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Classifying bank reconciliation items

The following items could appear on a bank reconciliation:

a. Outstanding checks, \(670.

b. Deposits in transit, \)1,500.

c. NSF check from customer, no. 548, for \(175.

d. Bank collection of note receivable of \)800, and interest of \(80.

e. Interest earned on bank balance, \)20.

f. Service charge, \(10.

g. The business credited Cash for \)200. The correct amount was \(2,000.

h. The bank incorrectly decreased the business’s account by \)350 for a check written

by another business.

Classify each item as (1) an addition to the book balance, (2) a subtraction from the

book balance, (3) an addition to the bank balance, or (4) a subtraction from the bank

balance.

Short Answer

Expert verified

The amount of the outstanding check is subtracted from the bank balance.

Step by step solution

01

Definition of bank reconciliation statement

The bank reconciliation is a statement used to remove the errors between book balance and bank balance.

02

Classification of each item

  1. The outstanding check amount is deducted from the bank balance because it is already deducted from the book balance, but the bank has not yet deducted this from the bank balance.
  2. The amount of $1,500 of deposit transit is added to the bank balance because this amount has already been added to the book balance but has not yet been added to the bank balance.
  3. The NSF check is subtracted from the book balance because NSF shows an insufficient balance in the customer's bank account.
  4. The amount of notes receivable and interest is added to the book balance because the bank directly collects this amount from the customer.
  5. The interest earned on the bank balance is added to the book balance because it increases the amount of cash.
  6. The service charge of $10 is subtracted from the book balance because the bank directly deducts it from the bank balance.
  7. The $1,800 is added to the bank balance because the bank credited the wrong amount.
  8. In this case, $350 was added to the bank balance.

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Most popular questions from this chapter

Preparing a bank reconciliation

Jim Root Corporation operates four bowling alleys. The business just received the

On October 31, 2018, bank statement from City National Bank, and the statement shows

an ending balance of \(910. Listed on the statement are an EFT rent collection of

\)440, a service charge of \(7, NSF checks totaling \)50, and a \(23 charge for printed

checks. In reviewing the cash records, the business identified outstanding checks totaling

\)440 and a deposit in transit of \(1,800. During October, the business recorded a

\)260 check by debiting Salaries Expense and crediting Cash for \(26. The business’s

Cash account shows an October 31 balance of \)2,144.

Requirements

1. Prepare the bank reconciliation at October 31.

2. Journalize any transactions required from the bank reconciliation.

Fill in the missing information concerning how companies control cash received by mail.

a. The ________ opens the mail and sends customer checks to the treasurer.

b. The ________ deposits the customer checks in the bank.

c. The ________ uses the remittance advices to record the journal entries for cash receipts.

d. The ________ compares the bank deposit to the journal entry for cash receipts.

Journalizing credit card sales 2018

Sep. 1 Recorded National Express credit card sales for \(96,000, net of processor fee of 1%. Ignore Cost of Goods Sold.

15 Recorded ValueMax credit card sales of \)80,000. Processor charges a 1.5% fee. ValueMax charges the fee at the end of the month, therefore Marathon uses the gross method for these credit card sales. Ignore Cost of Goods Sold.

30 ValueMax collected the fees for the month of September. Assume the

September 15 transaction is the only ValueMax credit card sale. Journalize all entries required for Marathon Running Shoes.

Preparing a bank reconciliation and journal entries

The May cash records of Donald Insurance follow:

Cash Receipts Cash Payments

Date Cash Debit Check No. Cash Credit

May 4 \( 4,230 1416 \) 890

9 520 1417 120

14 530 1418 630

17 1,950 1419 1,090

31 1,840 1420 1,420

1421 900

1422 670

Donald’s Cash account shows a balance of \(17,750 at May 31. On May 31, Donald

Insurance received the following bank statement:

Deposits and other Credits:

May 10

May 1

May 5

May 15

May 18

May 22

Checks and other Debits:

8

11 (check no. 1416)

19

22 (check no. 1417)

29 (check no. 1418)

31 (check no. 1419)

May

May

May

May

May

May

May 31

Ending Balance

Beginning Balance

EFT \) 450

NSF

EFT

BC

\( 18,730

1,700

890

1,100

120

520

4,230

530

1,950

\) 14,400

9,380

375

630

1,900

35 (5,050)

Bank Statement for May

SC

Explanations: BC–bank collection; EFT–electronic funds transfer;

NSF–nonsufficient funds checks; SC–service charge

Additional data for the bank reconciliation follow:

a. The EFT credit was a receipt of rent. The EFT debit was an insurance

payment.

b. The NSF check was received from a customer.

c. The \(1,700 bank collection was for a note receivable.

d. The correct amount of check 1419, for rent expense, is \)1,900. Donald’s controller

mistakenly recorded the check for $1,090.

Requirements

1. Prepare the bank reconciliation of Donald Insurance at May 31, 2018.

2. Journalize any required entries from the bank reconciliation

Understanding the Sarbanes-Oxley Act and identifying internal control strengths and weaknesses. The following situations suggest a strength or a weakness in internal control.

a. Top managers delegate all internal control procedures to the accounting department.

b. Accounting department staff (or the bookkeeper) orders merchandise and approves invoices for payment.

c. Cash received over the counter is controlled by the sales clerk, who rings up the sale and places the cash in the register. The sales clerk matches the total recorded by the register to each day’s cash sales.

d. The employee who signs checks need not examine the payment packet because he is confident the amounts are correct.

Requirements

1. Define internalcontrol.

2. The system of internal control must be tested by external auditors. What law or rule requires this testing?

3. Identify each item in the list above as either a strength or a weakness in internal control, and give your reason for each answer.

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