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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

What are some common controls used with a bank account?

Preparing a bank reconciliation and journal entries

The December cash records of Davidson Insurance follow:


Davidson’s Cash account shows a balance of \(17,450 at December 31. On December

31, Davidson Insurance received the following bank statement:

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 \)1,400 bank collection was for a note receivable.

d. The correct amount of check no. 1419, for rent expense, is \(1,930. Davidson’s

controller mistakenly recorded the check for \)1,390.

Requirements

1. Prepare the bank reconciliation of Davidson Insurance at December 31, 2018.

2. Journalize any required entries from the bank reconciliation.

Applying internal control over cash receipts by mail. Review the internal controls over cash receipts by mail presented in the chapter. Exactly what is accomplished by the final step in the process, performed by the controller?

Fill in the missing information.

a. The vendor ships the inventory and sends a(n) __________ back to the purchaser.

b. After approving all documents, the purchaser sends a(n) __________ to the vendor.

c. When ordering merchandise inventory, the purchaser sends a(n) __________ to the vendor.

d. The purchaser receives the inventory and prepares a(n) __________.

The following petty cash transactions of Green Golf Equipment occurred in May:

May 1 Established a petty cash fund with a \(200 balance.

31 The petty cash fund has \)18 in cash and \(180 in petty cash tickets that were issued to pay for Office Supplies(\)81), Delivery Expense (\(36), Postage Expense (\)54), and Miscellaneous Expense ($9).

The petty cash custodianreplenished the fund and recorded the expenses.

Prepare the journal entries.

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