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Fundamentals of Accounting, Business and Management 2 Quarter 2 – Module 1: Bank Reconciling Items

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Fundamentals of Accounting, Business and Management 2 Quarter 2 – Module 1: Bank Reconciling Items

Introductory Message For the facilitator: Welcome to the Fundamentals of Accounting, Business and Management 2 – Grade 12 Alternative Delivery Mode (ADM) Module on the Bank Reconciling Items! This module was collaboratively designed, developed, and reviewed by educators both from public and private institutions to assist the teacher or facilitator in helping the learners meet the standards set by the K to 12 Curriculum while overcoming their personal, social, and economic constraints in schooling. This learning resource hopes to engage the learners into guided and independent learning activities at their own pace and time. Furthermore, this also aims to help learners acquire the needed 21st century skills while taking into consideration their needs and circumstances. In addition to the material in the main text, you will also see this box in the body of the module:

Notes to the Teacher This contains helpful tips or strategies that will help you in guiding the learners.

As a facilitator you are expected to orient the learners on how to use this module. You also need to keep track of the learners' progress while allowing them to manage their own learning. Furthermore, you are expected to encourage and assist the learners as they do the tasks included in the module.

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For the learner: Welcome to the Fundamentals of Accounting, Business and Management 2 – Grade 12 Alternative Delivery Mode (ADM) Module on the Bank Reconciling Items! The hand is one of the most symbolized part of the human body. It is often used to depict skill, action and purpose. Through our hands we may learn, create and accomplish. Hence, the hand in this learning resource signifies that you as a learner is capable and empowered to successfully achieve the relevant competencies and skills at your own pace and time. Your academic success lies in your own hands! This module was designed to provide you with fun and meaningful opportunities for guided and independent learning at your own pace and time. You will be enabled to process the contents of the learning resource while being an active learner. This module has the following parts and corresponding icons: What I Need to Know

This will give you an idea of the skills or competencies you are expected to learn in the module.

What I Know

This part includes an activity that aims to check what you already know about the lesson to take. If you get all the answers correct (100%), you may decide to skip this module.

What’s In

This is a brief drill or review to help you link the current lesson with the previous one.

What’s New

In this portion, the new lesson will be introduced to you in various ways such as a story, a song, a poem, a problem opener, an activity or a situation.

What is It

This section provides a brief discussion of the lesson. This aims to help you discover and understand new concepts and skills.

What’s More

This comprises activities for independent practice to solidify your understanding and skills of the topic. You may check the answers to the exercises using the Answer Key at the end of the module.

What I Have Learned

This includes questions or blank sentence/paragraph to be filled in to process what you learned from the lesson.

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What I Can Do

This section provides an activity which will help you transfer your new knowledge or skill into real life situations or concerns.

Assessment

This is a task which aims to evaluate your level of mastery in achieving the learning competency.

Additional Activities

In this portion, another activity will be given to you to enrich your knowledge or skill of the lesson learned. This also tends retention of learned concepts.

Answer Key

This contains answers to all activities in the module.

At the end of this module you will also find:

References

This is a list of all sources used in developing this module.

The following are some reminders in using this module: 1. Use the module with care. Do not put unnecessary mark/s on any part of the module. Use a separate sheet of paper in answering the exercises. 2. Don’t forget to answer What I Know before moving on to the other activities included in the module. 3. Read the instruction carefully before doing each task. 4. Observe honesty and integrity in doing the tasks and checking your answers. 5. Finish the task at hand before proceeding to the next. 6. Return this module to your teacher/facilitator once you are through with it. If you encounter any difficulty in answering the tasks in this module, do not hesitate to consult your teacher or facilitator. Always bear in mind that you are not alone. We hope that through this material, you will experience meaningful learning and gain deep understanding of the relevant competencies. You can do it!

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What I Need to Know

Most successful businesses make use of banks as a medium of cash transaction, whether for payments or deposits. It eases the flow of cash from the seller to the buyer and vice versa. For this reason, cash transactions with banks should also be monitored and balanced with that of the books. At the end of the month, the bank will release a bank statement. To monitor and balance the records of cash in the bank and records of cash of the company, we need to do bank reconciliation. This module will let us understand bank reconciliation. We will start with the Bank Reconciling Items. At the end of the lessons, you should be able to: 1. Describe the nature of a bank reconciliation statement (ABM_FABM12-IId-10) 2.

