FABM2 Q2 MOD2 Bank-Reconciliation-Statement removed PDF

Preview

Summary

Bank Reconciliation...

Description

Fundamentals of Accounting, Business and Management 2 Quarter 2 – Module 2: Bank Reconciliation Statement

What I Need to Know

From the last module, we have understood the bank reconciling items. These items are important in preparing for bank reconciliation statement. At the end of the lessons, you should be able to: 1. Prepare bank reconciliation statement. (ABM_FABM12-IId-13)

What I Know

Select the letter of the correct answer. 1. Beginning deposit in transit is P10,000, total deposits made per book is

P50,000 and the deposit listed in the bank is P40,000. How much is the deposit in transit at the ending of the month? a. P10,000 b. P20,000 c. P30,000 d. P40,000 2. Beginning outstanding checks amounted to P30,000, total checks issued per

book is P30,000 and the check paid by the bank amounted P50,000. How much is outstanding checks at the end of the month? a. P10,000 b. P20,000 c. P30,000 d. P40,000 3. The bank erroneously debited P10,000 check on out account. what is the entry

to correct the books? a. DR: accounts receivable CR: cash in bank b. DR: miscellaneous expense CR: cash in bank c. DR: accounts receivable CR: miscellaneous expense d. No entry

4

Lesson

1

Bank Reconciliation Statement

Bank reconciling items are important in the preparation of bank reciliation statement. As we have understood the bank reconciling items, we found out that not all records on both bank and book are always updated. To do this, we need to compute and journalize these items to reconcile the cash balances. This is important because it reflects the correct amount of cash in the bank as that of the book and is also important in the correct cash balance in the balance sheet. The inconsistencies and inaccurateness of a company’s bank account records may lead to working capital shortage and affects the overall operations of the business.

Analyze the Statement of Financial Position of ABaMagaling School Supplies. In relation to the importance of bank reconciliation to a business, below illustrates that cash balance is also affected by a correct bank balance. In this example, suppose the cash of the store is composed of cash on hand and cash in bank. The cash in bank, as we already discussed in the previous modules, must reconcile with how we record it in the book, thus bank reconciliation statement is necessary.

ABaMagaling School Supply Store STATEMENT OF FINANCIAL POSITION As of June 30, 2020

CASH ON HAND

NON-CURRENT ASSETS PROPERTY, PLANT AND EQUIPMENT LAND BUILDING LESS: ACCUMULATED DEPRECIATION-BLDG EQUIPMENT LESS: ACCUMULATED DEPRECIATION-EQPT FURNITURE AND FIXTURES TOTAL ASSETS

₱ ₱

24,000 2,000

40,000

CASH IN BANK

22,000 17,000 23,000 200,000 6,000 2,000 3,500

BANK RECORDS ₱

₱ 500,000 ₱ 250,000 15,000 70,000 14,000

BANK RECONCILIATION STATEMENT

235,000 56,000 10,000

NON-CURRENT LIABILITIES LOANS PAYABLE (6 YEARS) MORTGAGE PAYABLE TOTAL NON-CURRENT LIABILITIES

₱

801,000 ₱ 1,114,500

50,000 25,000 ₱

75,000

₱

830,000 905,000

30,000 800,000

OW NER'S EQUITY MAGALING, CAPITAL 6/30/2020 TOTAL LIABILITIES AND OWNERS EQUITY

209,500 ₱ 1,114,500

5

BOOK RECORDS

313,500

LIABILITIES and OWNER'S EQUITY CURRENT LIABILITIES ACCOUNTS PAYABLE ACCRUED EXPENSE TOTAL CURRENT LIABILITIES

>Physical Counting

CASH

ASSETS CURRENT ASSETS CASH ACCOUNTS RECEIVABLE LESS: ALLOWANCE FOR BAD DEBTS NOTES RECEIVABLE ACCRUED INCOME MERCHANDISE INVENTORY SUPPLIES PREPAID RENT PREPAID INSURANCE TOTAL CURRENT ASSETS

Here is the proforma of the bank reconciliation statement. (Company Name) Bank Reconciliation Statement As of _______________ Balance per bank Add: Total Less:

P xxx

Deposit in transit Bank error

P xxx xxx

P xxx P xxx xxx

Outstanding checks

Adjusted Bank Balance

P xxx

Balance per book

P xxx

Add:

Credit Memo

xxx

Total Less:

P xxx Debit Memo

P xxx

NSF Check

xxx

Adjusted Book Balance

P xxx P xxx

6

What’s In

Do you still remember the bank reconciling items? Let us recall them by filling the blanks below. Bank Reconciling Items 1. O 2.

T

C

S

E

T

3. B

E

N

S

T

R

Book Reconciling Item 1. B

C

2. 3.

N O

D K

R

R

How are these items important to bank reconciliation? Answer the following questions. 1. What is a bank reconciliation? ___________________________________________________________________________ ___________________________________________________________________________ 2. Who should prepare bank recon and how often should it be done? ___________________________________________________________________________ ___________________________________________________________________________

Notes to the Teacher Bank reconciling is a matter of comparing books and bank records, find the similarities and difference in amounts and update the books.

