LEARNING MATERIAL: FABM2 Then:
➕ Add items
MODULE 14 - Understanding Bank Reconciliation: Nature,
➖ Deduct items
Structure, and Reconciling Items
➡ Arrive at the correct balance
What Is Bank Reconciliation?
Example Structure
Bank reconciliation is the process of comparing the bank
Bank Reconciliation Statement
statement with the cash book to ensure both records agree.
As of (Date)
Goal:
Balance as per Cash Book
To find and explain differences between the bank balance and
➕ Add: Deposits in transit
the cash book balance.
➖ Less: Outstanding checks
Nature of Bank Reconciliation = Balance as per Bank Statement
Prepared regularly (monthly or weekly) Reconciling Items (Causes of Differences)
Explains timing differences and errors 1. Deposits in Transit
Ensures accuracy of records Deposits recorded in the cash book
Helps detect mistakes or fraud Not yet recorded by the bank
Why Bank Reconciliation Is Needed Example: Deposit made late in the day
✔ Bank and cash book are recorded by different parties 2. Outstanding Checks
✔ Some transactions are recorded earlier in one book than
Checks issued and recorded in cash book
the other
✔ Errors may occur Not yet cashed by the payee
Structure of a Bank Reconciliation Statement (BRS) 3. Bank Charges
A Bank Reconciliation Statement usually starts with: Service fees deducted by bank
Balance as per Cash Book OR Not yet recorded in cash book
Balance as per Bank Statement 4. Interest Earned
Added by the bank
Not yet recorded in cash book
5. Errors
Wrong amount recorded
Omitted transactions
Simple Example of Bank Reconciliation
Cash Book Balance: ₱10,000
Outstanding Checks: ₱2,000
Deposit in Transit: ₱1,500
Computation:
₱10,000
+ 1,500 (Deposit in transit)
- 2,000 (Outstanding checks)
= ₱9,500 (Bank Statement Balance)
Summary
✔ Bank documents help track financial transactions
✔ Bank reconciliation compares bank and cash book records
✔ Differences occur due to timing and errors
✔ Reconciling ensures accurate financial records
Name: _________________________________ Score:
_______________
Performance Task: The Reconciliation Challenge: Name That
Item! (Module 14)
Instruction: Identify the correct accounting term described.
_______________________ 1. A document prepared by the bank 3. While preparing the Bank Reconciliation Statement, the
showing deposits, withdrawals, and balances. accountant starts with the cash book balance and adds deposits
in transit. What is the main purpose of this process?
_______________________ 2. A document used as proof that money
A. To record daily transactions
was deposited into the bank.
B. To detect employee salaries
_______________________ 3. A written order instructing the bank to C. To arrive at the correct bank statement balance
pay a certain amount. D. To increase company profit
_______________________ 4. A document authorizing the removal of 4. The bank deducted service fees from the account, but the
money from a bank account. business has not yet recorded them in the cash book. What
reconciling item causes this difference?
_______________________ 5. The process of comparing the cash A. Interest earned
book with the bank statement. B. Outstanding checks
C. Deposit in transit
Written Test: Multiple Choice (Module 14)
D. Bank charges
Instruction: Read each situation carefully and choose the letter
5. A company prepares a bank reconciliation to explain
of the correct answer. (2 points each)
differences between the cash book balance and the bank
1. A company records a deposit in its cash book, but the bank has statement balance. Which of the following best explains why
not yet recorded it because it was made late in the day. What bank reconciliation is needed?
reconciling item explains this difference? A. To prepare financial statements
A. Outstanding checks B. Because banks and businesses record transactions separately
B. Bank charges and timing differences occur
C. Deposit in transit C. To increase cash balance
D. Interest earned D. To avoid issuing checks
2. A check was issued and recorded by the business, but the
payee has not yet encashed it. How should this item be classified
in bank reconciliation?
A. Deposit in transit
B. Outstanding check
C. Bank error
D. Interest earned