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Bank reconciliation and entries The cash account for Pala Medical Co. at June 30, 20Y1, indicated a balance of $166,436. The bank statement indicated a balance of $195,688 on June 30, 20Y1. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items: A. Checks outstanding totaled $19,427. B. A deposit of $12,300, representing receipts of June 30, had been made too late to appear on the bank statement. C. The bank collected $26,500 on a $25,000 note, including interest of $1,500. D. A check for $4,000 returned with the statement had been incorrectly recorded by Pala Medical Co. as $400. The check was for the payment of an obligation to Skyline Supply Co. for a purchase on account. E. A check drawn for $195 had been erroneously charged by the bank as $915. F. Bank service charges for June amounted to $55. Instructions 1. Prepare a bank reconciliation. 2. Journalize the necessary entries. 3. If a balance sheet were prepared for Pala Medical Co. on June 30, 20Y1, what amount should be reported as cash?
Financial And Managerial Accounting
Solutions
Financial And Managerial Accounting
Bank reconciliation and entries
The cash account for Pala Medical Co. at June 30, 20Y1, indicated a balance of $166,436. The bank statement indicated a balance of $195,688 on June 30, 20Y1. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:
- A. Checks outstanding totaled $19,427.
- B. A deposit of $12,300, representing receipts of June 30, had been made too late to appear on the bank statement.
- C. The bank collected $26,500 on a $25,000 note, including interest of $1,500.
- D. A check for $4,000 returned with the statement had been incorrectly recorded by Pala Medical Co. as $400. The check was for the payment of an obligation to Skyline Supply Co. for a purchase on account.
- E. A check drawn for $195 had been erroneously charged by the bank as $915.
- F. Bank service charges for June amounted to $55.
Instructions
- 1. Prepare a bank reconciliation.
- 2. Journalize the necessary entries.
- 3. If a balance sheet were prepared for Pala Medical Co. on June 30, 20Y1, what amount should be reported as cash?
(a)
Prepare bank reconciliation of Company PM as at July 30, 20Y1
Explanation of Solution
Bank reconciliation: Bank statement is prepared by bank. The company maintains its own records from its perspective. This is why the cash balance per bank and cash balance per books seldom agree. Bank reconciliation is the statement prepared by company to remove the differences and disagreement between cash balance per bank and cash balance per books.
Prepare bank reconciliation of Company PM as at June 30, 20Y1.
| Company PM | ||
| Bank Reconciliation | ||
| June 30 | ||
| Particulars | Amount ($) | Amount ($) |
| Cash balance as per bank statement, July 30 | 181,965 | |
| Add: | ||
| Deposit of June 30, not recorded by bank | 9,900 | |
| Bank error in charging check as $710 instead of $170 | 540 | 10,440 |
| Less: | ||
| Outstanding checks | 16,445 | |
| Adjusted cash balance per bank | 175,960 | |
| Cash balance as per company’s records | 146,035 | |
| Add: | ||
| Notes receivable collected by bank | 31,800 | |
| Less: | ||
| Error in recording check | (1,800) | |
| Bank service charges | (75) | 29,925 |
| Adjusted cash balance per books | 175,960 | |
Table (1)
- ■ The deposits which are not recorded by the bank are referred to as deposits in transit...
(b)
Prepare adjusting journal entries for Company P
(c)
Report the amount of cash in the balance sheet on April 30.
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