Concept explainers
(a)
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.
To prepare: Bank reconciliation of Company K as at July 31, 2017
(a)
Answer to Problem 7.3AP
Explanation of Solution
Prepare bank reconciliation of Company K as at July 31, 2017.
Company K | ||
Bank Reconciliation | ||
July 31, 2017 | ||
Cash balance as per bank statement, July 31, 2017 | $7,690.80 | |
Add: Deposit in transit | 1,193.30 | |
8,884.10 | ||
Less: Outstanding checks | 1,860.10 | |
Adjusted cash balance per bank | $7,024.00 | |
Cash balance as per books, July 31, 2017 | $6,140.00 | |
Add: | 1,520.00 | |
7,660.00 | ||
Less: Bank service charge | 25.00 | |
Error in recording check number: 2480 | 36.00 | |
NSF check | 575.00 | 636.00 |
Adjusted cash balance per books | $7,024.00 |
Table (1)
Working Notes:
Calculate book error in check number: 2480 amount.
- The deposits which are not recorded by the bank are referred to as deposits in transit. Since the deposits in transit are not reflected on the bank statement, the company should add deposits in transit to cash balance per bank, while preparation of
bank reconciliation statement . - Outstanding checks are the checks that are issued by the company, but not yet paid by the bank. When the check is issued for payment, the company deducts the cash balance immediately. But the bank deducts only when the cash is paid for the issued check. So, company deducts the cash balance per bank to remove the differences.
- Account receivable being collected by bank, is credited to bank account. But the company is not aware of it. So, while preparing bank reconciliation statement, company should add the amount to the cash balance per books.
- Banks deduct the service charge for the services rendered like lock box rental, or printed checks. But the company is not aware of such deductions. So, company deducts the cash balance per books while bank reconciliation preparation.
- The accountant has recorded the amount of $384 as $348 for the check numbered 2480. So, the cash balance increased by $36. Therefore, the balance should be deducted from books, to reduce amount from the cash ledger account balance.
- While bank reconciliation, the NSF check should be deducted from the cash balance per book. This is because the bank could not collect funds from the customer’s bank due to lack of funds. But being recorded as Accounts Receivable previously, the balance should be deducted from books, to increase the Accounts Receivable account.
(b)
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To prepare:
(b)
Explanation of Solution
Prepare journal entry to record account receivable collected by bank.
Date | Account Titles and Explanation | Ref. | Debit ($) | Credit ($) | |
2017 | |||||
July | 31 | Cash | 1,520 | ||
Account Receivable | 1,520 | ||||
(To record receivable collected by bank) |
Table (2)
Description
- Cash is an asset account. The amount is increased because bank collected note receivable, and an increase in assets should be debited.
- Account Receivable is an asset account. The amount has decreased because the amount to be received is collected by the bank, and, a decrease in assets should be credited.
Prepare journal entry to record bank service charge.
Date | Account Titles and Explanation | Ref. | Debit ($) | Credit ($) | |
2017 | |||||
July | 31 | Bank Charge Expense | 25 | ||
Cash | 25 | ||||
(To record bank service charge) |
Table (3)
Description
- Bank Charges Expense is an expense account and the amount is increased because bank has charged service charges. Expenses decrease Equity account and decrease in Equity is debited.
- Cash is an asset account. The amount is decreased because bank service charge is paid, and a decrease in asset is credited.
Prepare journal entry to record book error amount.
Date | Accounts and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2017 | |||||
July | 31 | Accounts Payable | 36 | ||
Cash | 36 | ||||
(To record amount under-payable by accountant) |
Table (4)
Description
- Accounts Payable is a liability account. The under-paid payable is paid, and so, amount to be paid is decreased. A decrease in liability is debited.
- Cash is an asset account. The amount is decreased to pay the under-paid check, and a decrease in asset is credited.
Prepare journal entry to record NSF check.
Date | Accounts and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2017 | |||||
July | 31 | Accounts Receivable | 575 | ||
Cash | 575 | ||||
(To record NSF check) |
Table (5)
Description
- Accounts Receivable is an asset account. The bank has not collected the amount from the customer due to insufficient funds, which was earlier recorded as a receipt. As the collection could not be made, amount to be received increased. Therefore, increase in asset would be debited.
- Cash is an asset account. The amount is decreased because bank could not collect amount due to insufficient funds in customer’s account, and a decrease in asset is credited.
Want to see more full solutions like this?
