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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

Question: How does the Sarbanes-Oxley Act relate to internal controls?

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.

Preparing a bank reconciliation

Hardy Photography’s checkbook lists the following:

Date Check No. Item Check Deposit Balance

Nov. 1 \( 500

4 622 Quick Mailing \) 45 455

9 Service Revenue \( 135 590

13 623 Photo Supplies 85 505

14 624 Utilities 45 460

18 625 Cash 50 410

26 626 Office Supplies 110 300

28 627 Upstate Realty Co. 290 10

30 Service Revenue 1,235 1,245

Hardy’s November bank statement shows the following:

Learning Objective 6

1. Adjusted Balance \)1,137

Balance

Deposits

Checks: No. Amount

622 \( 45

623 85

624 105*

625 50

Other charges:

Printed checks

Service charge

Balance

*This is the correct amount for check number 624.

\) 500

135

(285)

(48)

$ 302

23

25

Requirements

1. Prepare Hardy Photography’s bank reconciliation at November 30, 2018.

2. How much cash does Hardy actually have on November 30, 2018?

3. Journalize any transactions required from the bank reconciliation.

How do businesses control cash receipts over the counter?

What does the cash ratio help determine, and how is it calculated?

See all solutions

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