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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.

Short Answer

Expert verified

The cash account is debited with $440.

Step by step solution

01

Definition of outstanding check

The outstanding checks are those checks that are issued by the company but not yet cleared by the bank.

02

Bank reconciliation statement

Jim Root Corporation
Bank Reconciliation Statement
October 31, 2018
Bank
Book

Balance, October 31, 2018

$910

Balance, October 31, 2018

$2,144

Add:

Add:

Deposit in transit

$1,800

EFT Collection

$440

$2,710

$2,584

Less:

Less:

Outstanding Checks

$440

Error in check

$234

Printed checks

$23

NSF Check

$50

Service Charge

$7

Adjusted bank balance, November 30, 2018

$2,270

Adjusted cash balance November 30, 2018

$2,270

The opening cash balance is $2,144, and the opening bank balance is $910. In the book, the EFT rent collection is added to the cash balance because this amount is directly deposited into the bank by the customer. The error check is subtracted because the wrong check amount is credited to the cash account. The amount of the NSF check is subtracted from the cash balance because the NSF check shows the insufficient bank balance of the customer.

03

Journal entries

Date

Particulars

Debit

Credit

October 31

Cash

$440

Accounts receivable

$440

(To record the receipt of the rent collection)

October 31

Bank Expense

$23

Cash

$23

(To record the payment of printed check expenses)

October 31

Bank Expense

$7

Cash

$7

(To record the payment of service charges)

The cash account is debited in the first entry because the amount of the rent is received. In the following two entries, the cash account is credited with $30 because of the printed check and service charge payment.

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Most popular questions from this chapter

Accounting for petty cash transactions

Suppose that on June 1, Rockin’ Gyrations, a disc jockey service, creates a petty cash

fund with an imprest balance of \(300. During June, Michael Martell, fund custodian,

signs the following petty cash tickets:

Petty Cash

Ticket Number Item Amount

1 Postage for package received \) 30

2 Office party 25

3 Two boxes of stationery 20

4 Printer cartridges 15

5 Business dinner 65

On June 30, prior to replenishment, the fund contains these tickets plus cash of \(140.

The accounts affected by petty cash payments are Office Supplies, Entertainment

Expense, and Postage Expense.

Requirements

1. On June 30, how much cash should this petty cash fund hold before it is replenished?

2. Journalize all required entries to (a) create the fund and (b) replenish it. Includeexplanations.

3. Make the entry on July 1 to increase the fund balance to \)325. Include an explanation

List internal control procedures related to e-commerce.

Identifying internal control weakness in cash receipts

Pendley Productions makes all sales on credit. Cash receipts arrive by mail. Larry

Chipello, the mailroom clerk, opens envelopes and separates the checks from the

accompanying remittance advices. Chipello forwards the checks to another employee,

who makes the daily bank deposit but has no access to the accounting records.

Chipello sends the remittance advices, which show cash received, to the accounting

department for entry in the accounts. Chipello’s only other duty is to grant sales

allowances to customers. (A sales allowancedecreases the customer’s account receivable.)

When Chipello receives a customer check for \(575 less a \)45 allowance, he records the

sales allowance and forwards the document to the accounting department.

Requirements

1. Identify the internal control weakness in this situation.

2. Who should record sales allowances?

3. What is the amount that should be shown in the ledger for cash receipts?

Applying internal control over cash payments by check

A purchasing agent for Franklin Office Supplies receives the goods that he purchases

and also approves payment for the goods.

Requirements

1. How could this purchasing agent cheat his company?

2. How could Franklin avoid this internal control weakness?

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.

See all solutions

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