Question

(Bank Reconciliation and Adjusting Entries) Logan Bruno Company has just received the August 31, 2017, bank statement, which is summarized below.

Country National Bank	Disbursement	Receipts	Balance
Balance August 1			\(9,369
Deposits during August		\)32,200	\(41,569
Note collected for depositor, including \)40 interest		1,040	42,609
Checks cleared during August	34,500		8,109
Bank service charges	20		8,089
Balance, August 31			8,089

The general ledger Cash account contained the following entries for the month of August.

Cash
Balance, August 1	10,050	Disbursement in August	34,903
Receipt during August	35,000

Deposits in transit at August 31 are \(3,800, and checks outstanding at August 31 total \)1,050. Cash on hand at August 31 is \(310. The bookkeeper improperly entered one check in the books at \)146.50 which was written for $164.50 for supplies (expense); it cleared the bank during the month of August.

Instructions

(a) Prepare a bank reconciliation dated August 31, 2017, proceeding to a correct balance.

(b) Prepare any entries necessary to make the books correct and complete.

(c) What amount of cash should be reported in the August 31 balance sheet?

Short answer

The correct cash balance is$11,149.

Step-by-step solution

Definition of Deposit in Transit

The amount of deposit sent by the business entity to the bank but has been still not processed and posted in the bank passbook is known as deposit in transit.

Bank Reconciliation Statement

Particular	Amount $
Balance as per passbook	$8,089
Add:
Cash on hand	310
Deposit in transit	3,800
Less:
Outstanding checks	(1,050)
Correct Cash balance	$11,149
Balance as per cashbook$\left(\$10,050+\$35,000-\$34,903\right)$	$10,147
Add:
Note collected	1,040
Less:
Bank service charge	(20)
Supplies $\left(\$164·50-\$146·50\right)$	(18)
Correct Cash balance	$11,149

Journal Entry to Correct the Balance

Date	Accounts and Explanation	Debit $	Credit $
August 31	Cash	$1,040
	Note collected		$1,000
	Interest revenue		$40
August 31	Bank Service charge	$20
	Cash		$20
August 31	Supplies expenses	$18
	Cash		$18

Amount of Cash on August 31 Balance Sheet

The balance sheet of the business entity will report a cash balance of $11,149.