7

What’s New

STEPS IN PREPARING BANK RECONCILIATION STATEMENT Let us break down the steps how to prepare a bank reconciliation statement. In order to check both bank and book records, you need to prepare the bank statement and the book transactions for the month.

STEP 1:

Get the ending cash balances for both bank and cash ledger.

Illustrative Problem: The following are the transactions of ABM Consultancy Services. The balance in the ledger is P39,500 while the bank has P144,600. Look at the book and bank records below. July 4 Deposited

in the checking account.

July 5 Issued the following checks to the suppliers: Check No. 00101 P

July 18

Deposited P

in the checking account.

July 20

Issued the following checks to the suppliers: Check No. 00104 P

July 24

Deposited P

July 28

Deposited P

in the checking account. in the checking account.

8

Below is the July Bank Statement of ABM Consultancy Services: Matapat Bank Limay, Bataan Branch ABM Consultancy Services Duale, Limay, Bataan Date

Account No. 00345 July 31, 2020

Description

Withdrawals

30-Jun

₱

1-Jul

₱

13,000

25,000 38,000

4-Jul

47,000

9-Jul

197,000

13-Jul 15-Jul

194,500

₱ Chk No. 00100

12,000

182,500

18-Jul

212,500

20-Jul

Chk No. 00101

21-Jul

Chk No. 00105

206,500 186,500

23-Jul 26-Jul

165,500 Chk No. 00103

155,600

30-Jul

Bank 1. 2. 3.

Balance

Deposits

144,600

Statement Information Debit Memo of P2,500 is a bank service charge. No Sufficient Fund (NSF) check amounts P21,000. The loan of the company is approved and been credited to the bank account amounting P150,000.

4.

9

STEP 2: Compare the deposits credited and checks paid by the bank against the deposits and checks recorded in the book. In the Illustrative example, we have put check marks on the deposits and checks that are present in both bank and book records.

Summary of book transaction: Checks

Deposits July 4

P 9,000

Check No. 00101

P 6,000

July 18

30,000

00102

3,000

July 24

23,000

00103

9,900

July 28

5,400

00104

15,000

P 67,400

00105

20,000 P 53,900

10

STEP 3:

Compute for the deposit in transit and outstanding checks.

Deposit in Transit Beginning deposit in transit is the deposit which is found in the bank statement but are no longer part of the present month’s deposit. Look for the deposit side (credit side) of the bank statement, we mark x because we cannot find it in the transaction of July. (Image: Deposits from Matapat Bank Statement)

Computation for Deposit in Transit Deposit in transit, beginning Add: Deposits made per book Total amounts that should have been deposited Less: Deposits shown in the bank statement Deposit in transit, end

11

P 13,000 67,400 P 80,400 52,000 (13,000+9,000+30,000) P 28,400

From the deposits made in the book, it can be clearly seen that deposits which are not yet reflected in the bank is P28,400 the same as the computed amount.

Deposits July 4

P 9,000

July 18

30,000

July 24

23,000**

July 28

5,400**

= P 28,400

P 67,400

Outstanding Checks Beginning outstanding checks are checks which were in the bank statement but are no longer part of the present month’s issued checks. Look for the withdrawal side (debit side) of the bank statement, we mark x because we cannot find it in the transaction of July. (Image: Checks from Matapat Bank Statement)

Computation for Outstanding Checks Outstanding checks, beginning Add: Checks issued per book Total checks that should have been cleared Less: Checks paid by the bank Outstanding checks, end

P 12,000 53,900 P 65,900 47,900 (12,000+6,000+20,000+9,900) P 18,000

From the checks issued per the book, it can be clearly seen that checks which are not yet reflected in the bank is P18,000 the same as the computed amount.

Checks Check No. 00101

P 6,000

00102

3,000**

00103

9,900

00104

15,000**

00105

20,000 P 53,900

12

=P 18,000

STEP 4: Check for bank errors as these errors will be added or subtracted to the bank balance or book balance, depending on their effect on the balances. In this example, it is the erroneous withdrawal of the bank to our account amounting to P11,000, so we will add it back to the bank balance.

ABM Consultancy Services Bank Reconciliation Statement As of July 31, 2020

13

STEP 5:

Journalize the book reconciling items to update the book.

a. Credit memo (bank credits) b. Debit Memo (bank debits) c. NSF Check

P150,000 P2,500 P21,000

General Journal Date July 31

Transaction Cash in bank Loan Payable

PR

Debit

Credit

101

P 150,000

202

P 150,000

To record proceeds of the loan Miscellaneous expense

506

Cash in bank

101

2,500 2,500

To record bank service charges Accounts Receivable

106

Cash in bank

21,000

101

21,000

To adjust bank account for NSF check

Note: To see the effects on the General Ledger Balance after the adjustments: Account Cash in bank 101 Date

