Question

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

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

Step-by-step solution

Definition of bank reconciliation statement

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

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.

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)