The cash account for Brentwood Bike Co. at May 1 indicated a balance of $34,250. During May, the total cash deposited was $140,300, and checks written totaled $138,880. The bank statement indicated a balance of $43,525 on May 31. Comparing the bank statement, the canceledchecks, and the accompanying memos with the records revealed the following reconciling items:a. Checks outstanding totaled $6,440.b. A deposit of $1,850 representing receipts of May 31 had been made too late to appear on the bank statement.c. The bank had collected for Brentwood Bike Co. $5,250 on a note left for collection. The face of the note was $5,000.d. A check for $390 returned with the statement had been incorrectly charged by the bank as $930.e. A check for $210 returned with the statement had been recorded by Brentwood Bike Co. as $120. The check was for the payment of an obligation to Adkins Co. on account.f. Bank service charges for May amounted to $30.g. A check for $1,325 from Jennings Co. was returned by the bank due to insufficient funds.Instructions1. Prepare a bank reconciliation as of May 31.2. Journalize the necessary entries. The accounts have not been closed.3. If a balance sheet is prepared for Brentwood Bike Co. on May 31, what amount should be reported as cash?

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Asked Dec 16, 2019
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The cash account for Brentwood Bike Co. at May 1 indicated a balance of $34,250. During May, the total cash deposited was $140,300, and checks written totaled $138,880. The bank statement indicated a balance of $43,525 on May 31. Comparing the bank statement, the canceled
checks, and the accompanying memos with the records revealed the following reconciling items:
a. Checks outstanding totaled $6,440.
b. A deposit of $1,850 representing receipts of May 31 had been made too late to appear on the bank statement.
c. The bank had collected for Brentwood Bike Co. $5,250 on a note left for collection. The face of the note was $5,000.
d. A check for $390 returned with the statement had been incorrectly charged by the bank as $930.
e. A check for $210 returned with the statement had been recorded by Brentwood Bike Co. as $120. The check was for the payment of an obligation to Adkins Co. on account.
f. Bank service charges for May amounted to $30.
g. A check for $1,325 from Jennings Co. was returned by the bank due to insufficient funds.

Instructions

1. Prepare a bank reconciliation as of May 31.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet is prepared for Brentwood Bike Co. on May 31, what amount should be reported as cash?

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Expert Answer

Step 1

Bank reconciliation: Bank statement is prepared by bank. The company maintains its own records from its perspective. This is why the cash balance per bank and cash balance per books seldom agree. Bank reconciliation is the statement prepared by company to remove the differences and disagreement between cash balance per bank and cash balance per books.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Step 2

(1)

Prepare bank reconciliation of Company BB as at May 31.

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Company BB Bank Reconciliation May 31 Amount ($) Amount ($) 43,525 Particulars Cash balance as per bank statement Add: Deposit of May 31, not recorded by bank Bank error in charging check as $930 instead of $390 1,850 540 2,390 Less: Outstanding checks Adjusted cash balance per bank 6.440 39,475 Cash balance as per books Add: 35,670 Notes and interest receivable collected by bank Less: Check returned because of insufficient funds Error in recording check Bank service charges Adjusted cash balance per books 5.250 $1,325 90 30 1,445 39,475

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Step 3

Working Notes:

Calculate the bank error

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Bank error amout = Actual amount-Am ount recorded = S390 – S930 = $540

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