11.2 Bank Reconciliation

11.2 Bank Reconciliation

Quick Answer: Start with balance per bank statement and balance per books. On the bank side, add deposits in transit and deduct outstanding checks (and correct bank errors). On the book side, add interest and bank collections; deduct service charges, NSF checks, and book errors that overstated cash. Both columns must end at the same adjusted cash balance.

Cash in Bank on the general ledger rarely equals the ending balance on the monthly bank statement on the statement date. Timing differences and errors create the gap. A bank reconciliation is the internal control schedule that identifies every difference, proves the true cash figure for the balance sheet, and flags items that need journal entries on the books (covered in Section 11.3).

Two Common Formats

1. Book vs bank columns (adjusted balances method) — most common in TESDA practical projects. Two independent columns (or stacked sections) adjust bank and books until they meet.

2. Bank-to-book (or book-to-bank) single chain — start with one balance and layer all adjustments to arrive at the other. Mathematically equivalent if items are classified correctly; easier to miss which side an item belongs on.

This guide uses the adjusted balances layout because assessors can see bank-side versus book-side items at a glance.

Reconciling Item Map

Step-by-Step Procedure

1. Enter the ending balance from the bank statement and the Cash in Bank ledger (or cashbook) balance on the same date.
2. Tick off deposits: unmatched book deposits → deposits in transit.
3. Tick off checks: unmatched book checks → outstanding checks (list by number and amount).
4. Scan bank statement debit/credit memos: service charges, NSF, interest, collections, corrections.
5. Investigate any remaining difference for errors (transposition on a check, deposit recorded wrong, bank charged another client’s item).
6. Complete both sides until adjusted balances equal.
7. Prepare journal entries only for book-side items (Section 11.3), post, and prove Cash in Bank.

Full Worked Example — Mabuhay Trading (May 31, 2026)

Given data (typical TESDA practical package):

• Cash in Bank per general ledger, May 31: ₱178,900
• Balance per bank statement, May 31: ₱172,450
• Deposit of May 31 still not credited by bank: ₱25,800
• Outstanding checks: #1042 ₱3,500; #1058 ₱8,750; #1063 ₱6,200 (total ₱18,450)
• Bank erroneously deducted another depositor’s check: ₱2,000 (bank will correct next month)
• Bank service charge (debit memo): ₱350
• NSF check returned — customer Dela Cruz: ₱5,250
• Interest earned credited by bank: ₱480
• Note receivable collected by bank for Mabuhay: principal ₱8,000 + interest ₱200 (credit memo ₱8,200)
• Book error: Check #1039 for office supplies was ₱1,200 but recorded in the cash payments journal as ₱1,020 (cash in books overstated by ₱180)

Bank Reconciliation — May 31, 2026

Proof: Adjusted bank ₱181,800 = Adjusted books ₱181,800. The reconciliation ties.

How to Read the Example on Assessment Day

• Deposits in transit and outstanding checks explain why the raw bank figure (₱172,450) is not yet the true cash available to report—and they stay on the bank side only.
• The ₱2,000 bank error is corrected on the bank side; Mabuhay does not reduce its books for another depositor’s item.
• Interest and the note collection increase true cash; charges, NSF, and the book error decrease true cash—and those book-side items drive the May 31 adjusting journal entries in Section 11.3.
• Listing each outstanding check by number is required evidence; a single lump total without detail is weaker for assessor review.

Timing Differences vs Errors

Timing differences (deposits in transit, outstanding checks, items the bank recorded first) reverse automatically next period when the bank or the books catch up. Errors need deliberate correction: notify the bank for bank errors; journalize book errors immediately. Never “force” the reconciliation by plugging an unexplained difference—assessors treat an untied or forced rec as a critical accuracy failure under the 100% journals/ledgers/TB standard used in Bookkeeping NC III practical work.

Presentation Tips for the Work-Related Project

Place the bank reconciliation after the cash ledger is footed for the month and before (or with) final financial statements so Cash on the balance sheet equals the adjusted balance. Cross-reference debit/credit memo numbers from the bank statement. If the project uses special journals, agree outstanding checks to the cash payments journal and deposits in transit to the cash receipts journal. Keep the May 31 package: statement, tick marks, outstanding-check list, and the tied reconciliation form.