Chapter 7 Solutions
FINANCIAL ACCOUNTING UDEL W/ACCESS >IB
- On July 31, 2022, Crane Company had a cash balance per books of $6,245.00. The statement from Dakota State Bank on that date showed a balance of $7,795.80. A comparison of the bank statement with the Cash account revealed the following facts. 1. The bank service charge for July was $16.00. 2. The bank collected $1,625.00 from a customer for Crane Company through electronic funds transfer. 3. The July 31 receipts of $1,307.30 were not included in the bank deposits for July. These receipts were deposited by the company in a night deposit vault on July 31. 4. Company check No. 2480 issued to L. Taylor, a creditor, for $284.00 that cleared the bank in July was incorrectly entered in the cash payments journal on July 10 for $245.00. 5. Checks outstanding on July 31 totaled $1,965.10. 6. On July 31, the bank statement showed an NSF charge of $680.00 for a check received by the company from W. Krueger, a customer, on account. Prepare the necessary adjusting…arrow_forwardOn July 31, 2022, Crane Company had a cash balance per books of $6,245.00. The statement from Dakota State Bank on that date showed a balance of $7,795.80. A comparison of the bank statement with the Cash account revealed the following facts. 1. The bank service charge for July was $16.00. 2. The bank collected $1,625.00 from a customer for Crane Company through electronic funds transfer. 3. The July 31 receipts of $1,307.30 were not included in the bank deposits for July. These receipts were deposited by the company in a night deposit vault on July 31. 4. Company check No. 2480 issued to L. Taylor, a creditor, for $284.00 that cleared the bank in July was incorrectly entered in the cash payments journal on July 10 for $245.00. 5. Checks outstanding on July 31 totaled $1,965.10. 6. On July 31, the bank statement showed an NSF charge of $680.00 for a check received by the company from W. Krueger, a customer, on account. Prepare the bank reconciliation as…arrow_forwardOn July 31, 2022, Cullumber Company had a cash balance per books of $6,250.00. The statement from Dakota State Bank on that date showed a balance of $7,800.80. A comparison of the bank statement with the Cash account revealed the following facts. 1. The bank service charge for July was $20.00. 2. The bank collected $1,630.00 from a customer for Cullumber Company through electronic funds transfer. 3. The July 31 receipts of $1,308.30 were not included in the bank deposits for July. These receipts were deposited by the company in a night deposit vault on July 31. 4. Company check No. 2480 issued to L. Taylor, a creditor, for $394.00 that cleared the bank in July was incorrectly entered in the cash payments journal on July 10 for $349.00. 5. Checks outstanding on July 31 totaled $1,979.10. 6. On July 31, the bank statement showed an NSF charge of $685.00 for a check received by the company from W. Krueger, a customer, on account. Prepare the…arrow_forward
- ठी = =arrow_forwardOn July 31, 2022, Carla Vista Co. had a cash balance per books of $6,335.00. The statement from Dakota State Bank on that date showed a balance of $7,885.80. A comparison of the bank statement with the Cash account revealed the following facts. 1. The bank service charge for July was $19.00. 2. The bank collected $1,715.00 from a customer for Carla Vista Co. through electronic funds transfer. 3. The July 31 receipts of $1,394.30 were not included in the bank deposits for July. These receipts were deposited by the company in a night deposit vault on July 31. 4. Company check No. 2480 issued to L. Taylor, a creditor, for $374.00 that cleared the bank in July was incorrectly entered in the cash payments journal on July 10 for $347.00. 5. Checks outstanding on July 31 totaled $2,046.10. 6. On July 31, the bank statement showed an NSF charge of $770.00 for a check received by the company from W. Krueger, a customer, on account.…arrow_forwardOn July 31, 2025, Cullumber Company had a cash balance per books of $6,250.00. The statement from Dakota State Bank on that date showed a balance of $7,800.80. A comparison of the bank statement with the Cash account revealed the following facts. 1. 2. 3. 4. 5. 6. (a) The bank service charge for July was $20.00. The bank collected $1,630.00 from a customer for Cullumber Company through electronic funds transfer. The July 31 receipts of $1,308.30 were not included in the bank deposits for July. These receipts were deposited by the company in a night deposit vault on July 31. Company check No. 2480 issued to L. Taylor, a creditor, for $394.00 that cleared the bank in July was incorrectly entered in the cash payments journal on July 10 for $349.00. Checks outstanding on July 31 totaled $1,979.10. On July 31, the bank statement showed an NSF charge of $685.00 for a check received by the company from W. Krueger, a customer, on account. Prepare the bank reconciliation as of July 31. (List…arrow_forward
