Question

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

The cash account is debited with $440.

Step-by-step solution

Definition of outstanding check

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

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.

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.