Bank Reconciliation refers to the settlement of differences contained in the bank statement and the cash account in the agency’s/entity’s books of accounts.
The Government Accounting Manual (GAM) provides the procedures on how to prepare a Bank Reconciliation Statement (BRS).
Here, we give you the procedures:
Let’s start with the Book Balance
In computing the book balance or the unadjusted cash balance per books of accounts, follow these procedures:
✅ First, secure/gather the monthly bank statement, general ledger, and subsidiary ledgers for your Agency’s Regular MDS-Sub account and previous month’s Bank Reconciliation Statement (BRS).
For purposes of this article, we shall only focus on the preparation of BRS for Agency Regular MDS-Sub account. [You can follow these general procedures for the other cash account of your Agency.]
✅ The current month’s beginning book balance (i.e., cash, beginning balance) is the unadjusted ending book balance per previous month’s BRS.
✅ Add to the current month’s beginning book balance all cash allocations received during the current month (i.e., all Advice of NCA Issued [ANCAI] received) to get the total cash allocation for the month.
✅ Deduct from the total cash allocation all cash disbursements for the month, whether thru Check or Authority to Debit Account (ADA), to get the unadjusted book balance.
Reconciling items to the Unadjusted Book Balance
To derive the adjusted book balance, follow these procedures:
✅ Compare the cash allocations recognized in the books with those reflected in the bank statements to determine the unrecognized cash allocation.
Unrecognized cash allocation is a result of the timing difference in the receipt of the NCA by the Bank and the receipt of the ANCAI by the Agency.
Remember that the Notice of Cash Allocation (NCA) is released directly by the Department of Budget and Management (DBM) to the authorized depository/servicing bank of the Agency (i.e., LBP, DBP, PVB) while the Advice of Notice of Cash Allocation (ANCAI) is released to the Agency. The NCA may be received by the Bank earlier than the Agency receiving the ANCAI. Hence, the timing difference occurs.
If there are cash allocations recognized by the bank but were not recognized in the books, then recognize them as reconciling items.
Quarter-end Bank Reconciliation Statement
✅ If you’re preparing the BRS of the last month of the quarter (i.e., March, June, September, and December), another reconciling item that should be recognized would be lapsed or unused/unutilized cash allocation.
Lapsed NCAs pertain to NCAs which are no longer valid or its validity has expired but remain unadjusted by the bank or the agency/entity.
[READ: Which is Which? Lapsed or Reverted NCA?]
Under the DBM’s existing policy, any unutilized cash allocation at the end of the last month of the quarter shall automatically be reverted to the National Treasury. Hence, the ending cash balance of the Regular MDS-Sub Account at the end of the quarter should be zero. This, too, shall be recognized as reconciling item.
✅ Errors in the bank statement may also result to unequal book and bank balance. If this happens, the error/s should also be recognized as reconciling item to derive the adjusted book balance.
✅ Cancelled checks shall also be added to the unadjusted book balance to arrived at the adjusted book balance.
Bank Balance
To derive the amount of undadjusted bank balance, follow these procedures:
✅ The current month’s beginning bank balance (i.e., cash, beginning balance) is the unadjusted ending bank balance per previous month’s BRS or simply, the beginning balance appearing in the bank statement.
✅ To get the total deposits for the month, add to the current month’s beginning bank balance all cash allocations deposited during the current month (i.e., all Notice of Cash Allocation [NCA]) to get the total cash allocation for the month.
✅ Deduct from the total cash allocation all cash disbursements for the month (i.e., all Checks or Authority to Debit Account [ADA] appearing in the BS), to get the unadjusted bank balance.
Reconciling items to the Unadjusted Bank Balance
To derive the adjusted bank balance, follow these procedures:
✅ List or mark the previous months’ unadjusted items (i.e., prior month’s outstanding checks or deposit in transit) for inclusion in the current month’s reconciling items.
✅ Review the previous month’s BRS to determine reconciling items needing adjustments by the agency/entity which remain unadjusted.
✅ Add to the unadjusted balance per bank the following:
a. NCAs received by the agency/entity but not yet recognized by the bank; and
b. errors discovered in the BS that understates the cash balance.
✅ Subtract from the unadjusted balance per bank the following:
a. NCAs which are no longer valid/lapsed NCA;
b. outstanding checks;
c. outstanding ADA; and
d. errors in the BS that overstates the cash balance.
Outstanding Checks/Authority to Debit Account (ADA) pertain to checks/ADA the agency/entity has issued and recognized but which have not been presented to the bank for payment.
✅ Calculate the correct/adjusted balance per bank.
The adjusted balance per book should equal the adjusted balance per bank after doing all the above procedures.
Who should prepare the BRS?
Pursuant to Section 4, Chapter 21 of the GAM [download here], the monthly BRS shall be prepared by the Chief Accountant or designated staff for each of the bank accounts maintained by the agency/entity using the Adjusted Balance Method. Under this method, the book balance and the bank balance are brought to an adjusted cash balance that must appear on the Statement of Financial Position.
When should you submit the BRS to the Commission on Audit?
Pursuant to Section 5, Chapter 21 of the GAM, the Chief Accountant or designated staff shall within ten days from receipt of the monthly Bank Statement (BS) shall reconcile the BS with the general ledger and prepare the Bank Reconciliation Statement in four copies.
Distribution of the BRS
Submit the BRS to the following:
Original Copy – COA Auditor, together with the supporting documents and accompanying journal entry voucher/s.
Copy 2 – Head of the Agency
Copy 3 – Accounting Division/Unit file
Copy 4 – Bank, if necessary
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