Analyze the effects of the identified reconciling items (ABM_FABM12-IId-12)

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What I Know

Select the letter of the best answer. 1. Which of the following is NOT a cash item? a. Saving account b. Checking account c. Cash on hand d. None of the above 2. These are deposits already recorded in the company’s book balance but not yet recorded in the bank records. a. Deposit in transit b. Bank errors c. Outstanding checks d. None of the above 3. These a. b. c. d.

are items mistakenly recorded by the bank to the company’s account. Bank error Book error Bank checks None of the above

4. These a. b. c. d.

are items erroneously recorded in the company’s books. Bank error Book error Bank deposits None of the above

5. These are deposits made by the bank to the company’s account but not yet reflected in the company’s books. a. Bank credits b. Bank debits c. Bank checks d. None of the above

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Lesson

Items for Reconciliation

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From the last module, you have learned about the elements of a bank statement. You have learned that every end of the month, the bank will release a bank statement. However, the records of the bank are not always in agreement with how we record cash transactions in our books. To monitor and balance the (1) records of cash in the bank and (2) records of cash of the company, we need to do bank reconciliation. To reconcile means to make an account consistent with another (Oxford Languages n.d.). That is why in bank reconciliation, the bank’s balance (in the bank statement) should reconcile with the books balance (cash records in the books). Illustrative example: Suppose both accounts are updated.

= BANK STATEMENT “Bank”

CASH LEDGER “Book”

Account: CASH Reference No. 101 Date Description Debits 30-Jun 1-Jul Sales ₱ 13,000 4-Jul Sales 9,000 9-Jul Loans Payable 150,000 13-Jul Miscellaneous expense 15-Jul Chk No. 00100 18-Jul Sales 30,000 20-Jul Chk No. 00101 21-Jul Chk No. 00102 23-Jul Accounts Receivable 26-Jul Chk No. 00103

XYZ Bank Limay, Bataan ABM Consultancy Services Duale, Limay, Bataan Date 30-Jun 1-Jul 4-Jul 9-Jul 13-Jul 15-Jul 18-Jul 20-Jul 21-Jul 23-Jul 26-Jul

Account No. 00345 July 31, 2020 Debits

Credits ₱ ₱

₱ Chk No. 00100

2,500 12,000

13,000 9,000 150,000

DM 30,000

Chk No. 00101 Chk No. 00102 Chk No. 00103

6,000 20,000 21,000 NSF 9,900

Debit entries are “subtracted” to the balance because these are withdrawals

CM

Balance 25,000 38,000 47,000 197,000 194,500 182,500 212,500 206,500 186,500 165,500 155,600

Debit entries are “added” to the balance

Credit entries are “added” to the balance because these are deposits

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Credits ₱

₱

2,500 12,000 6,000 20,000 21,000 9,900

Balance 25,000 38,000 47,000 197,000 194,500 182,500 212,500 206,500 186,500 165,500 155,600

Credit entries are “subtracted” to the balance

Note: For the ease of discussion, we will use the term “bank” to refer bank reconciling items and “book” for book reconciling items. It is important to note that to increase the cash in the books we need to debit it. However, it is not the same for bank records. The bank recognizes the company’s cash as a liability in its balance sheet, therefore cash of the company is increased by crediting the amount to its account. Here are the items to reconcile for both bank and book records. Bank Reconciling Items 1. Deposit in transit - deposits already recorded in the company’s books but not yet recorded by the bank. 2. Outstanding checks - checks issued by the company but not yet paid by the bank. 3. Bank errors - items erroneously recorded by the bank. Book Reconciling Items 1. Bank debits - bank charges that the bank deducts against the company’s account and not yet reflected in the books. 2. Bank credits - deposits made by the bank but not yet reflected in the books. 3. Book errors - item erroneously recorded by the company in its books.

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What’s In

There is a lot to figure out about reconciling items, isn’t it? Let us have a quick review by filling out the table with the reconciling items. Choose the answers from the box below and define each.

DEPOSIT IN TRANSIT BANK DEBITS BOOK ERRORS

BANK ERRORS OUTSTANDING CHECKS BANK CREDITS

Bank Reconciling Items

Book Reconciling Items

1.

1.

2.

2.

3.

3.

Notes to the Teacher Always remember to have a copy of both book and bank records. The bank reconciliation should be done within a few days after the month ends and getting bank statement is a click away, when the business is registered to an online banking. Unlike back in the days that you needed to go to the bank to update passbook details.

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What’s New

Bank Reconciling Items 1. Deposit in transit consists the following items: • Deposit in transit, beginning of the month – deposits made from the previous month but reflected in the current working month or simply the ending of last month’s DIT. • Deposit made per books- all deposits recorded in the book during the month • Deposits shown in the bank statement – deposits which are reflected in the bank during the month

2. Outstanding checks consist of the following items: • Outstanding checks, beginning of the month – checks from last month’s issue only reflected in the current month or simply the ending of last month’s OC. • •

Checks issued per books – all checks issued and recorded in the book during the current month Checks paid by the bank – all checks that have been issued that are encashed in the bank during the month.

3. Bank errors - items erroneously recorded by the bank during the month. Book Reconciling Items 1. Bank debits entry to update the book: • Accounts Receivable P xxx Cash in bank To record returned check. •

Miscellaneous Expense P xxx Cash in bank To record bank service charges.

P xxx

P xxx

2. Bank credits entry to update the book: • Cash in bank P xxx Miscellaneous Expense xxx Notes Receivable P xxx To record collection of note less bank charges.

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•

Cash in bank P xxx Loan Payable To record proceeds of the loan.

