Chapter 9

Bank Reconciliation
BANK RECONCILIATION

A companys cash balance at bank and its cash balance

according to its accounting records usually do not match. This is
due to the fact that, at any particular date, checks may be
outstanding, deposits may be in transit to the bank, errors may have
occurred etc.
Therefore, companies have to carry out bank reconciliation process
which prepares a statement accounting for the difference
between the cash balance in companys cash account and the
cash balance according to its bank statement.
 When an agency/entity uses a bank as a depository and clearing
house for checks issued and checks/cash received, the use of a
bank, among others, facilitates the control of cash, because it
creates a double record of all bank transactions one by the
agency/entity and one by the bank. The cash account maintained
by the entity should have the same balance in the bank statement.
 However, the two balances are seldom the same at any given time
may be due to time lags that prevent one of the parties from
recording the transaction in the same period as the other party,
and may be due to errors by either party in recording transactions.
Therefore, it is necessary to make the balance per books and the
balance per bank agree with the correct amount. This process is
called reconciling the bank account.
 A bank reconciliation, which is the settlement of differences
contained in the bank statement and the cash account in the
agencys/entitys books, compares the bank balance with the
entity balance and explains any differences.
Bank Reconciliation Statement

The Bank Reconciliation Statement (BRS) shall be prepared in order to:

Check correctness of both the banks and agencys/ entitys
records,
Serve as a determent to fraud, and
Enable the agency/entity or bank to take up charges or credits
recognized by the bank or agency/entity but not yet known to the
agency/entity or bank.
This shall be used in the reconciliation of bank and treasury
accounts maintained with Government Servicing Bank (GBS).
 The monthly BRS shall be prepared by the Chief
Accountant/Designated Staff for each of the bank accounts
maintained by the agency/entity using the Adjusted Balance
Method.
Under this method, the book balance and the bank balance are
brought to an adjusted cash balance that must appear in the
Statement of Financial Position.
Reconciliation Procedures

The Chief Accountant/Designated Staff shall reconcile the monthly

bank statement together with the paid checks, debit
memorandum, like interest earned, from Government Servicing
Banks.
In other words, reconciling the bank account, it is customary to
reconcile the balance per books and balance per bank to their
adjusted cash balances.
The following items may cause the difference between the book
balance and the bank balance for:
1. Cash - Modified Disbursement System Accounts
Bank
Notice of Cash Allocation (NCA) received by the entity but not yet
recognized by the bank
Lapsed/unused NCA
 Outstanding checks
Outstanding Authority to Debit Accounts (ADA)
Errors committed by the bank
 Agency/Entity
NCA received by the bank but not yet recognized by the
agency/entity
Cancelled checks
Lapsed NCAs not yet adjusted by the agency/entity
Bank charges
Errors continued by the agency/entity
2. Authorized Government Depository Bank Accounts
Bank
Unrecorded deposit/deposit in transit
Outstanding checks
Errors committed by the bank
 Agency/Entity
Deposit per bank statement but not yet recorded in the books
Cancelled check
Returned check deposit
Bank charges
Errors committed by the agency/entity
ILLUSTRATION

The following data were taken from the accounting records of

Agency X for the month of July of the current year:

Cash - MDS, Regular Account:

Unadjusted balance per book P 10,800,250
Unadjusted balance per bank 12,422,050
Additional information:
1. NCA for regular account with Allotment Release Order (ARO) in
the amount of P3,000,000 was not recognized by Agency X in its
book.
2. MDS checks for regular account in the amount of P20,850 was
cancelled due to expiration of validity.
3. Checks issued for MDS regular account was erroneously recorded
as P87,000 instead of P78,000 by Agency X.
4. NCA for regular account with ARO in the amount of P520,150
lapsed, but remained unadjusted in the books of Agency X.
5. Checks issued for MDS regular account was erroneously recorded
as P40,000 instead of P50,000 by Agency X.
6. Cash - MDS, Regular account was overstated by P100,000 due to
erroneous recording of NCA received with ARO by Agency X.
7. The bank imposed charges in the amount of P3,750 for various
services rendered.
8. The bank erroneously recorded NCA for regular account
understating it by P900,000.
9. Outstanding checks for the month amounted to P125,850.
Authorized Government Depository Bank (AGDB) Account:
Unadjusted balance per book P 3,251,750
Unadjusted balance per bank 3,104,285
Additional information:
1. Deposit per bank statement but not yet recorded in the books of
Agency X in the amount of P23,120.
2. Understatement of Cash in Bank - Local Currency, Current account
due to erroneous recording of the checks issued in the amount of
P9,000.
3. Understatement of Cash in Bank- Local Currency, Current account
due to erroneous recording of deposits, P15,000
4. The bank returned check due to error in the makers account
deposited in the account of Agency X, P12,130.
5. Overstatement of the book balance due to erroneous recording of
deposit in the amount of P1,100.
6. Bank charges, P2,125.
REQUIRED:
1. Prepare Bank Reconciliation Statements for the MDS and AGDB
accounts using the adjusted Balance Method.
2. Prepare adjusting journal entries in the books of Agency X.
Adjusting Journal Entries:

Unrecognized NCA for regular account with ARO.

Cash - MDS, Regular 3,000,000
Subsidy from National Government 3,000,000

Cancelled MDS check (without intention to replace).

Cash - MDS, Regular 20,850
Expenses or other appropriate account 20,850
 Understatement of Cash - MDS, Regular account due to checks issued.
Cash - MDS, Regular 9,000
Accounts Payable or Other Liabilities 9,000

Lapsed/ unused NCA for regular account with ARO at year-end.

Subsidy for National Government 520,150
Cash - MDS, Regular 520,150
 Overstatement of Cash - MDS, Regular accounts due to check issued.
Expenses or Accounts Payable 10,000
Cash - MDS, Regular 10,000

Overstatement of Cash - MDS, Regular account due to NCA (with ARO)

received.
Subsidy for National Government 100,000
Cash - MDS, Regular 100,000
 Bank charges imposed by the bank.
Bank charges or Any appropriate account 3,750
Cash - MDS, Regular 3,750
Adjusting Journal Entries:

Deposit per bank statement not yet recorded by Agency X.

Cash in Bank Local Currency, Current 23,120
Income or Other appropriate account 23,120

Understatement of cash in bank due to checks issued.

Cash in Bank Local Currency, Current 9,000
Expenses or Other Liabilities 9,000
 Understatement of cash balance in bank due to erroneous recording of
deposits.
Cash in Bank Local Currency, Current 15,000
Revenue or Other appropriate account. 15,000

Checks deposited returned by the bank.

Revenue or Other appropriate account 12,130
Cash in Bank Local Currency, Current 12,130
 Overstatement of book balance due to erroneous recording of deposits.
Revenue or Other payables 1,100
Cash in Bank Local Currency, Current 1,100

Bank charges imposed by the bank.

Bank Charges or Any appropriate account 2,125
Cash in Bank Local Currency, Current 2,125