Question

On March 31, 2019, Home Decorating Pavilion received a bank statement showing a balance of $9,670. The balance in the firm's checkbook and Cash account on the same date was $9,832. The difference between the two balances is caused by the items listed below.
a. $2,795 deposit made on March 30 does not appear on the bank statement.
b. Check 358 for $445 issued on March 29 and Check 359 for $1,570 issued on March 30 have not yet been paid by the bank.
c. A credit memorandum shows that the bank has collected a $1,400 note receivable and interest of $140 for the firm.
d. A service charge of $17 appears on the bank statement.
e. A debit memorandum shows an NSF check for $485. (The check was issued by Dane Jaris, a credit customer.)
f. The firm's records indicate that Check 341 of March 1 was issued for $900 to pay the month's rent. However, the canceled check and the listing on the bank statement show that the actual amount of the check was $800.
g. The bank made an error by deducting a check for $605 issued by another business from the balance of Home Decorating Pavilion's account. Required:
1. Prepare a bank reconciliation statement for the firm as of March 31, 2019.
2. Record entries for any items on the bank reconciliation statement that must be journalized

Answer 1

Answer and Explanation:

1. The preparation of bank reconciliation statement is shown below:-

Home Decorating Pavilion

Bank Reconciliation

Cash balance per bank, March 31                       $9,760

Add: Deposit in transit                    $2,795

Bank Error                                         $605           $3,400

Less: Outstanding checks

358                                                    $445

359                                                    $1,570         $2,015

Reconciled Bank Balance                                    $11,145

Cash balance per books, March 31                     $9,832

Add: Collection of Notes Receivable$1,540

($1,400 + $140)

Error in Recording Check No 341       $100        $1,640

($900 - $800)

Less: Bank service charge                  $17

NSF check                                            $485         $502

Reconciled Cash Balance                                     $10,970

2. The Journal entry is shown below:-

a. Cash Dr, $1,540

($1,400 + $140)

       To Notes receivable $1,400

       To Interest income $140

(Being cash is recorded)

b. Cash Dr, $100

($900 - $800)

      To rent expenses $100

(Being cash is recorded)

c. Accounts receivable Dr, $485

      To cash $485

(Being accounts receivable is recorded)

d. Miscellaneous Dr, $17

       To cash $17

(Being Miscellaneous is recorded)