MODULE 3
PART 3 – BANK RECONCILIATION
BANK RECONCILIATION
Learning Objectives; At the end of this topic, you are expected to have:
1. Understood the need for a bank reconciliation.
2. Known the reconciling items affecting the cash in bank per ledger.
3. Known the reconciling items affecting the cash in bank per bank
statement.
4. Prepared a bank reconciliation.
5. Prepared the necessary adjusting entries to reconcile the cash in
bank per ledger with the cash in bank per bank statement.
Most of the business concerns, maintain cash transactions, through bank accounts.
A business concern, deposits cash receipts in a bank checking the account and
makes payment of bills by checks.
The bank sends a monthly statement. The business concern, verifies the
information and bank balance shown in the bank statements with accounting
records of the business.
If any discrepancy is detected, it is reconciled by preparing a bank reconciliation
statement.
Prior to the discussion of the Bank Reconciliation statement preparation, the following concepts
need to be understood:
Bank Deposits
Three Kinds of Bank deposits:
a. Demand Deposit c. Time Deposit
b. Saving Deposit
a. Demand Deposit - current or checking account or commercial
deposit where deposits are covered by deposit slips and where funds
are withdrawable on demand by drawing checks against the bank.
- It is noninterest bearing deposit.
, 2
b. Savings Deposit - the depositor is given a passbook upon the
initial deposit. The passbook is required when making deposits and
withdrawals. It is an interest bearing deposit.
c. Time Deposit – similar to saving deposit in the sense that it is interest bearing.
However, it is evidenced by a formal agreement embodied in an instrument
called certificate of deposit.
- It could be preterminated or withdrawn on demand or
after a certain period of time agreed upon.
Note: Incidentally, of the three kinds of deposits, a bank reconciliation is necessary
only for a demand deposit or a checking account.
GUIDELINES RELATIVE TO CHECKING ACCOUNT OR DEMAND DEPOSIT
1. Open an account at the bank.
2. The person authorized to draw checks against the account will be
required to sign cards furnished by the bank, to show the specimen
signatures to be used on the checks.
3. The specimen signatures will be filed by the bank so that any teller who
may be unfamiliar with a depositor’s signature can test the authenticity of
a check by comparing the depositor’s signature on the card with the
signature on the check.
4. If the depositor is a corporation, the bank will request that the directors
pass a resolution authorizing certain officers of the corporation as
signatories of checks and that a copy of this resolution be filed with the
bank.
Illustrative transaction affecting the depositor and the bank:
Assume that Company X (the depositor) collected P100,000 from a
customer in settlement of an account. The collection is deposited at the
bank (National Bank).
The journal entry to record the collection and the subsequent
deposit is:
Cash (or cash in bank) 100,000
, 3
Accounts Receivable 100,000
To record collection.
On the books of the bank, the journal entry is:
Cash 100,000
Company X 100,000
To record deposit of collection.
Note: In practice, the account credited by the bank is demand deposit
account but the same is posted to the subsidiary ledger of Company X.
● When the bank credits the account of the depositor, Company
X, it recognizes its liability to the depositor.
● Legally, when a deposit is made, there exists a debtor-creditor
relationship between the bank and the depositor, the bank
being the debtor, and the depositor being the creditor.
● Hence, when the account of the depositor is increased, the same
is creditor.
In connection to the previous example, assume further that Company X
subsequently issued a check for P 30,000 in payment of an account
payable.
On the books of Company X, the journal entry is:
Accounts Payable 30,000
Cash 30,000
To record issuance of
check to pay Accounts Payable.
The journal entry on the books of the bank is:
Company X 30,000
Cash 30,000
To record check
encashed by the payee.
Note: When a check is issued, the payee will present the same to the
bank for payment. In effect, the depositor is actually ordering the bank
to pay the payee out of its deposit in the bank. This is the reason the
PART 3 – BANK RECONCILIATION
BANK RECONCILIATION
Learning Objectives; At the end of this topic, you are expected to have:
1. Understood the need for a bank reconciliation.
2. Known the reconciling items affecting the cash in bank per ledger.
3. Known the reconciling items affecting the cash in bank per bank
statement.
4. Prepared a bank reconciliation.
5. Prepared the necessary adjusting entries to reconcile the cash in
bank per ledger with the cash in bank per bank statement.
Most of the business concerns, maintain cash transactions, through bank accounts.
A business concern, deposits cash receipts in a bank checking the account and
makes payment of bills by checks.
The bank sends a monthly statement. The business concern, verifies the
information and bank balance shown in the bank statements with accounting
records of the business.
If any discrepancy is detected, it is reconciled by preparing a bank reconciliation
statement.
Prior to the discussion of the Bank Reconciliation statement preparation, the following concepts
need to be understood:
Bank Deposits
Three Kinds of Bank deposits:
a. Demand Deposit c. Time Deposit
b. Saving Deposit
a. Demand Deposit - current or checking account or commercial
deposit where deposits are covered by deposit slips and where funds
are withdrawable on demand by drawing checks against the bank.
- It is noninterest bearing deposit.
, 2
b. Savings Deposit - the depositor is given a passbook upon the
initial deposit. The passbook is required when making deposits and
withdrawals. It is an interest bearing deposit.
c. Time Deposit – similar to saving deposit in the sense that it is interest bearing.
However, it is evidenced by a formal agreement embodied in an instrument
called certificate of deposit.
- It could be preterminated or withdrawn on demand or
after a certain period of time agreed upon.
Note: Incidentally, of the three kinds of deposits, a bank reconciliation is necessary
only for a demand deposit or a checking account.
GUIDELINES RELATIVE TO CHECKING ACCOUNT OR DEMAND DEPOSIT
1. Open an account at the bank.
2. The person authorized to draw checks against the account will be
required to sign cards furnished by the bank, to show the specimen
signatures to be used on the checks.
3. The specimen signatures will be filed by the bank so that any teller who
may be unfamiliar with a depositor’s signature can test the authenticity of
a check by comparing the depositor’s signature on the card with the
signature on the check.
4. If the depositor is a corporation, the bank will request that the directors
pass a resolution authorizing certain officers of the corporation as
signatories of checks and that a copy of this resolution be filed with the
bank.
Illustrative transaction affecting the depositor and the bank:
Assume that Company X (the depositor) collected P100,000 from a
customer in settlement of an account. The collection is deposited at the
bank (National Bank).
The journal entry to record the collection and the subsequent
deposit is:
Cash (or cash in bank) 100,000
, 3
Accounts Receivable 100,000
To record collection.
On the books of the bank, the journal entry is:
Cash 100,000
Company X 100,000
To record deposit of collection.
Note: In practice, the account credited by the bank is demand deposit
account but the same is posted to the subsidiary ledger of Company X.
● When the bank credits the account of the depositor, Company
X, it recognizes its liability to the depositor.
● Legally, when a deposit is made, there exists a debtor-creditor
relationship between the bank and the depositor, the bank
being the debtor, and the depositor being the creditor.
● Hence, when the account of the depositor is increased, the same
is creditor.
In connection to the previous example, assume further that Company X
subsequently issued a check for P 30,000 in payment of an account
payable.
On the books of Company X, the journal entry is:
Accounts Payable 30,000
Cash 30,000
To record issuance of
check to pay Accounts Payable.
The journal entry on the books of the bank is:
Company X 30,000
Cash 30,000
To record check
encashed by the payee.
Note: When a check is issued, the payee will present the same to the
bank for payment. In effect, the depositor is actually ordering the bank
to pay the payee out of its deposit in the bank. This is the reason the
