Question

Preparing a bank reconciliation and journal entries

The May cash records of Donald Insurance follow:

Cash Receipts Cash Payments

Date Cash Debit Check No. Cash Credit

May 4 \( 4,230 1416 \) 890

9 520 1417 120

14 530 1418 630

17 1,950 1419 1,090

31 1,840 1420 1,420

1421 900

1422 670

Donald’s Cash account shows a balance of \(17,750 at May 31. On May 31, Donald

Insurance received the following bank statement:

Deposits and other Credits:

May 10

May 1

May 5

May 15

May 18

May 22

Checks and other Debits:

8

11 (check no. 1416)

19

22 (check no. 1417)

29 (check no. 1418)

31 (check no. 1419)

May

May

May

May

May

May

May 31

Ending Balance

Beginning Balance

EFT \) 450

NSF

EFT

BC

\( 18,730

1,700

890

1,100

120

520

4,230

530

1,950

\) 14,400

9,380

375

630

1,900

35 (5,050)

Bank Statement for May

SC

Explanations: BC–bank collection; EFT–electronic funds transfer;

NSF–nonsufficient funds checks; SC–service charge

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 \(1,700 bank collection was for a note receivable.

d. The correct amount of check 1419, for rent expense, is \)1,900. Donald’s controller

mistakenly recorded the check for $1,090.

Requirements

1. Prepare the bank reconciliation of Donald Insurance at May 31, 2018.

2. Journalize any required entries from the bank reconciliation

Short answer

The adjusted balance of the bank reconciliation statement is $17,580.

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

Donald Insurance
Bank Reconciliation Statement
May 31
Bank Side		Book Side
Particulars	Amount	Particulars	Amount
Balance as per bank	$18,730	Balance as per cash book	$17,750
Add:		Add:
Outstanding Deposits	$1,840	Rent Receipts	$450
		Note Collection	$1,700
Deductions:		Deductions:
Outstanding Checks	$2,990	NSF Cheque	$1,100
		Incorrect recording of check	$810
		EFT Payment	$375
		Service Charge	$35
Adjusted Balance on May 31	$17,580	Adjusted Balance on May 31	$17,580

In the bank reconciliation statement, the opening balance as per bank and cashbook is $18,730 and $17,750. 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 $17,580.

Journal Entries

Date	Particulars	Debit	Credit
May 31	Cash	$450
	Rent Revenue		$450
	(To record the rent revenue)
May 31	Cash	$1,700
	Notes Receivable		$1,700
	(To record the receipt on notes receivable)
May 31	Accounts Receivable	$1,100
	Cash		$1,100
	(To record NSF Check)
May 31	Rent Expense	$375
	Cash		$375
	(To record the payment of the rent)
May 31	Accounts Payable	$810
	Cash		$810
	(To record the payment of accounts payable)
May 31	Misc. Expense	$35
	Cash		$35
	(To record the payment of misc. expense)