Question

Owen Company's unadjusted book balance at June 30 is $9,700. The company's bank statement reveals bank service charges of $45. Two credit memos are included in the bank statement: one for $900, which represents a collection that the bank made for Owen, and one for $50, which represents the amount of interest that Owen had earned on its interest-bearing account in June. Based on this information, Owen's true cash balance is:

Answer 1

Answer:

Owen's true cash balance is $10,600

Explanation:

For computing the true balance of cash, we need to do the following adjustments which are shown below:

Unadjusted book balance = $9,700

Less - Bank service charges = ($45)

Add: collection  = $900

Add:  Interest earned = $50

So, The correct balance of cash equals to

= $9,700 - $45 + $900 + $45

= $10,600

The two credit memos are for collection, so it increases the cash balance. Therefore, we added it whereas service charges decrease the cash balance, so we deduct it.

Hence, Owen's true cash balance is $10,600