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FABM 2
Quarter 4 – Module 3
Preparing Bank Reconciliation
Statement
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This module for Fundamentals of Accounting, Business and

Management 2 explores all concepts necessary in the Senior High
School Accountancy, Business and Management Track.

This gives students a strong foundation which will be used

through their Accounting studies.

It is aligned with BEC of the Department of Education

following the prescribed MELCs (Most Essential Learning
Competencies).

It has the following features proven to be valuable aids to

learning Accounting even at home.

This section contains pre-activities like review of the prior

knowledge pertaining to accounting.

This module focuses on the preparation of bank reconciliation

statement.

LEARNING COMPETENCIES:
• Prepare a bank reconciliation statement (ABM_FABM12-IId-
13).

OBJECTIVES:
K: Distinguish the steps in preparing a bank reconciliation
statement.
S: Prepare a bank reconciliation statement.
A: Demonstrate appreciation on the preparation of the bank
reconciliation statement

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Task 1
Pre-assessment
Directions: Given the transaction below, write the correct amount on the correct reconciling
items of the Bank Reconciliation Statement below:

ABC COMPANY
BANK RECONCILIATION STATEMENT
NOVEMBER 30, 2018

Unadjusted Book Balance ₱ Unadjusted Bank Balance ₱

Add: Add
Notes Receivable Error
Error Deposits in transit
Less: Less:
Service Charge
Non-Sufficient Fund (NSF) Outstanding check

Adjusted Book Balance ₱ 15,550 Adjusted Bank Balance ₱ 15,550

The books of ABC Company showed a balance of ₱ 16,690 on November 30, 2018 and bank
statement showed a balance of ₱ 18,500. The following facts were revealed.

1. A check for ₱ 2,000 drawn by XYZ Company was wrongly charged by the bank to the
account of ABC Company.
2. A non-interest-bearing note receivable for ₱ 1,890 owned by ABC Company for the bank
for collection had been collected on November 28, 2018 and the bank had made a charge of
₱ 30 for collection.
3. A check with an amount of ₱ 4,000.00 has been returned for insufficient fund. No entry
was made in the cash records.
4. A check of ₱ 2,425 issued on November 22 in payments for store equipment has been
erroneously entered as ₱ 3,425.
5. A deposit of ₱ 1,050 was in transit, it has been mailed to the bank on November 30.
6. Outstanding check on November 30, 2018 were ₱ 6,000.00.

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 ’s In

In the previous module we have already learned the different key terms when dealing with a
bank reconciliation.

• Deposits in transit are amounts already received and recorded by the company but
are not yet recorded by the bank.
A deposit in transit is on the company’s books, but it isn’t on the bank statement.
• Outstanding checks are checks that have been written and recorded in the company’s
Cash account but have not yet cleared the bank account or presented to the bank by
the payee.
Checks written during the last few days of the month plus a few older checks are
likely to be among the outstanding checks.
• Bank errors are mistakes made by the bank. Bank errors could include the bank
recording an incorrect amount, entering an amount that does not belong on a
company’s bank statement, or omitting an amount from a company’s bank statement.
• Bank service charges are fees deducted from the bank statement for the bank’s
processing of the checking account actively…
Examples: accepting deposits, posting checks and mailing the bank statement
• NSF (not sufficient funds) check is a check that was not honored by the bank of the
person or company writing the check because that account did not have a sufficient
balance. As a result, the check is returned without being honored or paid.
• Check printing charges occur when a company arranges for its bank to handle the
recording of its checks. The cost of the printed checks will automatically be deducted
from the company’s checking account.
• Interest earned will appear on the bank statement when a bank gives a company
interest on its account balances. The amount is added to the checking account balance
and is automatically on the bank statement.
• Notes receivable are assets of a company. When notes come due the company might
ask its bank to collect the notes receivable.
• Errors in the company’s Cash account result from the company entering an incorrect
amount, entering a transaction that does not belong in the account, or omitting a
transaction that should be in the account.

What’s New

Task 2
Direction: In your notebook answer this question.
“Upon receipt of a bank statement, what will the company do?”

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 What is It

Preparation of Bank Reconciliation Statement

One of the internal control features in every company is the monthly bank
reconciliation. This is done to show that there is no discrepancy between the cash balance per
book records and the cash balance per bank records.