P xxx

3. Book errors are corrected through reversal entry of the affected accounts. Activity: Finding bank reconciling items are sometimes complicated. Let us have a drill to understand these reconciling items better. This will help us analyze the process of computing for deposit in transit and outstanding checks and necessary adjusting entries. Identify the items being described. Select the letter of the best answer. 1. On Jan 31, Mr. Ahn deposits P100,000 in his checking account. The deposit was reflected on Feb 2. The P100,000 is the __________. a. Deposit in transit, beginning of the month b. Outstanding check, beginning of the month c. Deposits made per book d. Checks issued per book 2. Upon checking the books, all deposits for the month amounted to P10,000, P12,000 and P23,000, respectively. How much are the deposits made per book? a. P46,000 b. P23,000 c. P45,000 d. P12,000 3. Checks issued on Jan 24 was paid by the bank on Feb 12. The checks cleared on Feb 12 is called __________. a. Outstanding check, end of the month b. Outstanding check, beginning of the month c. Checks that should have been cleared d. Deposit in transit 4. WWW error? a. b. c. d.

Bank recorded a P34,000 deposit as P43,000. What do you call this Book error Bank error NSF Bank debit

5. Super Bank returned an NSF check and collected charge for it. What is the entry for the bank charge for the NSF? a. Debit: Bank charge | Credit: Cash in bank b. Debit: Miscellaneous expense | Credit: Cash in bank

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c. Debit: Accounts Receivable | Credit: Cash in bank d. Debit: Loans Payable | Credit: Cash in bank 6. Makabayan School Supplies registered its business and applied for a loan in Makatao Bank amounting to P2,000,000. The bank approves the loan and deposited it in Makabayan’s checking account. The transaction is called _______. a. Bank Credits b. Bank Debits c. Bank Charges d. Checking account 7. On item #6, what is the journal entry to update the books? a. Debit: Bank charge | Credit: Cash in bank b. Debit: Cash in bank | Credit: Accounts payable c. Debit: Cash in bank | Credit: Loans payable d. Debit: Miscellaneous expense | Credit: Cash in bank 8. A deposit of P67,897 is recorded in the book as P67,789. What do you call this error? a. Book error b. Bank error c. NSF d. Bank debit 9. On item #8, what is the journal entry to correct the cash account? a. Debit: Cash in bank P108 | Credit: Sales P108 b. Debit: Sales P108 | Credit: Cash in bank P108 c. Debit: Cash in bank P67,897 | Credit: Sales P67,897 d. No entry 10. Malikhain Bank collects notes receivable for ABM Merchandise. The note amounted to P55,000 and the bank charges P300 for the collection. What is the entry to update the books? a. Debit: Bank charge P300 | Credit: Cash in bank P300 b. Debit: Cash in bank P55,000 | Credit: Notes receivable P55,000 c. Debit: Cash in bank P55,000 and Miscellaneous expense P300 | Credit: Notes receivable P55,300 d. Debit: Cash in bank P54,700 and Miscellaneous expense P300 | Credit: Notes receivable P55,000

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What is It

ITEMS TO RECONCILE A. BANK Reconciling Items – these are the items that need to be computed in order to balance it with the book. These items will be adjusted by the bank in its records. No book entry is needed.

Bank Reconciling Items

DEPOSITS IN TRANSIT – deposits already recorded in the company’s books but not yet recorded by the bank.

Deposit in transit, beg. of the month Add: Deposit made per books Total amount that should have been recorded Less: Deposits shown in the bank statement Deposits in transit, end of the month

P xxx xxx P xxx xxx P xxx

Example scenario: Jan 3. The company’s everyday sales are deposited in the bank. December 31 deposits are reflected on January 3 amounting to P10,000. Adding all the deposits recorded in the book, it amounts to P100,000, however, in the bank statement only P90,000 is reflected. Compute for the deposit in transit at the end of January. Deposit in transit, beg. of the month Add: Deposit made per books Total amount that should have been recorded Less: Deposits shown in the bank statement Deposits in transit, end of the month

P 10,000 100,000 P 110,000 90,000 P 20,000

Analysis: P20,000 worth of deposit has not reached the bank.

OUTSTANDING CHECKS – checks issued by the company but not yet paid by the bank.

Outstanding checks, beg. of the month Add: Checks issued per books Total checks that should have been cleared Less: Checks paid by the bank Outstanding checks, end of the month

P xxx xxx P xxx xxx P xxx

Example scenario: Jan1. The company pays its suppliers by issuing checks. Checks issued from December purchases amounting to P25,000 was reflected in January bank statement. As per the records in the book, all checks issued amounting to P230,000. However, of all checks issued, only P200,000 was cleared by the bank. Compute for the outstanding checks at the end of January.

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Outstanding checks, beg. of the month Add: Checks issued per books Total checks that should have been cleared Less: Checks paid by the bank Outstanding checks, end of the month

P 25,000 230,000 P255,000 200,000 P 55,000

Analysis: P55,000 of worth of checks issued to suppliers have not yet been paid by the bank.

BANK ERRORS – item erroneously recorded by the bank.
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