Explanation

JR

Debit

Credit

Balance

June 30

Adjusted Balance

P 26,000

July 31

Book receipts

CRJ

Book payments

CPJ

Entry for bank loan

GJ

Entry for DM

GJ

2,500

187,000

Entry for NSF Check

GJ

21,000

166,000

14

P 67,400

93,400 P 53,900

150,000

39,500 189,500

What is It

Can you recall the steps for bank reconciliation? Enumerate the steps in preparing bank reconciliation statement. 1. ___________________________________________________________________________ ___________________________________________________________________________ 2. ___________________________________________________________________________ ___________________________________________________________________________

3. ___________________________________________________________________________ ___________________________________________________________________________ 4. ___________________________________________________________________________ ___________________________________________________________________________

5. ___________________________________________________________________________ ___________________________________________________________________________

Things to remember:  Who should prepare bank reconciliation? Bigger companies usually assign persons who handles bank reconciliation and that is the accounting department. But in a practical sense, every business who has bank account should do bank reconciliation. It should be done on a monthly basis.  What are the risks of not preparing bank reconciliation? A business who do not regularly do bank reconciliation, is more prone to fraud, theft, and bank errors. In the long run, it affects the operations, credibility, and goodwill.  What type of internal control is bank reconciliation? There are three types of internal control, detective, preventative and corrective (University of Florida - Finance and Accounting 2020). Bank reconciliation is a detective internal control where in it finds errors or problems after the transaction has occurred and offers fact-after-fact detection of irregularities.

15

What’s More

Activity1: Copy and compare book and bank statements. Put a CHECK (/) on the deposits and checks found in both bank and book records of ABM CPA Review Center.

Below are the book transactions of ABM CPA Review Center: Cash ledger has balance of P100,000. Remember this balance as you will need this in the preparation of the bank reconciliation statement Deposits Mar 1 5 13 20 28

Checks Check No. 00401 00402 00403 00404 20,000

9,000 13,000 8,000

00405

78,000

52,000

Philippine Bank Limay, Bataan Branch ABM CPA Review Center Duale, Limay, Bataan Date 28-Feb 1-Mar 2-Mar

Description

Account No. 00345 March 31, 2020 Withdrawals

Deposits ₱ ₱

Check 00399

4,000

Check 00400

7,000

40,000

5-Mar 7-Mar 13-Mar 15-Mar 17-Mar 20-Mar

100,000 Check 00402

Check 11021 25-Mar 28-Mar 31-Mar

500

DM

3,000 5,000 700

NSF DM

Check 00405

16

CM

Balance 45,000 85,000 97,000 93,000 103,000 96,000 196,000 201,000 184,000 183,500 214,500 211,500 206,500 205,800 200,800

Bank statement information: 1. 2. 3. 4.

Bank loan is credited by the bank, P100,000. NSF check was returned, P5,000. The two debit memos are both bank service charges. Check 11021 is a bank error.

Activity 2: From the transactions of ABM CPA Review Center, compute the following items in good form. Computation for Deposit in Transit Deposit in transit, beginning Add: Deposits made per book Total amounts that should have been deposited Less: Deposits shown in the bank statement Deposit in transit, end

P

40,000 78,000

P

118,000 98,000

P

20,000

Computation for Outstanding Checks Outstanding checks, beginning Add: Checks issued per book Total checks that should have been cleared Less: Checks paid by the bank Outstanding checks, end

17

P

11,000 52,000

P

63,000

33,000

P

30,000

Activity 3: Let us prepare bank reconciliation statement for ABM CPA Review Center.

ABM CPA REVIEW CENTER ____________________________ Bank Reconciliation Statement ___________________________ As of March 31, 2020

Balance per bank Add:

P

Deposit in transit

P

Bank error Chk No. ______

20,000 3,000

Total Less:

200,800

23,000

P Outstanding checks

223,800 30,000

Adjusted Bank Balance

P

193,800

Balance per book

P

100,000

Add:

Credit Memo

100,000

Total Less:

P Debit Memos

P

1,200 5,000

NSF Check Adjusted Book Balance

6,200

P

18

200,000

193,800

Activity 4: Journalize the book reconciling items for ABM CPA Review Center. General Journal Date 3/31/2020

Transaction

PR

CIB

Debit

Credit

100,000 LOANS PAYABLE

100,000

To record proceeds of loan 3/31/2020

MISCELLANEOUS EXPENSE

1,200 1,200

CIB To record bank service charges

3/31/2020

A/R

5,000 5,000

CIB To record NSF Check

19

What I Have Learned

Answer the following questions. 1. What is the importance of bank reconciliation? ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ 2. What are the procedures of bank reconciliation? ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________

3. What are the risks of not doing bank reconciliation? ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ 4. Why is bank reconciliation considered an internal control? ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________

20

What I Can Do

Always remember the lesson about bank reconciling items. The details of the book and the bank should arrive at a similar cash balance to say we have achieved correct cash in bank balance. Let us simplify the idea of bank reconciliation. To put together lessons about bank reconciliation, analyze the activity below and compute for the correct cash balance.

Given the following information, compute the correct cash balance. Balance per bank

P22,907.50

Balance ...