Name: Date:

Team:

Question No 1:

Company XYZ received a bank statement for the month of August 2018. The bank statement showed the
following information:
Balance, August 1, 2018 P68,326
Deposits 45,300
Checks processed (36,222)
Service charges (50)
Monthly deposit into saving account directly
Deducted by bank from account (680)
Balance, August 31, 2018 P76,674

Company XYZ’s general ledger account had a balance of P78,304 at the end of August 2018.
(i) Deposits outstanding amounting to P8,200;
(ii) all checks written by the company were processed by the bank except for those totaling P8,420;
(iii) A P2,000 check to a supplier correctly recorded by the bank but was incorrectly recorded by the
company as P200 credit to cash.

Required:
1. Prepare a bank reconciliation statement for the month of August’18
2. Prepare the necessary journal entries at the end of August to adjust the general ledger cash account.

Bank Reconciliation for the Month of Aug’18

Cash Balance per Book- Aug 1 78,304

Add: Bank Statement Withdrawal

Service Charge 50
Deducted by bank 680
Checks processed 36,222
36952
Less: Bank Stament Deposit
Deposits 45,300 45300
2000
Add: Bank Ledger Withdrawals
Checks not processed 8420 8420
1800
Less: Bank Ledger Deposits
Deposits 8200

Check error 10,000

Cash Balance per bank statement 76674

(2000)
(

Answer:
Part 1 : Preparation of Bank Reconciliation Statement:

Company XYZ
Bank Statement As at 31 August 2018

Step 1: Bank Balance to Corrected Balance

Balance per Bank Statement P74,674
Add: Deposits Outstanding 8,200
Deduct: Checks Outstanding (8,420)
P74,454
Step 2: Book Balance to Corrected Balance
Balance per Book P78,304
Service charges (50)
Automatic monthly transfer (2,000)
Error in recording cash disbursement (P2,000-200) (1,800)
Corrected Cash Balance P74,454

Part B: To record credits to cash revealed by the bank reconciliation.

Miscellaneous charges ( bank service charges) P50
Cash-savings account P2,000
Accounts payable P1,800
Cash P3,850

[PS: Each adjustment affecting the book balance required journal entries
None of the adjustments to the bank balance require entries. ]

Common Financial & Accounting Ratios & Formulas

Short Term Solvency or Liquidity Ratios

Current Ratio = Current Assets / Current Liabilities
Quick Ratio = (Current Assets – Inventory) / Current Liabilities
Cash Ratio = Cash / Current Liabilities
Net Working Capital = Net Working Capital / Total Assets
Internal Measure = Current Assets / Average Daily Operating Costs
Percentage of Debt to Asset Formula = Long Term Liabilities ⁄ Total Assets x 100%
Debt to Equity Ratio Formula = Total Liabilities ⁄ Total Equity
Long Term Solvency or Financial Leverage Ratios
Total Debt Ratio = (Total Assets – Total Equity) / Total Assets
Debt to Equity Ratio = Total Debt / Total Equity
Equity Multiplier = Total Assets / Total Equity
Long Term Debt Ratio = Long Term Debt / (Long Term Debt + Total Equity)
Times Interest Earned = Earnings before Interest & Taxes / Interest
Cash Coverage Ratio = (Earnings before Interest & Taxes + Depreciation) / Interest
Asset Use or Turnover Ratios
Inventory Turnover = Cost of Goods Sold / Inventory
Days’ Sales in Inventory = 365 days / Inventory Turnover
Receivables Turnover = Sales / Accounts Receivable
Days’ Sales in Receivables = 365 days / Receivables Turnover
Net Working Capital (NWC) Turnover = Sales / Net Working Capital
Fixed Asset Turnover = Sales / Net Fixed Assets
Total Asset Turnover = Sales / Total Assets
Profitability Ratios
Profit Margin = Net Income / Sales
Return on Assets (ROA) = Net Income / Total Assets
Return on Equity (ROE) = Net Income / Total Equity
ROE = (Net Income / Sales) x (Sales / Assets) x (Assets / Equity)
Market Value Ratios
Price to Earnings Ratio = Price per Share / Earnings per Share
Market-to-Book Ratio = Market Value per Share / Book Value per Share
Cash Flow Ratios
Cash Flow Solvency Ratio Formula = Actual Cash Flow from Operations ⁄ Total Liabilities
Cash Flow Margin Ratio Formula = Actual Cash Flow from Operations ⁄ Revenues from Sales
Cash flow ROA Ratio Formula = Actual Cash Flow from Operations ⁄ Average Total Assets

Ratio Analysis Exercise

Calculate each of the ratios indicated below.

1. CR= 1.2
2. QR= 0.6
3. RTO= 13 times; 28.07 days
4. ITO= 3 times; 121 days
5. FAT= 3.25 times
6. TAT= 1.85 times
7. TIE= 98.6
8. DR= 50%
 9. DER= 100%
10. EM= 2
11. PM= 22.23 %
12. ROA= 41.29%
13. ROE= 82.5 %
14. POR= 63.32% RR= 36.68%
15. EPS= 1.92
16. PER= 4.61
17. BVP= 2.33
18. MBR= 3.79

Answers:

All Ratios
Current Ratio 1.2

Quick Ratio 0.6

Receivables Turnover 13 times

Days' Receivables 28.08 days

Inventory Turnover 3 times

Days' Inventory 121.67 days

Fixed Assets Turnover 3.25 times

Total Assets Turnover 1.86 times

Times Interest Earned (TIE) 98.6 times

Debt Ratio 50%

Debt to Equity Ratio 100%

Equity Multiplier 2

Profit Margin 22.23%

Return on Assets (ROA) 41.29%

Return on Equity (ROE) 82.57%

Payout Ratio 63.32%

Retention Ratio 36.68%

Earnings Per Share (EPS) $1.93

Book Value Per Share $2.33

Price/Earnings Ratio 4.59

Market-to-Book Ratio 3.79