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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.

Short Answer

Expert verified

The adjusted balance of the bank reconciliation statement is $18,025.

Step by step solution

01

Definition of bank reconciliation statement

The bank reconciliation statement is the statement prepared to remove the errors of bank balance and cash book balance.

02

Bank reconciliation statement

Davidson Insurance
Bank Reconciliation Statement
December 31
Bank Side
Book Side

Particulars

Amount

Particulars

Amount

Balance as per bank

$18,955

Balance as per cash book

$17,450

Add:

Add:

Outstanding Deposits

$1,860

Rent Receipts

$350

Note Collection

$1,400

Deductions:

Deductions:

Outstanding Checks

$2,790

NSF Cheque

$400

Incorrect recording of check

$540

EFT Payment

$225

Service Charge

$10

Adjusted Balance on December 31

$18,025

Adjusted Balance on December 31

$18,025

In the bank reconciliation statement, the opening balance as per bank and cashbook is $18,955 and $17,450. You add the outstanding deposit and deduct the outstanding checks to find the adjusted balance on the bank side. You add rent receipts and note collection to the book balance on the book side. After this, you deduct the NSF check, incorrect recording of the check, EFT payment, and service charge. After making these adjustments on both sides, you got the adjusted balance of $18,025.

03

Journal Entries

Date

Particulars

Debit

Credit

December 31

Cash

$350

Rent Revenue

$350

(To record the rent revenue)

December 31

Cash

$1,400

Notes Receivable

$1,400

(To record the receipt on notes receivable)

December 31

Accounts Receivable

$400

Cash

$400

(To record NSF Check)

December 31

Rent Expense

$540

Cash

$540

(To record the payment of the rent)

December 31

Accounts Payable

$225

Cash

$225

(To record the payment of accounts payable)

December 31

Misc. Expense

$25

Cash

$25

(To record the payment of misc. expense)

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Most popular questions from this chapter

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) __________.

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

Recording transactions from a bank reconciliation Review your results from preparing Guard Dog Security Systems’ bank reconciliation in Short Exercise S7-9. Journalize the company’s transactions that arise from the bank reconciliation. Include an explanation with each entry.

Question: What is the difference between an internal auditor and an external auditor?

What are some limitations of internal controls?

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