Bank

Reconciliation
Statement
Learning
Objectives:
K: Define bank reconciliation
statement.
S: Enumerate and describe the
common reconciling items.
A: Recognize the importance and
purpose of bank reconciliation
statement based on the given
Bank Reconciliation
Statement
Reconciliation is an accounting process that
compares two sets of records to check if
figures are correct and in agreement.
To reconcile in accounting is to check and
balance the accounting records of the
company using their books of accounts,
ledgers – general and subsidiary,
journals and other documents that are
interconnected with the different transactions
in the company.
Books of Accounts are the accounting
books where business transactions
are recorded.
An accounting ledger is an
account or record used to store
bookkeeping entries for balance-
sheet and income-statement
transactions. Accounting ledger
journal entries can include accounts
like cash, accounts receivable,
investments, inventory, accounts
payable, accrued expenses, and
A journal is a detailed
account that records all the
financial transactions of a
business, to be used for the
future reconciling of accounts and
the transfer of information to
other official accounting records,
such as the general ledger.
Companies use reconciliation to
prevent balance sheet errors on their
financial accounts, check for fraud,
and to reconcile the general ledger.
In double-entry accounting, each
transaction is posted as both debit
and a credit. Individuals also may
use account reconciliation to check
the accuracy of their checking and
What is Bank
Reconciliation?
Bank reconciliation statements ensure
payments have been processed and cash
collections have been deposited into the
bank. The reconciliation statement helps
identify difference between the bank
balance and book balance, in order to
process necessary adjustments or
corrections.
Nature of Bank Reconciliation
Statement
It is normal for a company’s bank balance as
per accounting records to differ from the
balance as per bank statement. The difference
between these figures is the reasons why
companies prepare bank reconciliation
statements. Bank reconciliation statement is a
report which compares the bank balance as
per company’s accounting records with the
balance stated in the bank statement.
Why do bank
reconciliation?
A bank reconciliation statement summarizes
banking and business activity, reconciling an
entity’s bank account with its financial records.
Bank reconciliation statements confirm that
payments have been processed and cash
collections have been deposited into a bank
account. All fees charged on an account by a bank
must be accounted for on a reconciliation
statement. After all adjustments, the balance on a
bank reconciliation statement should equal the
 Completing a bank reconciliation
statement requires using both the
current and the previous month’s
statements, including the closing
balance of the account. The
accountant typically prepares the bank
reconciliation statement using all
transactions through the previous day,
as transactions may still be occurring on
the actual statement date.
Two Common
Types of
Discrepancy
 Time lags that prevent one of the parties
from recording the transaction in the same
period as the other party.
Example: A bank statement for the month
ended August 2020 and then there is a cash
payment collected from client late afternoon
at 4:00 pm. The company can no longer
deposit it in their bank account since most of
the banks are closed at 3:00 pm. The cash
transaction is recorded in the company’s
accounting records but not reflected as bank
Errors by either party in
recording transactions.
Example: A check or cash deposit
in the amount of ₱20,000 is
recorded as ₱2,000. In this case a
big difference is found between the
company’s record and the bank
records. This needs reconciliation.
Importance of
Bank
Reconciliation
Statement
A time to time review of the company’s
account can help identify problems they
get out of hand.
1. Catch deception before it’s too late.
Deception or fraud is very common to
bank accounts. There are times that
checks are duplicated, and some are even
issued without authorization. Money
laundering can also happen in the
company where unauthorize transfers and
withdrawals or missing deposits took place
2. Prevent Administrative Problems.
Reconciliation helps in maintaining the
credibility of the company’s cash accounts and
receivables. This contributes to the monitoring
in the cash inflows and outflows in the company.
3. If the bank balance appearing in the
accounting records can be confirmed to be
correct by comparing it with the bank statement
balance, it provides added comfort that the
bank transactions have been recorded correctly
There are three methods of preparing
bank reconciliation statement, these
are:

1. Adjusted method wherein the balances

per bank and per book are separately
determined
2. Book to Bank Method wherein the book
balance is adjusted to agree with the bank
balance.
What are the items to
reconcile?
1. Interest earned. This among is
recorded in the bank statement and must
be added to the company’s book balance.
2. Service charges. These amounts are
charged by the bank for its services in
maintaining the checking account and
must be subtracted from the company’s
book balance.
3. Adjustments to deposits. The company
may sometimes record a deposit incorrectly,
or it may deposit a check for which there are
not sufficient funds (NSF). If so, and the bank
spots the error, the company must adjust its
books balance to correct the error. The bank
may also charge an NSF fee, which must be
recorded in the company’s books.
4. Adjustments to checks. The company
may occasionally record a check incorrectly. If
so, and the bank spots the error, the company
Direction: Answer the following
questions in a ½ sheet of paper.

