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Lesson 7.1

The document discusses bank reconciliation, which involves preparing a schedule to bring a depositor's cash balance per their records into agreement with the related bank's cash balance. There are three methods of reconciliation - unadjusted bank to book, unadjusted book to bank, and adjusted balance method, with the adjusted balance method being used. Key reconciling items include deposits in transit, outstanding checks, and errors made by the bank in recording transactions. Deposits in transit increase cash per books but are not yet recorded by the bank, while outstanding checks decrease cash per books as they have been issued but not paid by the bank.

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93 views3 pages

Lesson 7.1

The document discusses bank reconciliation, which involves preparing a schedule to bring a depositor's cash balance per their records into agreement with the related bank's cash balance. There are three methods of reconciliation - unadjusted bank to book, unadjusted book to bank, and adjusted balance method, with the adjusted balance method being used. Key reconciling items include deposits in transit, outstanding checks, and errors made by the bank in recording transactions. Deposits in transit increase cash per books but are not yet recorded by the bank, while outstanding checks decrease cash per books as they have been issued but not paid by the bank.

Uploaded by

crisjay ramos
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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LESSON 7: Bank Reconciliation

LESSON 7-1 BANK RECONCILING ITEMS

Lesson Objectives

• be familiar with the three methods of bank reconciliation

• identify the bank reconciling items for reconciliation between the books and
bank

• prepare a bank reconciliation statement

Cash is a medium of exchange used when selling or purchasing goods. However, it is not
advisable to be carrying a big amount of cash anywhere. Likewise, it is not practical and safe to
be keeping all the cash in the business place. Because of this, cash is deposited in the bank.
Checks are issued in payment of assets or merchandise purchased while collections are
deposited. A checking account is a current account from which the check payments are made.

At the end of the month, the bank furnishes the company a bank statement. This shows
the deposits made, checks issued by the depositor and paid by the bank, bank charges made and
other transactions affecting the depositor's account. Ideally, the bank statement should be in
agreement with the company's records. However, such is not always the case. Certain items
appearing on the company's records do not appear in the bank statement because it was recorded
by the company immediately prior to cut off date. On the other hand, certain charges of the bank
do not appear on the company's records because the bank recorded the transactions also
immediately prior to cut off date. Because of this, a bank reconciliation is prepared. Bank
reconciliation, is a schedule prepared to bring the depositor's cash balance and the related bank’s
cash balance into agreement. It shows the items causing the discrepancies between balance per
bank and the balance per book.

There are three methods of preparing the bank reconciliation of a business as follows:

1. Unadjusted Bank to Book Balance Method


This method simply adjusts the unadjusted balance per bank in order to arrive at the
unadjusted balance per book. Hence, the cash balance computed is not the correct cash balance
to be presented in the balance sheet.

2. Unadjusted Book to Bank Balance Method

This method simply adjusts the unadjusted balance per book in order to arrive at the
unadjusted balance per bank. Hence, like the first method, the cash balance computed is not the
correct cash balance to be presented in the balance sheet.

3. Adjusted Balance Method

This method adjusts both balances (balance per bank and balance per book) to the
corrected cash balance that will be presented in the balance sheet.

For purposes of our discussion, the adjusted balance method will be used in reconciling
the difference of the balance per bank and the balance per book.

Items for Reconciliation in a Bank Statement

1. Deposits In Transit - these are deposits already recorded in the company's books thereby

increasing the cash balance but not yet recorded in the bank records.

Computation for Deposits in Transit

Deposits in transit, beginning of the month P xxx

Add: Deposits made per books xxx

Total amount that should have been deposited P xxx

Less: Deposits shown in the bank statement xxx

Deposits in transit, end of the month P xxx


2. Outstanding Checks - these are checks issued by the company but not yet paid by the bank

Computation for Outstanding Checks

Outstanding checks, Beginning of the month Pxxx

Add: Checks issued per books xxx

Total checks that should have been cleared Pxxx

Less: Checks paid by the bank xxx

Outstanding checks, end of the month Pxxx

Errors - these are items erroneously recorded by the bank. (Example payment of P100,000 has
been recorded as P10,000)

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