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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Bank reconciliation and entries

Sunshine Interiors deposits all cash receipts each Wednesday and Friday in a night depository after banking hours. The data required to reconcile the bank statement as of July 31 have been taken from various documents and records and are reproduced as follows. The sources of the data are printed in capital letters. All checks were written for payments on account.

BANK RECONCILIATION FOR PRECEDING MONTH (DATED JUNE 30):
Cash balance according to bank statement $ 9,422.80
Add deposit of June 30, not recorded by bank 780.80
Deduct outstanding checks:
No. 580 $310.10
No. 602 85.50
No. 612 92.50
No. 613 137.50 625.60
Adjusted balance $ 9,578.00
Cash balance according to company’s records $ 9,605.70
Deduct bank service charges 27.70
Adjusted balance $ 9,578.00
CASH ACCOUNT:
Balance as of July 1 $ 9,578.00
CASH RECEIPTS FOR MONTH OF JULY 6,465.42
DUPLICATE DEPOSIT TICKETS:
Date and amount of each deposit in July:

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Instructions

1. Prepare a bank reconciliation as of July 31. If errors in recording deposits or checks are discovered, assume that the errors were made by the company. Assume that all deposits are from cash sales. All checks are written to satisfy accounts payable.

2. Journalize the necessary entries. The accounts have not been closed.

3. What is the amount of Cash that should appear on the balance sheet as of July 31?

4. Assume that a canceled check for $180 has been incorrectly recorded by the bank as $1,800. Briefly explain how the error would be included in a bank reconciliation and how it should be corrected.

To determine

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.

To prepare: Bank reconciliation of Company SI as at July 31.

Explanation
  • 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...

(2)

To determine

To prepare: Adjusting journal entries for Company SI

(3)

To determine

To report:  Amount of cash in the balance sheet on June 30.

(4)

To determine

To explain: The error to be included in the bank reconciliation.

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