FABM2 Chapter5
FABM2 Chapter5
FABM2 Chapter5
Learning Competencies:
1. Identify the types of bank accounts normally maintained by a business. (ABM_FABM12-IIc-5)
2. Prepare bank deposit and withdrawal slips. (ABM_FABM12-IIc-7)
3. Identify and prepare checks. (ABM_FABM12-IIc-8)
4. Identify common reconciling items and describe each of them. (ABM_FABM12-IId-11)
5. Analyze the effects of the identified reconciling items. (ABM_FABM12-IId-12)
Savings account is one where a passbook is presented for cash deposits and cash withdrawals. The cash
withdrawals are supported by withdrawal slips.
Checking or current account is one where drawings are done by the writing of checks, signing the same,
and giving check to the payee for encashment or for deposit within a bank.
Combo account is a combination of savings and current account. Deposits and withdrawals are posted in
the passbook, and checks are issued for withdrawal from the account.
15. Automated teller machine is an offsite equipment that enables the bank client to deposit and withdraw
cash from their account.
16. ATM card is an ID sized card that is used to activated the automated teller machine.
17. Electronic Payment System (EPS) is one where, with the use of an ATM card, payments are made
without using coins, paper bills, nor checks.
18. Bank Debit Memo (DM) is a bank form and entry for bank balance deduction initiated by the bank
other than checks.
19. Bank Credit Memo (CM) is a bank form and entry for bank balance addition initiated by the bank other
than the deposits by the client.
20. Check Writer is a machine used to write information on disbursement checks.
21. Signature Plate is a metal gadget attached to an equipment to stamp the signature of the check signor
on a check.
22. Internal Control is a plan of organization and all the coordinate methods and measures that are
designed (a) to safeguard assets, (b) to check the accuracy and reliability of accounting data, (c) to
promote operational efficiency, and (d) to encourage adherence to prescribed managerial policies.
23. Imprest System is an internal control system where all cash collections are deposited with the bank and
all payments are made by checks except for small payments which are paid from the petty cash fund.
24. Petty Cash Fund is an amount in coins and currency held by the petty cash custodian for small cash
payments that cannot be conveniently paid by checks.
One ideal system of handling cash is to immediately deposit all cash receipts into the bank. The cash
collections are evidenced by the official receipts (OR). The official receipts are recorded in the cash receipts
book. Bank deposits are authenticated by the depository bank. The authentication is on bank deposit slips (for
current or checking account), or on bank passbooks (for savings account). Bank withdrawals are done by
drawing checks in the name of payees or by writing bank withdrawal slips for savings account. Checks are made
payable to payees, who may be suppliers, utility providers (like PLDT, Meralco, Maynilad), employees (for
salaries and wages), creditors for payments of loans, among others. These check payments are supported by
approved check disbursement vouchers. The checks and disbursement vouchers are recorded in the cash
disbursement book. Periodically (usually once a month), the summarized entries in the cash ledger cash account.
The general ledger cash balance at the end of the month is computed.
The bank keeps record of the client depositor. The record shows beginning balance. The bank record shows
increases (deposits) and decreases (checks issued or withdrawals). The bank may also record transactions that
may decrease the balance other than withdrawals like bank service charge.
The objective of bank reconciliation is to bring the balance per book and the balance per bank into
agreement. On the basis of the reconciling items, the book records or journalizes those recorded by the bank but
not yet recorded by the book. The reconciliation process may also reveal errors by the bank and/or by the book
that need to be adjusted by either the bank or the book.
Example
AA Depositor ABC Company receives cash and issues official receipt 076 for P9,000
on August 28, 20X5.
Depositor deposits the P9,000 cash collection on September 2, 20X5.
The August 31, 20X5 bank statement will not yet show as increase the P9,000 deposit.
BB Depositor ABC Company issued a check to supplier National Company for P12,000 on August
26, 20X5.
National Company encashed the P12,000 check on September 3, 20X5.
The August 31 bank statement will not yet show the P12,000 check deduction.
Other than AA and BB there may be other transactions on end-of-period already recorded by
one party, but not yet recorded by the other party.
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND MANAGEMENT 2
At the end of the reporting period, usually a calendar month, the bank issues a bank statement to the client
depositor. The bank statement shows the following:
1. Name of the bank
2. Reporting period
3. Name of client-depositor
4. Beginning peso balance
5. Deposits and other decreases
6. Withdrawals and other decreases
7. Ending balance
The client depositor prepares a bank reconciliation which starts with the comparison of entries of the
depositor’s cash records (book) and the bank statement (bank).
The objective of the bank reconciliation is to identify differences between the book and the bank to enable
the depositor to make entries for identified differences called reconciling items. This is also to bring to the
bank’s attention those reconciling items that need to be corrected or adjusted in the bank’s records.
2. Trace deposits per bank statement to deposits per cash receipt book and to prior month bank
reconciliation. Tick or mark traceable items. Leave the untraceable items unmarked.
3. The untraceable deposit items are grouped into
a. Deposits per bank statement not in the ledger and
b. Deposits per ledger not in the bank statement.
4. Trace withdrawals per bank statement to withdrawals per ledger and to prior month bank reconciliation.
Tick or mark traceable items. Leave the untraceable items unmarked. The untraceable withdrawal items
are group into
a. Withdrawals per bank statement not in the ledger and
b. Withdrawals per ledger not in the bank statement.
