LESSON 7-4 BANK RECONCILIATION

Lesson Objectives
 prepare the bank reconciliation statement using the adjusted balance
method
 prepare the journal entries in the books in order to record the book
reconciling items

Because certain items only appear in the company's books and not in the bank statement or some
items appear in the bank statement but not in the company's books, the cash balance per book
and the cash balance per bank are not the same. Hence, a bank reconciliation statement is
necessary to bring the balance per books and the balance per bank into agreement.

Illustrative Problem
The following are transactions of Fidas Merchandising for the month of August.

Aug. 5 Fidas Merchandising deposited P200,000 in the checking account with Platinum Bank

7 Bought merchandise from Oats Trading. Issued Check No. 00500 in the amount of
P30,000.

10 Fidas Merchandising deposited 50,000 in the checking account.

15 Bought merchandise from various suppliers and issued the following checks.
Payee Check No. Amount
Summer Co. 00501 P 18,000
Spring Co. 00502 50,000
Winter Trading 00503 40,000
Autumn Enterprises 00504 35,000

20 Deposited 125,000 in the checking account

25 Purchased merchandise from various suppliers and issued the following checks.

Payee Check No. Amount

Planet . 00505 P 5,000
Star Co. 00506 6,000
 Moon Trading 00507 7,000
Sun Enterprises 00508 8,000

29 Issued Check No. 00509 to K9 Merchandising P10,000.

31 Deposited P123,000 in the checking account

Presented below is the statement of account received from Platinum Bank:

Platinum Bank
Quezon City

Fidas Merchandising Account No. 00345

5 Joy Street, Happy Village, Quezon City August 31, 2017

Date Debits Credits Balance

July 31 P28,000
Aug. 2 10,000 38,000
Aug. 3 12,000 50,000
Aug. 5 200,000 250,000
1,000 DM 249,000
Aug. 9 Chk No. 00500 30,000 219,000
Aug. 10 50,000 269,000
Aug. 16 Chk. No. 00501 18,000 251,000
Aug. 17 Chk No. 00502 50,000 201,000
Aug. 18 Chk No. 00504 35,000 166,000
Aug. 20 125,000 291,000
Aug. 27 Chk No 00508 8,000 283,000
Chk No 00503 40,000 243,000
Aug. 28 Chk No. 33300 10,000 233,000
Aug. 29 150,000 CM 383,000
Aug. 30 Chk No. 00505 5,000 378,000
12,000 NSF 366,000
Chk No. 00499 15,000 351,000
Aug. 31 Chk No.00507 7,000 344,000

Legend: DM – Debit Memo CM – Credit Memo NSF – No Sufficient Fund

Presented below are the amounts entered in the cash receipts book and cash payments
book respectively.

Cash Receipts Cash Payments

Aug. 5 P200,000 Check No. 00500 P30,000
10 50,000 00501 18,000
20 125,000 00502 50,000
31 123,000 00503 40,000
P498,000 00504 35,000
00505 5,000
00506 6,000
00507 7,000
00508 8,000
00509 10,000
P209,000
Note: In the bank statement, Check No. 333000 in the amount of P10,000 is a check issued by
K9 Trading erroneously recorded by the bank under the account of Fidas Merchandising.

Steps in Preparing the Bank Reconciliation Statement

1. Get the ending balance per bank statement furnished by the bank and the ending balance
of the cash in bank account in the general ledger of the company's books.

2. Compare the deposits credited by the bank in the bank statement against the deposits
made by the company in the cash receipts book. For deposits appearing both on the bank
 statement and the cash receipts book, put a small check mark beside the amounts. Check
also the deposits in transit of the previous month to see whether they have been credited
by the bank in the current month. The deposits without check marks represent the
deposits in transit. These will be added to the balance per bank. For the current month,
the Aug. 31 deposit in the cash receipts book of P123,000 has no check mark because it
did not yet appear on the bank statement. The Aug. 2 deposit in the amount of P10,000
and Aug deposit in the amount of P12,000 (both marked *) are not deposits made in
August per cash receipts book. This is because the P10,000 and 12,000 credited by the
bank are deposits made last July. Hence, these will be the beginning deposit in transit for
the month of August.

