Question

Owen Company's unadjusted book balance at June 30 is $11,400. The company's bank statement reveals bank service charges of $80. Two credit memos are included in the bank statement: one for $1,170, which represents a collection that the bank made for Owen, and one for $120, 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:

Cash Balance = $12610

Explanation:

We can calculate the adjusted or true cash balance of Owen by making adjustments in the book balance using the transactions that only appear on the bank statement and are missing from the book balance calculation.

1. The bank service charges are a deduction that bank has made from the bank account of Owen. This, they should be deducted from the book balance.

2. A collection of $1170 made by the bank on Owen's behalf will increase the account balance of Owen. Thus, it should be added to the book balance.

3. The interest earned by Owen is also an addition to the bank balance and should be added in the unadjusted book balance.

The new or true cash balance of Owen will be,

Cash Balance = 11400 - 80 + 1170 + 120

Cash Balance = $12610