Course Material 1_Bank Reconciliation Intermediate Accounting 1

LECTURE NOTES
1. Bank reconciliation
1.1 The bank reconciliation, when properly prepared, proves that the cash balance
per bank and the cash balance per book are in agreement.

1.2 Periodic bank reconciliations can help identify any cash errors or irregularities
that have occurred in accounting for cash, either by the business unit or the
bank.

1.3 Prepared by an individual who neither handles nor records cash.

1.4 Most differences in bank and book balances for cash are “normal” and are the
result of temporary timing lags.

1.4.1. Deposits in Transit - Deposits recorded in the cash account in one period but
not received by the bank until the next period.

1.4.2. Outstanding Checks - Checks written by the company that have yet to be
presented at the bank for collection.

1.4.3. Bank Charges - Charges by the bank for services that are deducted from the
account by the bank and which the company learns of when it receives the
bank statement.

1.4.4. Bank Credits - Collections or deposits in the company's account that the
company is not aware of until receipt of the bank statement.

1.4.5. Bank or Depositor Errors - Errors made by the company or the bank that must
be corrected for the reconciliation to balance.

2. Forms of bank reconciliation

2.1 Two forms of bank reconciliation may be prepared.

2.2 One form reconciles from the bank statement balance to the book balance or
vice versa.

2.3 The other form is described as the reconciliation of bank and book balances to
corrected cash balance. This form is composed of two separate sections that
begin with the bank balance and book balance, respectively. Reconciling items
that apply to the bank balance are added and subtracted to arrive at the
corrected cash balance. Likewise, reconciling items that apply to the book
balance are added and subtracted to arrive at the same corrected cash balance.
The corrected cash balance is the amount that should be shown on the balance
sheet at the reconciliation date.

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STRAIGHT PROBLEMS

The Cash in Bank account of Dollar Company disclosed a balance of P203,000 as of

December 31, . The bank statement as of December 31, showed a balance of
P106,000. Upon comparing the bank statement with cash records, the following facts
were developed:

a. The company’s account was charged on December 26 for a customer’s uncollectible

check amounting to P30,000.
b. A two-month, 17% P60,000 customer’s note dated October 25, discounted on
November 25, was dishonored on December 25, and the bank charged the
company P62,000, which included a protest fee of P2,000.
c. A customer’s check for P15,400 was entered as P14,500 by both the depositor and
the bank but was later corrected by the bank.
d. Check no. 142 for P12,425 was entered in the cash disbursements journal at
P12,245 and check no. 156 for P3,290 was entered as P32,900.
e. Bank service charges of P1,830 for December were not yet recorded on the books.
f. A bank memo stated that a customer’s note for P25,000 and interest of P1,000
had been collected on December 28; and the bank charged P500. (No entry was
made on the books when the note was sent to the bank for collection).
g. Receipts on December 31 for P24,000 were deposited on January 2.
h. The following checks were outstanding on December 31:

No. 123 P3,000 No. 154 P4,000

143 * 2,000 157 6,000
144 7,000 159 7,000
147 3,000 169 5,000
* Certified by the bank in December

i. A deposit of P20,000 was recorded by the bank on December 5, but it should have
been recorded for Dolor Company rather than Dollar Company.
j. Petty cash of P10,000 was included in the Cash in Bank balance.
k. Proceeds from cash sales of P60,000 for December 18 were stolen. The company
expects to recover this amount from the insurance company. The cash receipts
were recorded in the books, but no entry was made for the loss.
l. The December 21 deposit included a check for P20,000 that had been returned on
December 15 marked NSF. Dollar Company had made no entry upon return of the
check. The redeposit of the check on December 21 was recorded in the cash
receipts journal of Dollar Company as a collection on account.

REQUIRED:
1. Prepare a bank reconciliation using:
a) Bank to book method;
b) Book to bank method; and
c) Adjusted balance method

2. Prepare adjusting entries as of December 31

SOLUTION GUIDE (Bank to Book):

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Balance per bank, 12/31 P106,000
a) DM – Customer’s uncollectible check
b) DM – Dishonored disc. NR
c) Error – Understated collections
d) Error – Overstated payments
e) DM – service charge
f) CM – Note collected, net
g) Deposit in transit
h) Outstanding checks
i) Erroneous bank credit
j) Petty cash fund
k) Stolen receipts
l) Double counted deposits
Balance per books, 12/31 P203,000

SOLUTION GUIDE (Adjusted Balance Method)

Bank Book
Unadjusted balance, 12/31 P106,000 P203,000
a) DM – Customer’s uncoll. check
b) DM – Dishonored disc. NR
c) Error – Undestated collections
d) Error – Overstated payments
e) DM – service charge
f) CM – Note collected, net
g) Deposit in transit
h) Outstanding checks
i) Erroneous bank credit
j) Petty cash fund
k) Stolen receipts
l) Double counted deposits
Adjusted balance, 12/31

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REVIEW QUESTIONS

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MULTIPLE CHOICE PROBLEMS
1. The following data pertaining to the cash transactions and bank account of
Mandirigma Company for the month of May are available to you:

Cash balance, per records, May 31 P17,194

Cash balance, per bank statement, 5/31 31,948
Bank service charge for May 109
Debit memo for the cost of printed checks delivered by the bank 125
Outstanding checks, May 31 6,728
Deposit of May 30 not recorded by bank until June 1 4,880
Proceeds of a bank loan of May 30, net of interest of P300 5,700
Proceeds from a customer's promissory note, including interest of
P100 8,100
Check No. 2772 issued to a supplier entered in the accounting
records at P2,100 but deducted in the bank statement at an
erroneous amount of 1,200
Stolen check lacking an authorized signature, deducted from
Mandirigma's account by the bank in error 800
Customer's check returned by the bank marked NSF; no entry has
been made in the accounting records to record the returned 760
check

