bank paid ₱10,000 monthly mobile phone charges directly out of your account. FUNDAMENTALS OF ACCOUNTANCY, BUSINESS & MANAGEMENT - 2 Page 2 of 5  Fundamentals of Accountancy, Business and Governor Pack Road, Baguio City, Philippines 2600 Management 2 Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786; 442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM-12 Email: [email protected]; Website: www.uc-bcf.edu.ph MODULE 5 – FABM2 Subject Teacher: Requirements: a. Prepare the bank reconciliation. b. Prepare the adjusting (reconciling) entries. Solution: ABC Co. Bank Reconciliation For the month ended August 31, 2019 Balance per books, end. ₱520,000 Balance per bank statement, end. ₱410,000 Add: Credit memos (CM) 60,000 Add: Deposits in transit (DIT) 205,000 Less: Debit memos (DM) (10,000) Less: Outstanding checks (OC) (45,000) Add/less: Book Errors Add/Less: Bank errors Adjusted balance ₱570,000 Adjusted balance ₱570,000 *only the book adjustments need adjusting entries to be recorded by the company Credit memos Cash 60,000 Accounts Receivable 60,000 Debit memos Utilities Expense 10,000 Cash 10,000 Sample Problem 3: Bank Reconciliation You are the accountant of Blue Sky Co. You obtained the following information for the purpose of preparing the bank reconciliation for the month of May 2020. Cash in bank per accounting records: SUBSIDIARY LEDGER CASH IN BANK- BPI CURRENT ACCOUNT Date Description Debit Credit Balance 1-May Bal. forwarded ₱560,000.00 10-May Deposit ₱350,000.00 ₱910,000.00 11-May Check #1109 ₱109,000.00 ₱801,000.00 11-May Deposit ₱480,000.00 ₱1,281,000.00 18-May Check #1110 ₱200,000.00 ₱1,081,000.00 21-May Check #1111 ₱80,000.00 ₱1,001,000.00 27-May Check #1112 ₱280,000.00 ₱721,000.00 30-May Deposit ₱160,000.00 ₱881,000.00 Bank of the Philippine Aylands Account Number: 8121-0008-48 Account Type: BPI Checking account Branch: PIGGY BRANCH Period covered: 5/1/2020-5/31/2020 Date Description Ref Details Debit Credit Balance Beginning Balance ₱ 560,000.00 10-May CASH DEPOSIT 23 Piggy City ₱ 350,000.00 ₱ 910,000.00 11-May CASH DEPOSIT 90 Piggy City ₱ 480,000.00 ₱ 1,390,000.00 12-May PAYMENT 1 ₱ 31,905.00 ₱ 1,358,095.00 15-May CHECK ENCASHMENT 40 Ck# 1109 ₱ 109,000.00 ₱ 1,249,095.00 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS & MANAGEMENT - 2 Page 3 of 5  Fundamentals of Accountancy, Business and Governor Pack Road, Baguio City, Philippines 2600 Management 2 Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786; 442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM-12 Email: [email protected]; Website: www.uc-bcf.edu.ph MODULE 5 – FABM2 Subject Teacher: 18-May CHECK ENCASHMENT 99 Ck# 1110 ₱ 200,000.00 ₱ 1,049,095.00 26-May CHECK DEPOSIT 67 Piggy City ₱ 90,000.00 ₱ 1,139,095.00 29-May CHECK ENCASHMENT 77 Ck# 1112 ₱ 280,000.00 ₱ 859,095.00 Solution: *Cross-out all items recorded both in the bank statement and the records of the business. Items that are left are to be classified under their respective reconciling item. a. Outstanding checks of ₱80,000 (from ledger dated 5/21, ‘Check #1111’ b. Deposit in Transit of ₱60,000 (from ledger dated 5/30, ‘deposit’) c. Debit memo of ₱31,905 (from bank statement dated 5/12 described as payment) Credit memo of ₱90,000 (from bank statement dated 5/26 described as check deposit) Blue Sky Co. Bank Reconciliation For the month ended May 31, 2020 Balance per books, end. ₱881,000 Balance per bank statement, end. ₱859,095 Add: Credit memos (CM) 90,000 Add: Deposits in transit (DIT) 160,000 Less: Debit memos (DM) (31,905) Less: