27th Edition
WARREN + 5 others
ISBN: 9781337272094




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

Bank reconciliation and entries

The cash account for American Medical Co. at April 30 indicated a balance of $334,985. The bank statement indicated a balance of $388,600 on April 30. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

  1. a. Checks outstanding totaled $61,280.
  2. b. A deposit of $42,500, representing receipts of April 30, had been made too late to appear on the bank statement.
  3. c. The bank collected $42,000 on a $40,000 note, including interest of $2,000.
  4. d. A check for $7,600 returned with the statement had been incorrectly recorded by American Medical Co. as $760. The check was for the payment of an obligation to Targhee Supply Co. for a purchase on account.
  5. e. A check drawn for $240 had been erroneously charged by the bank as $420.
  6. f. Bank service charges for April amounted to $145.


  1. 1. Prepare a bank reconciliation.
  2. 2. Journalize the necessary entries. The accounts have not been closed.
  3. 3. If a balance sheet is prepared for American Medical Co. on April 30, what amount should be reported as cash?


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 AM as at April 30.


  • 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.
  • Notes receivable being collected by bank, is credited to bank account...


To determine

To prepare: Adjusting journal entries for Company T


To determine

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

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