RECONCILIATION STATEMENT

Hi Readers,

“Life is like a huge bank account that we deposit experiences, happy moments, achievements and even the worst thing that happened in our life and we transact our experience to use in our present stand and for our future so that we do not commit the same errors we did in the past. “

               As promised I’m back after a week of new learning from our professor of business math. Just like from the first chapter Profit and Loss we’ve learned how to get the gaining and losing part in business. Now this will be a new chapter concerning with cheques. Yes, cheques. Some of us only know what a cheque looks like, NIKE, I’m just joking the cheque that I’m telling is the one that’s being use on banks. A paper that carries an amount given by a person (the drawer) to another (the payee). Cheques were created to avoid bringing large amount of money , it is the safest way to transport an amount that a person usually don’t carry in his wallet. One other reason that a cheque is a safe money transfer device is that only the payee can receive the amount that the drawer wrote in due time. It takes a process before the payee receives the money. I usually pay my enrolment fees with cheques that my mom ordered from the bank so for me I’m comfortable and even if I lost the cheque it can never be used to get the transaction because it has the payee’s name on it. Okay let us start, the name of the lesson we tackled was Bank Reconciliation.

Bank Reconciliation is the process of bringing the bank's monthly report for each depositor showing deposits made, check written, cancelled checks, and service charges. Check book contains checks and check stubs. The checks are filled out by the depositors made, and of charges made by the bank. Reconciliation statement putting an agreement the bank statement balance and the check book balance.

TAKE NOTE: The difference in the balances may due to:

1. Outstanding checks. These are checks issued by the depositor but have not yet been presented to the bank for payment.

2. Deposits in transit. These are deposits made but late to be included in the monthly bank statement.

3. Service charges.

4. Errors in the check stub entries or in other term this is the deposit not recorded in the check book.

5. Cancelled checks. These are checks that have been paid by the bank.

FORMULA:

ADJUSTED BALANCE METHOD

Check book + Error = Total

Total – (Service charge + Cancelled check) = Adjusted check book balance

Bank Statement Balance + Deposit in transit = Total

Total – Outstanding check = Adjusted bank statement balance

NOTE: The adjusted bank statement balance and the adjusted check book balance must be equal.

Now let us try the formulas in a problem solving.

         When Mr Erwin Garcia received his bank statement, he had a balance of P 3,842.30. His check book balance was P 3,288.40. He found out that checks 14 and 21 were not yet cashed with the amounts of P 1,000 and P 557.30, respectively. His deposit of P 500 at the end of the month was late to be included in the bank statement. Upon inspecting his check book, he noted that P5.20 was deducted by the bank as a service charge. An error was made when he issued a check for P 1,002.40 which he deducted as P 1,004.20. The cancelled check of P500 was not deducted either from the check book balance.

SOLUTION:

Erwin Garcia

Reconciliation Statement

March 30, 2002

Check book Balance             P 3,288.40    

Add: Error                                         1.80

                                               P 3,290.20 

Less:                                                   

   Service Charge        P5.20                        

   Cancelled Check P500.00         505.20         

Adjusted check book             P 2,785.00   

     Balance

 Bank Statement Balance              P 3,842.30
 Add: Deposit in transit                        500.00
                                                    P  4,342.30
Less: Outstanding checks
 #14                      P 1000.00
#21                        P   557.30            1,557.30
Adjusted Balance                          P   2,785.00

NOTE: Solution must be presented like this for consistency

Now on your own try to solve the Reconciliation statement using the formula above and how it was solved. Remember the terms we’ve taken note of.

Prepare a reconciliation statement for Mr Jaime Santos for the month of October, 2002.

Check book Balance                 P 11,074.60

Bank statement Balance            P 10,662.30

Canceled Check                       P   4,900.00

Outstanding Check                   P   5,500.00

Service Charge                         P        12.30

Deposit not recorded

In Check book                         P   1,000.00

Deposit not recorded

In Bank statement                     P   2,000.00

So now you know how to get a reconciliation statement, this will be a big help when you have your own business and you are giving off or receiving a cheque and for you to monitor your balances on your account. So see you next week for the answer and for a new lesson with business math.

ANSWERS FOR PROFIT AND LOSS

1.          Beginning Inventory      P 8,070.00

   Purchase                          P 10, 721.00

   Ending Inventory            P 9,205.00

  Cost of Good sold                      ?

                                             P    8,070.00        Beginning Inventory

                                         +  P  10,721.00        Purchase 

                                                 18,791.00        goods for sale

                                               -  P     9,205.00        Ending inventory

                                                  P     9,586.00        Cost of Good Sold

2.           Gross Sale                    P 896,954.00

    Cost of good sold          P 577,320.40

    Operating expenses       P   49,285.98

    Refund                          P   25,520.49

    Net sale ?  Gross profit ? Net profit ?

Gross Sales                        P 896,954.00

Less: Refund                      P    25,520.49

   a.Net Sales                         871,433.51

     Less: Cost of good        P  577,320.40

                 Sold                   __________

   b. Gross Profit                P  294,113.11

   less: Operating                P    49,285.98

  expenses                           __________

  c. Net profit                     P  244,827.13

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checked by: Prof. Crisencio M. Paner