Chapter 5, Problem 5.3.2P

To determine

Concept Introduction:

Bank Reconciliation:

Bank reconciliation is the process in which the entity reconciles its cash entries in accounts with the entries in bank statement issued by the bank. The entity prepares bank reconciliation statement and it has two sides; Bank Side and Cash side

To Indicate:

The effect of bank reconciliation on accounts and financial statement

Answer to Problem 5.3.2P

The effect of bank reconciliation on accounts and financial statement is shown using adjusting journal entries as follows:

Bank Reconciliation
Journal Entries
Date	Accounts titles and Explanation	Debit	Credit
Apr. 30	Cash	$ 4,320
	Interest Income		$ 320
	Notes Receivable		$ 4,000
	(Being note collected by bank)
Apr. 30	Cash	$ 990
	Accounts Payable		$ 990
	(Being adjustment made for error in check)
Oct. 31	Accounts Receivable	$ 1,300
	Cash		$ 1,300
	(Being adjustment made for NSF check)
Oct. 31	Bank Charges	$ 75
	Cash		$ 75
	(Being adjustment made for Bank Charges)

Explanation of Solution

The bank reconciliation statement is prepared as follows:

All American Sports Co.
Bank Reconciliation Statement
As of Apr. 30, 20Y5
Bank Side			Book Side
Balance as per Bank statement		40,360	Balance as per Cash Book (23600+80150-72800)		30,950
Add:			Add:
Deposit in transit		9,275	Collection of Note	4,000
			Interest on Note	320
			Check Error (1100-110)	990	5,310
Less:			Less:
Outstanding Checks	(14,300)		NSF Check	(1,300)
Bank Error (720-270)	(450)	(14,750)	Bank Service Charges	(75)	(1,375)
Reconciled Balance		34,885	Reconciled Balance		34,885

The effect of bank reconciliation on accounts and financial statement is shown using adjusting journal entries as follows:

All American Sports Co.
Bank Reconciliation
Journal Entries
Date	Accounts titles and Explanation	Debit	Credit
Apr. 30	Cash	$ 4,320
	Interest Income		$ 320
	Notes Receivable		$ 4,000
	(Being note collected by bank)
Apr. 30	Cash	$ 990
	Accounts Payable		$ 990
	(Being adjustment made for error in check)
Oct. 31	Accounts Receivable	$ 1,300
	Cash		$ 1,300
	(Being adjustment made for NSF check)
Oct. 31	Bank Charges	$ 75
	Cash		$ 75
	(Being adjustment made for Bank Charges)