5. For step 1, fill in the form. Write the ledger ending balance and the bank statement ending balance.
6. Also in step 1, fill in the untraceable deposits in step 3, and the untraceable withdrawals in step 4.
7. From the prior month bank reconciliation, copy and write in the current month bank reconciliation those
reconciling items for deposits and those reconciling items for withdrawals that remain untraceable or
that remain as open items.
8. Identify debit postings in the general ledger cash in bank account coming from the general journal.
Trace them to the prior month reconciling items and to the additions in the current month bank
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS, AND MANAGEMENT 2
statement. Nontraceable debit posting are listed as additions in the ledger, but are not yet added in the
bank statement.
9. Identify credit posting in the general ledger cash in bank account coming from the general journal.
Trace transaction to the prior month, reconciling items and to the deduction in the current month bank
statement. Nontraceable credit postings are listed as deductions in the ledger that have yet to be
deducted from the bank statement.
10. Do the arithmetical processes as shown in the pro forma bank reconciliation in step 1.
11. At this point, the adjusted balance per ledger should equal the adjusted balance per balance statement.
MTR Bank
Applied Branch
Account No. Period Ending
Page
S/A 1721-33 March 28, 20X1
Date Check No. Symbol Debit Amount Credit Amount Balance
20X1
Mar. 4 40,000 - 40,000 -
7 36,000 - 76,000 -
10 2051 25,600 - 50,400 -
10 30,000 - 80,400 -
12 28,000 - 108,400 -
17 2052 56,600 - 51,800 -
20 2054 22,800 - 29,000 -
23 2057 19,400 - 9,600 -
INT 4,000 - 13,600 -
SC 1,000 - 12,600 -
125,400 - 138,000 -
Robbins Enterprise
226 Ayala Avenue, Makati City
Reconciling Items
The comparison of ledger items, cash in bank MTR Bank, cash receipts book, and cash disbursements
(March 20X1) with the MTR Bank Statement dated March 20x1, yields the following findings:
Balance per ledger - end balance
Or Balance per book or end of period balance P 14,200
Balance per bank statement - ending balance
Or end of period balance 12,600
Deposit per bank statement not yet in ledger
Interest earned per bank Credit Memo AJE 1 4,000
Withdrawals per bank statement not yet in ledger
Bank service charge per bank debit memo AJE 2 1,000
Deposits per ledger not yet in bank statement
Deposit in transit or Underdeposited Collection (DT) 18,000
(Dt) 40,000
Withdrawal per ledger not yet in bank statement
Outstanding Checks (OC) 7,400
(OC) 28,000
(OC) 10,000
(OC) 7,800
AJE 1 Cash in Bank MTR Bank 4,000
Interest Income 4,000
Interest earned for March 20X1
Robbins Enterprise
Bank Reconciliation Statement
MTR Bank
March 31, 20X1
Balance per ledger of book P 14,200
Add: Interest earned per bank CM 4,000
P 18,200
Less: Bank service charge per bank DM 1,000
Adjusted ledger or book balance P 17,200
An internal control system includes all the policies and procedures adopted by the management of an entity
to assist in achieving the management’s objective of ensuring that the bank’s system runs smoothly and
practicably. These are the policies.
1. The orderly and efficient conduct of its business including adherence to management policies.
2. The safeguarding of assets
3. The prevention and detection of fraud and error
4. The accuracy and completeness of the accounting records
5. The timely preparation of reliable financial information
The asset more vulnerable to fraud is cash. Therefore, its handling should be subjected to a high degree of
internal control. Cash is the most tempting and desirable to misappropriate because it is easily transported,
easily hidden, acceptable at face value, and with immediate buying power. These are ways to safeguard and
control cash.
5. Cash collections should be deposited intact and deposits supported with authenticated bank deposit
slips or passbook entries.
6. There should be legal authority to open bank accounts.
7. There should be separation of cash handling function and recording function.
8. Pay with checks whenever possible.
9. Checks should be payable to specific payee; not to cash, bearer nor blank payee.
10. There should be monthly bank reconciliation that includes examination of supporting documents.
Cash received, whether in coins, peso bills, or checks are cash on hand. When these cash received are
deposited with the bank, they become cash in bank. Disbursement checks are paid out of cash in bank. For
better control, all cash received are to be deposited in the bank, and all payments are to be paid with bank
disbursement checks. However, there are certain payments that cannot be conveniently made with checks.
Among these payments are small amounts for transportation, food allowance, emergency supplies, for which
immediate disbursements are necessary. To take care of these payments, a petty cash fund is set up. The petty
cash fund is cash in coins and small peso bills that is in the custody of the petty cash custodian. When the petty
cash custodian pays out of the fund, he requires a petty cash voucher with supporting papers. When the fund is
low, all the vouchers are summarized and a replenishment check is requested and encashed with the bank, to
bring back the fund to a level that will conveniently met the entity’s need for small payments.
B. The cash collections are deposited in a bank. A bank deposit slip is prepared. Cash collections may be in
coins, peso bills, and checks. Fill out the official receipt given the following details.
1. The name of the issuer – ABC Company
2. The official receipt number – OR 478
3. Date when the cash is received – August 19, 2015
4. From whom received – Peter Fabro
5. Address of payor – 241 Sucat, Paranaque City
6. Amount in words and fgures – Five Thousand Pesos
(P5,000)
BPI Check No. 01276
5,000
7. Total payment for – Sales Invoice 723 dated June 21, 2015
8. Signed by collector or cashier – Paul Santos