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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

In 100 words or fewer, explain why there may be a difference between the bank statement ending cash balance and the ending balance in the Cash account. Give at least two examples of adjustments to the bank balance and the book balance.

What is a bank reconciliation?

Understanding internal control, components, procedures, and laws

Match the following terms with their definitions.

1. Internal control

2. Control procedures

3. Firewalls

4. Encryption

5. Environment

6. Information system

7. Separation of duties

8. Collusion

9. Documents

10. Audits

11. Operational efficiency

12. Risk assessment

13. Sarbanes-Oxley Act

a. Two or more people working together to overcome internal controls.

b. Part of internal control that ensures resources are not wasted.

c. Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.

d. Should be prenumbered to prevent theft and inefficiency.

e. Limits access to a local network.

f. Example: The person who opens the bank statement should not also be the person who is reconciling cash.

g. Identification of uncertainties that may arise due to a company’s products, services, or operations.

h. Examination of a company’s financial statements and accounting system by a trained accounting professional.

i. Without a sufficient one of these, information cannot properly be gathered and summarized.

j. The organizational plan and all the related measures that safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting data.

k. Component of internal control that helps ensure business goals are achieved.

l. Rearranges data by a mathematical process.

m. To establish an effective one, a company’s CEO and top managers must behave honorably to set a good example for employees.

This case is based on an actual situation. Centennial Construction Company, headquartered in Dallas, Texas, built a Rodeway Motel 35 miles north of Dallas. The construction foreman, whose name was Slim Chance, hired the 40 workers needed to complete the project. Slim had the construction workers fill out the necessary tax forms, and he sent their documents to the home office. Work on the motel began on April 1 and ended September 1. Each week,Slim filled out a time card of hours worked by each employee during the week. Slim faxed the time cards to the home office, which prepared the payroll checks on Friday morning. Slim drove to the home office on Friday, picked up the payroll checks, and returned to the construction site. At 5 p.m. on Friday, Slim distributed payroll checks to the workers.

Requirements

1. Describe in detail the main internal control weakness in this situation. Specify what negative result(s) could occur because of the internal control weakness.

2. Describe what you would do to correct the internal control weakness.

Journalizing petty cash

Prepare the journal entries for the following petty cash transactions of Everly Gaming

Supplies:

March 1 Established a petty cash fund with a \(250 balance.

31 The petty cash fund has \)24 in cash and \(235 in petty cash tickets

that were issued to pay for Office Supplies (\)35) and Entertainment

Expense (\(200). Replenished the fund and recorded the expenditures.

April 15 Increased the balance of the petty cash fund to \)300.

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