The following are the steps in preparing Bank Reconciliation Statement:

Step 1. Adjusting the Balance per Bank

The first step is to adjust the balance on the bank statement to the true, adjusted, or
corrected balance. The items necessary for this step are listed in the following schedule:

Step 1 Balance per Bank Statement on July 31 2019

Adjustments:
Add: Deposits in transit
Deduct: Outstanding checks
Add or deduct: Bank errors
Adjusted/Corrected Balance per Bank

Step 2. Adjusting the Balance per Books

The second step of the bank reconciliation is to adjust the balance in the company’s
Cash account so that it is the true, adjusted, or corrected balance. Examples of the items
involved are shown in the following schedule:

Step 2 Balance per Books on July 31 2019

Adjustments:
Deduct: Bank service charges
Deduct: NSF checks and fees
Deduct: Check printing charges
Add: Interest earned
Add: Notes Receivable collected by bank
Add or deduct: Errors in company’s Cash account
Adjusted/Corrected Balance per Books

Step 3. Comparing the Adjusted Balances

After adjusting the balance per bank (Step1) and after adjusting the balance per books
(Step2), the two adjusted amounts should be equal. If they are not equal, you must repeat the
process until the balances are identical. The balances should be the true, correct amount of

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cash as of the date of the bank reconciliation. The adjusted cash balance will appear as the
Cash in Bank in the Statement of Financial Position (Balance Sheet).
Example: Given the following information, prepare a bank reconciliation statement of XYZ
Company.
Item 1

The bank statement for July 2019 shows an ending balance of ₱ 3,490.
Answer: Bank: ending balance ₱ 3,490.
Item 2

On July 31 the bank statement shows charges of ₱ 35 for the service charge for maintaining
the checking account.
Answer: Book. ₱ 35 will be deducted to book records as bank service charges

Item 3
On July 31 the bank statement shows a return item of ₱ 100 plus a related bank fee of ₱ 10.
The return item is a customer’s check that was returned because of insufficient funds.

Answer: Book. ₱ 110 will be deducted to book records as NSF checks

Item 4
The bank statement shows a charge of ₱ 80 for check printing on July 20.

Answer: Book. ₱ 80 will be deducted to book records as Check printing charges

Item 5

The bank statement shows that ₱ 8 was added to the checking account on August 31 for
interest earned by the company during the month of August.
Answer: Book. ₱ 8 will be added to bank book records as interest earned.

Item 6
The bank statement shows that a note receivable of ₱ 1,000 was collected by the bank on July
29 and was deposited into the company’s account. On the same day, the bank withdrew ₱ 40
from the company’s account as a fee for collecting the note receivable.
Answer: Book. ₱ 960 will be added to book records as notes receivable collected less fees.
Item 7
The company’s Cash account at the end of July shows a balance of ₱ 967.
Answer: Book. Ending balance ₱ 967.

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Item 8
During the month of July, the company wrote checks totaling more than ₱ 50,000. As of July
31 ₱, 3,021 of the checks written in July had not yet cleared the bank and ₱ 200 of checks
written in June had not yet cleared the bank.
Answer: Bank. ₱ 3,221 will be deducted from Bank records as outstanding checks
Item 9
The ₱ 1,450 of cash received by the company on July 31 was recorded on the company’s
books as of August 31. However, the ₱ 1,450 of cash receipts was deposited at the bank on
the morning of August 1.
Answer: Bank. ₱ 1,450 will be added to bank records as Deposit in transit.
Item 10
On July 29 the company’s Cash account shows cash sales of ₱ 145. The bank statement
shows the amount deposited was actually ₱ 154. The company reviewed the transactions and
found that ₱ 154 was the correct amount.
Answer: Book. ₱ 9 will be added in book records as errors in company’s Cash account.
The bank reconciliation statement for this example is:
XYZ COMPANY
BANK RECONCILIATION
JULY 31, 2019
Cash balance per bank statement ₱ 3,490
Add: Deposit in Transit 1,450

Subtotal 4,940
Less: Outstanding checks (3,221)
Adjusted cash balance per bank ₱ 1,719
Cash balance per books ₱967
Add: Interest earned 8
Notes receivable collected less fess 960
Errors in company’s Cash account 9
Subtotal 1,944
Less: Bank Service charges (35)
NSF checks and fees (110)
Check printing charges (80)
Adjusted cash balance per books ₱1,719