Computation for Deposits in Transit

Deposits in transit, 7/31 P 22,000

Add: Deposits made per books 498,000
Total amount that should have been deposited P520,000
Less: Deposits shown in the bank statement 397,000
Deposits in transit, 8/31 P123,000

As mentioned the Aug. 2 deposit of P10,000 and Aug. 3 deposit of P 12,000 (both
marked *) deposits made in July. The amount of P397,000 are deposits credited by the
bank per August bank statement which consist of the following:

Aug. 2 P 10,000
Aug. 3 12,000
Aug. 5 200,000
Aug. 10 50,000
Aug. 20 125,000
P 397,000

3. Compare the checks issued by the company per the cash payments book against the
checks paid or cancelled by the bank per bank statement in the current month. For checks
appearing both on the bank statement and the cash payments book, put a small check
mark beside the amounts. Check also the outstanding checks of the previous month to see
whether they have been paid by the bank in the current month. The checks without check
marks represent the outstanding checks. These will be deducted from the balance per
bank. Check No. 00506 in the amount of P6,000 has no check mark because it did not yet
appear on the August bank statement. The Aug. 30 check in the amount of P15,000
(marked ) is not a check issued in August per cash payments book. This is because the
P15,000 is a check issued last July. Hence, this will be the beginning outstanding check
for u month of August.

2
 Computation for Outstanding Checks
Outstanding checks, Beginning of the month P 15,000
Add: Checks issued per books 209,000
Total checks that should have been cleared P 224,000
Less: Checks paid by the bank 208,000
Outstanding checks, End of the month P 16,000

The P15,000 is a check issued in July but paid in August. The P208,000 are checks paid by the
bank per August bank statement which consist of the following:

Aug. 9 Chk No. 00500 P30,000

Aug. 16 Chk No. 00501 18,000
Aug. 17 Chk No. 00502 50,000
Aug. 18 Chk No. 00504 35,000
Aug. 27 Chk No. 00508 8,000
Chk No. 00503 40,000
Aug. 30 Chk No. 00505 5,000
Chk No. 00499 15,000
Aug. 31 Chk No. 00507 7,000
P 208,000

Note: All other items in the bank statement that do not appear in the books are credit memos,
debit memos, NSF checks, bank charges etc. Credit memos are added to the book balance while
debit memos, NSF checks and bank charges are deducted from book balance. In the case of
Platinum Bank, the credit memo represents proceeds of bank loan, and the debit memo
represents the cost of the checkbook.

4. Check for errors made by the bank or errors made by the book in recording transactions
These errors are either added to or subtracted from the bank balance or book balance
depending on their effect on the balances. Errors causing the book or bank balances to be
understated will be added to the respective balance where the error was committed.
Likewise, errors causing the book or bank balances to be overstated will be deducted
from the respective balance where the error was made. In the case of Platinum Bank, Chk
No. 33300 of K9 Trading in the amount of P10,000 was erroneously drawn against Fidas
Merchandising. This should be added to the balance of Fidas Merchandising because the
error understated the cash balance per bank.
 Fidas Merchandising
Bank Reconciliation Statement
August 31, 2017

Balance per bank P 344,000

Add: Deposits in transit P 123,000
Chk 33300 erroneously drawn against
Fidas Merchandising 10,000 133,000
Total P477,000
Less: Outstanding Checks 16,000
Adjusted Bank Balance P461,000

Balance per books P324,000

Add: Credit Memo 150,000
Total P474,000
Less: Debit Memo P1,000
NSF Check 12,000 13,000
Adjusted Book Balance P461,000

Note: The halance per books of P324,000 is the cash in bank balance per general ledger.

Journal Entries to adjust the balance per books:

General Journal
Date Transaction P.R. Debit Credit
Aug. 31 Cash in Bank 150,000
Loan Payable 150,000
To record proceeds of loan

Miscellaneous Expense 1,000

Cash in Bank 1,000
To record bank service
charges
 Accounts Receivble 12,000
Cash in Bank 12,000
To adjust bank account for
NSF check

General Ledger Balance after adjustments

Account: Cash in Bank Account No. 100

Date Explanation P.R. Debit Credit Balance

July 31 Adjusted Balance 35,000
Aug. 31 Book Balance CRJ 498,000 533,000
Book Payments CPJ 209,000 324,000
Entry for Bank Loan GJ 150,000 474,000
(AJE 1)
Entry for DM (AJE 2) GJ 1,000 473,000
Entry for NSF Check GJ 12,000 461,000
(AJE 3)