Question

On October 31, Year 1, A company general ledger shows a checking account balance of $8,445. The company’s cash receipts for the month total $74,640, of which $71,375 has been deposited in the bank. In addition, the company has written checks for $72,515, of which $71,270 has been processed by the bank. The bank statement reveals an ending balance of $12,895 and includes the following items not yet recorded by the company: bank service fees of $310, note receivable collected by the bank of $6,600, and interest earned on the account balance plus from the note of $1,120. After closer inspection, the company realizes that the bank incorrectly charged the company’s account $940 for an automatic withdrawal that should have been charged to another customer’s account. The bank agrees to the error.
Required: 1. Prepare a bank reconciliation to calculate the correct ending balance of cash on October 31.

Answer 1

Answer:

Balance as per cash book                                                     $ 8,445

Adjustments to be recorded in cash book

Less: Bank Service Fees                                                        $ (  310)

Add: Note receivable                                                             $ 6,600                                                              

Add: Interest earned                                                              $  1,120

Adjusted cash balance                                                       $ 15,855

Balance as per bank statement                                           $ 12,895

Add: Deposits in transit ( $ 74,640 - $ 71,375)                    $  3,265        

Less: Unpresented cheques ( $ 72515- 71270)                   $ (1,245)

Add: Correction of error                                                        $    940

Adjusted bank balance                                                        $ 15,855

Explanation:

For cash book, the adjustments that have to be recorded are the bank service fees, collection of notes and interest.

For bank statements, the adjustments that have to be recorded are the deposits in transits ( collections not deposited). unpresented cheques ( cheques issued but not presented) and the correction of the wrong entry.