- The cash account of Waterway Co. showed a ledger balance of $18,781.68 on June 30, 2025. The bank statement as of that date showed a balance of $19,920. Upon comparing the statement with the cash records, the following facts were determined. 1. 2. There were bank service charges for June of $120. A bank memo stated that Bao Dai's note for $5,760 and interest of $172.80 had been collected on June 29, and the bank had made a charge of $26.40 on the collection. (No entry had been made on Waterway's books when Bao Dai's note was sent to the bank for collection.) 3. Receipts for June 30 for $16,272 were not deposited until July 2. 4. Checks outstanding on June 30 totaled $10,253.04. 5. 6. The bank had charged the Waterway Co.'s account for a customer's uncollectible check amounting to $1,215.36 on June 29. A customer's check for $432 (as payment on the customer's Accounts Receivable) had been entered as $288 in the cash receipts journal by Waterway on June 15. 7. Check no. 742 in the amount…arrow_forwardOn May 31, 2017, Reber Company had a cash balance per books of $7,051.50. The bank statement from New York State Bank on that date showed a balance of $6,674.60. A comparison of the statement with the cash account revealed the following facts. 1. The statement included a debit memo of $50.00 for the printing of additional company checks. 2. Cash sales of $632.00 on May 12 were deposited in the bank. The cash receipts journal entry and the deposit slip were incorrectly made for $682.00. The bank credited Reber Company for the correct amount. 3. Outstanding checks at May 31 totaled $882.25. Deposits in transit were $2,686.15. 4. On May 18, the company issued check No. 1181 for $692 to Lynda Carsen on account. The check, which cleared the bank in May, was incorrectly journalized and posted by Reber Company for $629. 5. A $3,270.00 note receivable was collected by the bank for Reber Company on May 31 plus $90.00 interest. The bank charged a collection fee of $30.00. No…arrow_forwardAt 31 March 2015, the balance of the Cash account according to the records of Harmony Company was $14,432. The 31 March bank statement showed a balance of $17,596. You are going to prepare the bank reconciliation of Harmony Company at 31 March 2015, using the following supplementary information:(1) Service charge by bank, $100.(2) The bank has collected a total of $10,100 and directly credited to Harmony, which represents the principal and interest owed by Peace Company. Interest amounted to $200.(3) A check for $180 drawn by a customer, Charlotte Lava, but deducted from Harmony’s account by the bank and returned with the notation “NSF.”(4) Harmony’s records showed that it has made a total deposit of $32,088 during March 2015, but according to the bank statement it only showed deposits of $18,544. No deposit-in-transit is carried forwarded from February 2015.(5) Outstanding checks: no. 18120, $280; no. 18121, $1,864; no. 18127, $614; no. 18134, $4,400.(6) Harmony’s check no. 18114,…arrow_forward
- The following information relates to M Park Corporation for the month of March 2022:1. Cash balance per books, March 31 was $20,647.002. Deposits in transit, March 31 were $8,140.003. The March bank service charge was $34.00 and has not been recorded by the company.4. Outstanding checks, March 31 were $3,905.005. An electronic funds transfer (EFT) collected by the bank was $590. The collection has not been recorded by M Park Corporation.6. The bank made an error and recorded a $3,000 deposit twice.7. Cash balance per bank, March 31 was $19,968.00 After analyzing the data, prepare a bank reconciliation for M Park Corporation at March 31st. Reconcile the cash balance per the bank first and list items that increase the cash balance first. Also, round amounts to two decimal places.arrow_forwardThe cash account of Aguilar Co. showed a ledger balance of $3,969.85 on June 30, 2020. The bank statement as of that date showed a balance of $4,150. Upon comparing the statement with the cash records, the following facts were determined. 1. There were bank service charges for June of $25. 2. A bank memo stated that Bao Dai’s note for $1,200 and interest of $36 had been collected on June 29, and the bank had made a charge of $5.50 on the collection. (No entry had been made on Aguilar’s books when Bao Dai’s note was sent to the bank for collection.) 3. Receipts for June 30 for $3,390 were not deposited until July 2. 4. Checks outstanding on June 30 totaled $2,136.05. 5. The bank had charged the Aguilar Co.’s account for a customer’s uncollectible check amounting to $253.20 on June 29. 6. A customer’s check for $90 (as payment on the customer’s Accounts Receivable) had been entered as $60 in the cash receipts journal by Aguilar on June 15. 7. Check no. 742 in the amount of…arrow_forwardThe cash account of Sheffield Co. showed a ledger balance of $7,088.13 on June 30, 2020. The bank statement as of that date showed a balance of $7,470. Upon comparing the statement with the cash records, the following facts were determined. 1. 2. 3. 4. 5. 6. 7. (a) There were bank service charges for June of $45. A bank memo stated that Bao Dai's note for $2,160 and interest of $64.80 had been collected on June 29, and the bank had made a charge of $9.90 on the collection. (No entry had been made on Sheffield's books when Bao Dai's note was sent to the bank for collection.) Receipts for June 30 for $6,102 were not deposited until July 2. Checks outstanding on June 30 totaled $3,844.89. The bank had charged the Sheffield Co.'s account for a customer's uncollectible check amounting to $455.76 on June 29. A customer's check for $162 (as payment on the customer's Accounts Receivable) had been entered as $108 in the cash receipts journal by Sheffield on June 15. Check no. 742 in the amount…arrow_forward
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College PubFinancial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781305084087Author:Cathy J. ScottPublisher:Cengage Learning