What is the correct cash balance at May 31?

a. P29,2 b. P30,3 c. P30,0 d. P30,9
00 00 00 00

2. The information below is from the books of the Seminole Corporation on June 30:

Balance per bank statement P11,164

Receipts recorded but not yet deposited in the bank 1,340
Bank charges not recorded 16
Note collected by bank and not recorded on books 1,120
Outstanding checks 1,100
NSF checks - not recorded on books nor redeposited 160

Assuming no errors were made, compute the cash balance per books on June 30
before any reconciliation adjustments.
a. P11,4 b. P12,3 c. P10,4 d. P10,2
04 48 60 20

3. The cash in bank account of S-mart, Inc. for April showed an ending balance of
P129,298. Deposits in transit on April 30 was P18,200. Outstanding checks as of
April 30, were P59,435, including a P5,000 check which the bank had certified on
April 27. During the month of April, the bank charged back NSF checks in the
amount of P3,435 of which P1,835 had been redeposited by April 20. On April 23,
the bank charged S-Mart’s account for a P2,200 items which should have been
charged against K-mart, Inc., the error was not detected by the bank. During
April, the proceeds from notes collected by the bank for S-Mart, Inc. was P7,548
and bank charges for this services was P18.

How much is the unadjusted balance per bank on April 30?

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a. P95,2 b. P88,3 c. P173, d. P169,
63 33 663 263

Use the following information for the next two questions.

Shown below is the bank reconciliation for YOUR Company for May:

Balance per bank, May 31, P75,000

Add: Deposits in transit 12,000
Total 87,000
Less: Outstanding checks P14,000
Bank credit recorded in error 5,000 19,000
Cash balance per books, 5/31/10 P68,000

The bank statement for June contains the following data:

Total deposits P55,000

Total charges, including an NSF check of P4,000 and a
service charge of P200 48,000

All outstanding checks on May 31, including the bank credit, were cleared in the bank
in June.

There were outstanding checks of P15,000 and deposits in transit of P19,000 on June
30, .

4. Cash receipts per books in June is?

a. P74,0 b. P43,0 c. P62,0 d. P48,0
00 00 00 00

5. Cash disbursement per books in June is?

a. P90,2 b. P42,8 c. P44,8 d. P39,8
00 00 00 00

Use the following information for the next two questions.

Banaue Company deposits all receipts and makes all payment by check. The following
information is available from the cash records:

May 31 Bank Reconciliation

Balance per bank P262,460
Add: Deposits in transit 21,000
Deduct: Outstanding checks (38,000)
Balance per books P245,460

Month of June Results Per Bank Per Book

Balance June 30 P279,950 P303,550
June deposits 107,840 158,890
June checks 111,000 100,800
June note collected (not included in June deposits) 30,000 -0-
June bank service charge 350 -0-
June NSF check of a customer returned by the bank
(recorded by bank as a charge) 9,000 -0-

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6. The deposit in transit as of June 30 is
a. P72,050 b. 70,250 c. P51,050 d. P42,050

7. The outstanding checks of of June 30 is

a. P27,800 b. P28,700 c. P37,150 d. P31,750

SOLUTION GUIDE # 6 SOLUTION GUIDE # 7

Deposit in transit, beg P Outstanding checks, beg P

Collection this period Checks issued this period
Total Total
Deposits credited by bank this period Checks paid by bank this period
Deposits in transit, end Outstanding checks, end

8. The following information was included in the bank reconciliation for Ryan, Inc.
for June. Assume all other reconciling items are listed.

Checks and charges recorded by bank in June, including a June

service charge of P600 P344,200
Service charge made by bank in May and recorded in the books in
June 400
Total of credits to Cash in all journals during June 396,040
Customer’s NSF check returned as a bank charge in June (no entry 2,000
made on books)
Customer’s NSF check returned in May and redeposited in June (no
entry made on books in either May of June) 5,000
Outstanding checks at June 30 265,200
Deposit in transit at June 30 12,000

What was the total of outstanding checks at the beginning of June?

a. P319,240 b. P211,160 c. P219,360 d. P213,160

SOLUTION GUIDE # 8

Outstanding checks, beg P

Checks issued this period
Total
Checks paid by bank this period
Outstanding checks, end

REVIEW QUESTIONS

MULTIPLE CHOICE THEORY

1. Bank reconciliation
a. Is the process of transferring money in or out of a bank account.
b. Requires that every transaction which will result in a cash payment be
verified, approved and recorded before a bank check is prepared.
c. Is an analysis that reflects the bank transactions made by a depositor.

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d. Explains the difference between the bank balance and the balance shown
in the depositor’s records.

2. If the cash balance in a company’s bank statement is more than the correct
cash balance and neither the company nor the bank has made any errors,
there must be
a. Deposits credited by the bank but not yet recorded by the company
b. Outstanding checks
c. Bank charges not yet recorded by the company
d. Deposits in transit

3. If the cash balance shown in a company’s accounting records is more than

the correct cash balance and neither the company nor the bank has made
any errors, there must be
a. Deposits credited by the bank but not yet recorded by the company
b. Deposits in transit
c. Outstanding checks
d. Bank charges not yet recorded by the company

4. If the cash balance shown in a company’s accounting records is less than the
correct cash balance and neither the company nor the bank has made any
errors, there must be
a. Deposits credited by the bank but not yet recorded by the company
b. Deposits in transit
c. Outstanding checks
d. Bank charges not yet recorded by the company

5. If the cash balance in a company’s bank statement is less than the correct
cash balance and neither the company nor the bank has made any errors,
there must be
a. Deposits credited by the bank but not yet recorded by the company
b. Outstanding checks
c. Bank charges not yet recorded by the company
a. Deposits in transit

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