Question

Bank Reconciliation and Entries

Sunshine Interiors deposits all cash receipts each Wednesday and Friday in a night depository, after banking hours. The data required to reconcile the bank statement as of July 31, 20Y0, have been taken from various documents and records and are reproduced as follows. The sources of the data are printed in capital letters. All checks were written for payments on account.

CASH ACCOUNT:

Balance as of July 1 $ 9,578. 00

CASH RECEIPTS FOR MONTH OF JULY 6,465. 42

DUPLICATE DEPOSIT TICKETS:

Date and amount of each deposit in July:

Date Amount Date Amount Date Amount

July 2 $569. 50 July 12 $580. 70 July 23 $713. 45

5 701. 80 16 600. 10 26 0601. 50

9 819. 24 19 701. 26 31 1,177. 87

CHECKS WRITTEN:

Number and amount of each check issued in July:

Check No. Amount Check No. Amount Check No. Amount

614 $243. 50 621 $309. 50 628 $837. 70

615 350. 10 622 Void 629 329. 90

616 279. 90 623 Void 630 882. 80

617 395. 50 624 707. 01 631 1,081. 56

618 435. 40 625 158. 63 632 325. 40

619 320. 10 626 550. 03 633 310. 08

620 238. 87 627 381. 73 634 241. 71

Total amount of checks issued in July $8,379. 42

BANK RECONCILIATION FOR PRECEDING MONTH:

Sunshine Interiors

Bank Reconciliation

June 30, 20Y0

Cash balance according to bank statement $9,422. 80

Adjustments:

Deposit of June 30 not recorded by bank $780. 80

Outstanding Check No. 580 ($310. 10)

Outstanding Check No. 602 (85. 50)

Outstanding Check No. 612 (92. 50)

Outstanding Check No. 613 (137. 50)

Total adjustments 155. 20

Adjusted balance $9,578. 00

Cash balance according to company's records $9,605. 70

Adjustments:

Bank service charges (27. 70)

Adjusted balance $9,578. 00

JULY BANK STATEMENT.

Required:

1. Prepare a bank reconciliation as of July 31. If errors in recording deposits or checks are discovered, assume that the errors were made by the company. Assume that all deposits are from cash sales.

2. Journalize the necessary entries (a) that increase cash and (b) that decrease cash. The accounts have not been closed.

3. What is the amount of Cash that should appear on the balance sheet as of July 31?

4. Assume that a canceled check for $180 has been incorrectly recorded by the bank as $1,800. Select how the error would be included in a bank reconciliation and how it should be corrected.

Feedback

Set up two sections: one for the bank balance and the other for the company cash account. Determine the effect of the data on each section. Recall that when you are finished, the adjusted balances in the bank and company sections of the reconciliation must be equal. If not, an item has been overlooked or treated in error. Recall that the company's cash account balance is updated for any items in the company section of the bank reconciliation.

5. Errors should be added or deducted from the bank or company section of the reconciliation depending on the nature of the error. If the bank made the error, the bank section would be adjusted. Subtract to obtain the difference between the correct and incorrect amounts. Has the bank overstated or understated the Cash balance in their records?

Answer 1

If the errors were made by the company, the adjusted bank balance is $11,494 and the adjusted book balance is $11,494.

Bank reconciliation

a. Bank reconciliation statement  July 31, 20Y0

Cash balance according to bank statement $11,601.41

Add deposit not recorded $1,177.87

Total $12,779.28

Less outstanding checks

No.613 $137.5

No.618 $837.7

No.633 $310.08

Total $1,285.28

Adjusted balance $11,494

($12,779.28-$1,285.28)

Bank reconciliation statement  July 31, 20Y0

Cash balance according to company book $7,664

($9,578+$6,465.42-$8,379.42)

Add proceed of note collected:

Principal  $4,000

Interest $160

Add july deposit error $18

Add error in check No.627 $63

Total $4,241

Deductreturn check $375

Service charges $36

Total $411

Adjusted balance $11,494

($7,664+$4,241-$411)

2. Journal entries

Debit Cash $4,241

Credit Notes receivable $4,000

Credit Interest revenue $160

Credit sales $18

Credit Account payable $63

Debit Accounts receivables $375

Debit Miscellaneous expense $36

Credit Cash $411

3. The amount of cash that should appear on the balance sheet as of July 31 is $11,494.

4. The error amount of $1,620 calculated as ($1,800-$180) should be included in the bank statement balance while the cancelled check should as well be corrected by giving the same check to the bank.

Inconclusion If the errors were made by the company, the adjusted bank balance is $11,494 and the adjusted book balance is $11,494.

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