TOPIC: Bank Reconciliation

INTRODUCTION

Good afternoon, class.

Based on our last week’s discussion, we have learned that cash is

classified under the “current assets” section. Moreover, we have learned
that cash is the most liquid among them. Hence, it is prone to theft or
embezzlement and misappropriation. The good news is there is what you
called “cash management” when effective, may protect the company’s
money from loss through theft or fraud.

One of the characteristics of a system of cash control is periodic

reconciliation of bank statement balance and cash balance in the
company’s accounting records. Regular reconciliation of bank balance
and book balance for cash uncovers immediately any error or
irregularities in recording cash transactions. Any error or irregularity is,
therefore, rectified immediately.

Disclaimer! This measure may not totally eliminate the possibilities of

misappropriation or errors, but can significantly reduce the chances of
theft, loss, or inadvertent errors in the management of cash.

What is a bank reconciliation?

Bank Reconciliation - a statement which brings into agreement the cash
balance per book and cash balance per bank. It is usually prepared
monthly because the bank provides the depositor company its bank
statement at the end of every month. (Show a printed example and
define bank statement)

How does it work?

1. First, we need to observe and examine the bank statement. We
should look at the beginning cash balance, the credit and debit
memos, errors, if any, and the ending cash balance for the month
ended.

2. Second, we need to compare the beginning and ending cash

balances per books with the bank statement. These two accounts
should be equal because they are reciprocal accounts. Meaning,
when one account is debited, the other account is credited or vice
versa. Hence, in absence of errors committed by either in the bank
or book balances, these reciprocal accounts should be the same.
However, more frequent than not, these accounts differ due to
timing.

3. Third, we should identify and define the book and bank reconciling
items. (Use Robles book for the definitions)

 Book - CMs, DMs, errors

 Bank - DIT, OC, errors

4. Fourth, we apply the formula using the single - date bank

reconciliation. (Explain why single - date reconciliation) (Write the
pro forma Bank Recon Statement using the adjusted balance
method, Reference - Valix book)

(Solve the sample problem in Robles book)

5. Fifth, we prepare the adjusting entries.