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 XYZ COMPANY
BANK RECONCILIATION STATEMENT
JULY 31, 2019

Cash balance per books ₱ 967 Cash balance per bank ₱ 3,490
statement
Add: Interest earned 8 Add: Deposit in Transit 1,450
Notes receivable 960
collected less fess
Errors in company’s Cash 9
account
Subtotal 1,944 Subtotal 4,940
Less: Bank Service charges (35) Less: Outstanding checks (3,221)
NSF checks and fees (110)
Check printing charges (80)
Adjusted cash balance per ₱1,719 Adjusted cash balance per ₱1,719
books bank

What’s More

Task 3. Bank Reconciliation Problem

The bank statement for ABC Company shows a balance per bank of ₱ 15,907.45 on
September 2018.
On this date the balance of cash per books is ₱ 11,589.45
Additional information is provided below:
Deposits in transit: September 30 (received by the bank on October 1) ₱ 2,201.40
Outstanding checks: No. 123 - ₱ 3,000.00
No. 127 - ₱ 1,401.30
No. 160 - ₱ 1,502.70
Errors: ABC wrote check no. 115 for ₱ 1,226.00 and the bank correctly paid the amount.
However, he recorded the check as ₱ 1,262.00.
Bank memoranda:
Debit - NSF check from Ana ₱ 425.60
Debit – Charge for printing company checks ₱ 30.00
Credit – Collection of note receivable for ₱ 1,000 plus interest earned of ₱ 50, less
bank collection fee of ₱ 15.00.
Required: Prepare a bank reconciliation statement using the adjusted method.
Hint: Bank Debit Memo are deductions made by the bank to the account of the depositor.
Bank Credit memo are additions made by the bank to the account of the depositor.

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 What I Have Learned

Directions: Complete the following statements. Write your statements in your activity
notebook.
1. As an ABM student, I have learned that ____________________________________.
2. As an ABM student, it is very important for us to learn the preparation of Bank
Reconciliation Statement because _____________________________.
3. Using the knowledge, I have learned in this lesson; I will be able
to…__________________.

I Can Do

Prepare a Bank Reconciliation Statement the following transactions that were recorded for
SCI Company for the month of February 28, 2018:
• Bank statement contains an ending balance of ₱ 300,000.00 on February 28, 2018,
whereas the company’s ledger shows an ending balance of ₱ 260,900.00.
• Bank statement contains a ₱ 100.00 service charge for operating the account.
• Bank statement contains interest income of ₱ 20.
• SCI issued checks of ₱ 50,000.00 that have not yet been cleared by the bank
• SCI deposited ₱ 20,000 but this did not appear on the bank statement.
• A check in the amount of ₱ 470 is issued to the office supplier was misreported in the
cash payments journal as ₱ 370.
• A note receivable of ₱ 9,800 was collected by the bank.
• A check of ₱ 520 deposited by the company has been charged back as NSF.

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 SCORING RUBRIC

No Needs
Poor Proficient Advanced
CRITERIA Submission Improvement
(2 points) (4 points) (5 points)
(0 point) (3 points)

Correct and
Incomplete Correct and
Has complete with few
Presentation presentation of with no errors
No Solution presentation minor errors
of Solution solution and in the
submitted of solution but in the
25 pts with major presentation
with errors presentation
errors of solution
of solution
Students does
Bank Preparation of Preparation Preparation
not
Reconciliation No statement the statement of statement of statement
demonstrate an
Statement submitted contains many has minor is correct
understanding
10pts errors errors with no errors
of the problem

Clarity of Shows 25% Shows 50% Shows 75% 100% well-

ideas/response
answers developed developed developed developed
not evident
5pts ideas/response ideas/response ideas/response ideas/response

Assessment

Directions: Prepare a Bank Reconciliation Statement.

The books of DAN Company showed a balance of ₱ 16,690 on November 30, 2018 and bank
statement showed a balance of ₱ 18,500. The following facts were revealed.
1. A check for ₱ 2,000 drawn by XYZ Company was wrongly charged by the bank to the
account of DAN Company.
2. A non-interest-bearing note receivable for ₱ 1,890 owned by DAN Company for the bank
for collection had been collected on November 28, 2018 and the bank had made a charge of
₱ 30 for collection.
3. A check with an amount of ₱ 4,000.00 has been returned for insufficient fund. No entry
was made in the cash records.
4. A check of ₱ 2,425 issued on November 22 in payments for store equipment has been
erroneously entered as ₱ 3,425.
5. A deposit of ₱ 1,050 was in transit, it has been mailed to the bank on November 30.
6. Outstanding check on November 30, 2018 were ₱ 6,000.00.

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