Outstanding checks (OC) (80,000) Add/less: Book Errors - Add/Less: Bank errors - Adjusted balance ₱939,095 Adjusted balance ₱939,095 Sample Problem 4: Errors ABC Co. is preparing its November 30, 2020 bank reconciliation. The following information was determined: a. The cash balance per books is ₱500,000 while the cash balance per bank statement is ₱530,000. b. The bank collected ₱640,000 from a customer, representing ₱600,000 principal of the note receivable and ₱40,000 interest. c. NSF check of ₱150,000 returned by the bank to ABC. ABC has not yet recorded the return of the check. d. Collections amounting to ₱310,000 were deposited by month-end but were not reflected on the bank statement. e. Checks issued totaling ₱60,000 are not yet presented to the bank for payment. f. A book error caused the debits to be overstated by ₱120,000. g. A bank error caused the debits to be overstated by ₱90,000. Required: Prepare a bank reconciliation statement. Solution: ABC Co. Bank Reconciliation For the month ended November 30, 2020 Balance per bank statement, Balance per books, end. ₱500,000 end. ₱530,000 Add: Credit memos (CM) 640,000 Add: Deposits in transit (DIT) 310,000 Less: Debit memos (DM) (150,000) Less: Outstanding checks (OC) (60,000) Add/less: Book Errors 120,000 Add/Less: Bank errors 90,000 Adjusted balance ₱870,000 Adjusted balance ₱870,000 Sample Problem 5: Reconstruction of information The following information pertains to ABC Co.’s cash on December 31, 2020: a. Balance per bank statement- P8,000 b. Credit memo- P5,000 c. Debit memo- P2,000 d. Deposits in transit- P4,000 e. Outstanding checks- P3,000 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS & MANAGEMENT - 2 Page 4 of 5  Fundamentals of Accountancy, Business and Governor Pack Road, Baguio City, Philippines 2600 Management 2 Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786; 442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM-12 Email: [email protected]; Website: www.uc-bcf.edu.ph MODULE 5 – FABM2 Subject Teacher: Required: Prepare a bank reconciliation statement. Solution: ABC Co. Bank Reconciliation For the month ended December 31, 2020 Balance per books, end. ₱??? Balance per bank statement, end. ₱8,000 Add: Credit memos (CM) 5,000 Add: Deposits in transit (DIT) 4,000 Step 1 Less: Debit memos (DM) (2,000) Less: Outstanding checks (OC) (3,000) Step 3 Add/less: Book Errors - Add/Less: Bank errors - Adjusted balance ₱??? Adjusted balance ₱??? Step 2 To complete the pro forma statement, use the squeeze method: Step 1: Compute for the adjusted balance of a column with complete values. In this problem, the column for balance per bank statement is complete. Step 2: Then, copy the computed adjusted balance to the adjusted balance of the other column since the adjusted balance of both columns should be the same. Step 3: Compute for the remaining missing amount. ABC Co. Bank Reconciliation For the month ended December 31, 2020 Balance per books, end. ₱6,000 Balance per bank statement, end. ₱8,000 Add: Credit memos (CM) 5,000 Add: Deposits in transit (DIT) 4,000 Less: Debit memos (DM) (2,000) Less: Outstanding checks (OC) (3,000) Add/less: Book Errors - Add/Less: Bank errors - Adjusted balance ₱9,000 Adjusted balance ₱9,000 References: Ferrer, R. & Millan Z. (2018). Fundamentals of Accountancy, Business, and Management 2. Baguio City: Bandolin Enterprise Ballada, W. (2019). Fundamentals of Accountancy, Business, and Management 2. Manila: DomDane Publishers FUNDAMENTALS OF ACCOUNTANCY, BUSINESS & MANAGEMENT - 2 Page 5 of 5