1. Why bank reconciliation

statement important?
2. What might happen to companies
if they do not perform bank
reconciliation?
Direction: True or False. Write TRUE if
the statement is correct, otherwise
FALSE.
1. Interest earned is added to the checking account balance and in
the bank statement.
2. Bank reconciliation is done in a monthly basis.
3. Bank reconciliation is not required in every company.
4. Reconciliation is important to check for errors and not correct
them.
5. Bank reconciliation statement does not follow any format.
OBJECTIVES:

K: Analyze the effects of the identified

reconciling items; in a given problem
S: Calculate the adjusted book and bank
balances with the reconciling items;
A: Gain valuable insights on how to
effectively analyze the effects of the
reconciling items in the company’s book
and bank balances.
Reconciling
Items
At the end of every month, comparison between the
cash book balance of the depositor and the bank
statement received from the bank will bring forth the
following reconciling items:
1. Book reconciling
items:
A. Credit memos B. Debit memos C. Errors

2. Bank reconciling
items:
A. Deposit in transit B. Outstanding checks C. Errors
Credit Memos
Items not representing deposits credited
by the bank to the account of the
depositor but not yet recorded by the
depositor as cash receipts. Credit memos
reflect additions for such items as notes
collected for the depositor by the bank
and wire transfers of funds from another
bank in which the company sends funds
to the home office bank.
The credit memos have the effect of increasing
the bank balance.
Examples of credit memos:
Notes receivable collected by bank in favour of
the depositor and credited to the account of the
depositor.
Proceeds of bank loan credited to the account of
the depositor.
Matured time deposits transferred by the bank
to the current account of the depositor.
Debit Memos
Items not representing checks paid by bank
which are charged or debited by the bank to
the account of the depositor but not yet
recorded by the depositor as cash
disbursements. Debit memos reflect
deductions for such items as service
charges, NSF checks, safe-deposit box rent,
and notes paid by the bank for the depositor.
The debit memos have the effect of
Examples of debit memos:
NSF (no sufficient fund checks) or DAIF (drawn against
insufficient fund) – These are checks deposited but returned by
the bank due to insufficiency of fund.
Technically defective checks – These are checks returned by
the bank because of technical defects such as absence of
signature or countersignature, erasures not countersigned,
mutilated checks, conflict between amount in words and
amount in figures.
Bank service charges – These include bank charges for
interest, collection, checkbook and penalty.
Reduction of Loan – Pertains to amount deducted from the
current account of the depositor in payment for loan which the
depositor owes to the bank and which has already matured.
Book Errors

A common error by depositors is recording a

check in the accounting records or cash book at
an amount that differs from the actual amount.
For example, a ₱1,500 check may be recorded
as ₱5,100. Although the check clears the bank
at the amount written on the check ₱1,500, the
depositor frequently does not notice the error
until reviewing the bank statement or canceled
checks.
No definite rule can be
made whether these book
errors can be added or
deducted. It will have to
be analyzed for proper
treatment. Errors are
reconciling items of the
Deposit in transit

Are collections already recorded by the

depositor as cash receipts but not yet reflected
on the bank statement. The most common
deposits in transit are the cash receipts
deposited on the last business day of the
month. These are cash on hand awaiting
delivery to the bank for deposit.
Since deposits in transit have already been
recorded in the company’s books as cash
Examples of deposit in transit:

Collections already forwarded to

the bank for deposit but too late
to appear in the bank statement.
Undeposited collections or those
still in the hands of the depositor.
Outstanding checks
Are checks already recorded by the
depositor as cash disbursements but not
yet reflected on the bank statement. This
will cause the bank statement balance to
overstate the company’s actual cash
balance.
Since outstanding checks have already
been recorded in the company’s books as
cash disbursements, they must be
Examples of outstanding checks:
Checks drawn and already given to payees but not yet
presented for payment.
Certified checks – a certified check is one where the
bank has stamped on its face the word “accepted” or
“certified” indicating sufficiency of fund. When the
bank certifies a check, the account of the depositor is
immediately debited or charged to insure the eventual
payment of the check. It carries a guarantee from the
bank that the recipient will receive the full-face value
of the check from the issuing person’s or company’s
bank account.
Bank Errors

