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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

List internal control procedures related to e-commerce.

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.

What is separation of duties?

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) __________.

Recording credit card and debit card sales

Restaurants do a large volume of business with credit and debit cards. Suppose Summer,

Sand, and Castles Resort restaurant had these transactions on January 28, 2018:

National Express credit card sales $ 10,800

ValueCard debit card sales 10,000

Requirements

1. Suppose Summer, Sand, and Castles Resort’s processor charges a 2% fee anddeposits sales net of the fee. Journalize these sales transactions for the restaurant.

2. Suppose Summer, Sand, and Castles Resort’s processor charges a 2% fee anddeposits sales using the gross method. Journalize these sales transactions for therestaurant.

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