Chapter 6, Problem 5PSA

1.

To determine

To prepare: Bank reconciliation of C Company as at September 30, 2017.

Explanation of Solution

While bank reconciliation required adjustments should be made to match the balances.

Bank reconciliation of C Company as follows:

C Company
Bank reconciliation
September 30, 2017
Particulars	Amount ($)	Particulars	Amount ($)
Balance as per bank statement	18,453.25	Balance as per book of account	17,404.2
Add:		Add:
Deposit made on Sept 30	1,682.75	Earning from interest	12.50
Less:		Fee levied	1,497.50
Outstanding check No.5893	494.25	Less:
Outstanding check No.5906	982	NSF check	600.25
Outstanding check No.5908	388	Error underlying check No.	30
Adjusted balance of bank	18,271.45	Adjusted balance of book	18,271.45

Hence, adjusted balance is $18,271.45.

2.

To determine

To prepare: Journal entries to adjust the book balance of cash to the reconciled balance.

Explanation of Solution

A. Journal entry of interest earned from deposits.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Sep 30,2017	Cash		12.50
	Earning from interest			12.50
	(To record earnings from interest on deposits lying in the bank)

• Interest earned from deposits lying in the bank which implies cash has come into the business and cash balance is increased. Thus cash is an asset which increases and gets debited.
• Whereas earning form interest is an income. When income increases it gets credited. So, earning from interest account gets credited.

B. Cash received against note receivable.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Sep 30,2017	Cash		1,485
	Expense for collection		15
	Note receivable			1,500
	(To record collection of note receivable)

• Note receivables are $1,500 from which $15 deducted for collection fees.
• Since cash has is an asset account, it gets debited when increased. A collection fee is an expense which gets debited when increases and note receivable is also an asset which gets credited when decreases.

C. Service charges pertained to NSF check.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Sept 30,2017	Accounts receivable		600.25
	Cash			600.25
	(To record charges levied by the bank for NSF check in addition to fees)

• In such case, service charges $600.25 deducted by the bank which pertains to NSF check.
• Since cash and accounts receivable are asset account, which get debited when increases and credited when decreases. Thus Cash has gone it gets credited and accounts receivable increased so it gets debited.

D. Computer equipment purchased but recorded with few less amounts.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Sep 30,2017	Equipment (Computer)		30
	Cash			30
	(To record correction of error in entry)

• Equipment and cash are assets of the company which gets debited when increased and credited when decreased.
• Hence, Equipment account is debited and cash account is credited.

3.

To determine

To explain: three situations for missing sequenced checks.

Explanation of Solution

Checks are those instruments which can be misplaced some time so it should be used and kept carefully. Sequence of check helps against fraudulent activities as well.

Reasons behind missing of pre-numbered check from the sequence of the cancelled checks are shown below:

• Due to the mistake of check maker while writing the checks.
• Due to bank mistake of clearance of check. For example a check might reach the bank for clearance and bank wrongly charged some others account.
• Due to previous outstanding checks.

Thus, pre-numbered checks can be missing due to internal and external reasons.