Sometimes banks make errors by depositing or

taking money out of the depositor’s account in
error. In this case, the company will have to
contact the bank to correct the error but will not
record any entry in the company’s records because
it is unrelated to the company’s records.
For this lesson, the Adjusted balance method
format is used in reconciling the book balance and
the bank balance.
 Analyzing the Effects of The
Reconciling
Example 1: Items
XYZ Company is closing its books and must prepare a bank reconciliation
for the following items:
Bank statement contains an ending balance of ₱300,000 on October 31,
2020, whereas the company’s general ledger (Cash in bank) shows an
ending balance of ₱263,500.
Bank statement contains ₱100 service charge for operating the account.
Bank statement contains interest income of ₱3,000
XYZ issued checks of ₱50,000 that have not been cleared by the bank.
XYZ deposited ₱20,000 but this did not appear on the bank statement.
A check for the amount of ₱4,700 issued to the office supplier was
misreported in the cash payments journal as ₱3,700.
A note receivable of ₱9,800 was collected by the bank.
A check of ₱5,200 deposited by the company has been charged back as
 Adjustment to Books
Amount Effects
Ending Bank Balance 300,000.00
Reconciling Items:
deduction from the
Less: Uncleared Checks (outstanding checks) balance per bank statement none
50,000.00
Add: Deposit that did not appear in the bank addition to the
statement (Deposit in transit) balance per bank statement none
20,000.00
Adjusted Bank Balance 270,000.00
Ending Book Balance 263,500.00
deduction to the debit Expense
Less: Service Charge (Debit memo) balance per book of XYZ (service charge), credit
100.00
cash
Add: Interest income (Credit memo) addition to the balance per debit cash, credit
3,000.00 book interest income
deduction to the
Less: Error on check with a difference of ₱1,000 balance per book of XYZ debit expense, credit cash
1,000.00

Add: Notes Receivable (Credit memo) addition to the balance per debit cash, credit
9,800.00 book notes receivable
deduction to the debit accounts
Less: NSF (Debit memo) balance per book of XYZ receivable, credit cash
5,200.00

Adjusted Book Balance 270,000.00

Explanation:
The adjusted balance method means
that the book balance and the bank
balance are adjusted to equal the correct
cash balance.
Uncleared checks or outstanding
checks are deducted from the bank
balance to correct the overstated bank
balance because the checks are not yet
paid by the bank. Adjustment per book
Ending Bank
Balance 300,000.00
deduction from
Less: Uncleared the
Checks (outstanding balance per bank none
50,000.00
checks) statement
 Deposit in transit is added to
the bank balance to correct the
understated bank balance because
the deposit is not yet recorded by
the bank. Adjustment per book
(journal entry) is not needed.
Ending Bank Balance 300,000.00
Deposit that did not
appear in the bank addition to the
statement (Deposit in balance per bank none
20,000.00
transit) statement
Credit memos are added
to the book balance to
correct the understated cash
book balance due to
unrecorded Interest Income
and Notes Receivable of the
company.
Ending Book Balance 263,500.00
Add: Interest income addition to the debit cash,
(Credit memo) 3,000.00 balance per book credit
interest income
Add: Notes Receivable addition to the debit cash,
(Credit memo) 9,800.00 balance per book credit
notes
receivable
 Debit memos are deducted from the book
balance to correct the overstated cash book
balance due to unrecorded Service Charge and
NSF.
Ending Book Balance 263,500.00
deduction to the debit Expense
Less: Service Charge balance per book (service
(Debit memo) 100.00 of charge), credit
XYZ cash
deduction to the debit accounts
balance per book receivable,
Less: NSF (Debit Memo) of credit cash
5,200.00
XYZ
Book Error. The ₱1,000 amount difference in check payment is
considered as reconciling item on the part of the company (the one
who committed the error). Hence, it is deducted to the book balance
to correct the understated payment.

Ending Book Balance 263,500.00

deduction to the
Less: Error on check with balance per book debit expense,
1,000.00 of
a difference of ₱1,000 credit cash
XYZ