Question

(Bank Reconciliation and Adjusting Entries) The cash account of Aguilar Co. showed a ledger balance of \(3,969.85 on June 30, 2017. The bank statement as of that date showed a balance of \)4,150. Upon comparing the statement with the cash records, the following facts were determined.

1. There were bank service charges for June of \(25.

2. A bank memo stated that Bao Dai’s note for \)1,200 and interest of \(36 had been collected on June 29, and the bank had made a charge of \)5.50 on the collection. (No entry had been made on Aguilar’s books when Bao Dai’s note was sent to the bank for collection.)

3. Receipts for June 30 for \(3,390 were not deposited until July 2.

4. Checks outstanding on June 30 totaled \)2,136.05.

5. The bank had charged the Aguilar Co.’s account for a customer’s uncollectible check amounting to \(253.20 on June 29.

6. A customer’s check for \)90 (as payment on the customer’s Accounts Receivable) had been entered as \(60 in the cash receipts journal by Aguilar on June 15.

7. Check no. 742 in the amount of \)491 had been entered in the cash journal as \(419, and check no. 747 in the amount of \)58.20 had been entered as $582. Both checks had been issued to pay for purchases and were payments on Aguilar’s Accounts Payable.

Instructions

(a) Prepare a bank reconciliation dated June 30, 2017, proceeding to a correct cash balance.

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

Short answer

The correct cash balance is$5,403.95

Step-by-step solution

Definition of Bank Reconciliation

Statement prepared by a business entity for tallying thebalance of cash as per books and thebalance of cash as per bank passbook is known as bank reconciliation. Such differences exist because of timing differences in recording transactions.

Bank reconciliation statement

Particular	Amount $	Amount $
Balance as per bank passbook		$4,150
Add:
Deposit in transit		3,390
Less:
Checks outstanding		(2,136.05)
Correct balance as per passbook		$5,403.95
Balance as per cash book		$3,969.85
Add:
Collection of note receivable$\left(\$1,200+\$36-\$5·50\right)$		1,230.5
Error in posting		30
Error in recording check (check no: 747)$\left(\$582-\$58·20\right)$		523.8
Less:
Bank charges		(25)
NSF checks charges		(253.20)
Error in recording check no: 742$\left(\$491-\$419\right)$		(72)
Correct balance as per cashbook		$5,403.95

Journal entries

Date	Accounts and Explanation	Debit $	Credit $
30 June 2017	Cash	$1,789.80
	Collection of note receivable		$1,200
	Accounts receivable		$30
	Accounts payable		$523.80
	Interest revenue		$36
31 June 2017	Accounts receivable	$253.20
	Accounts payable	$72
	Bank charges $\left(\$25-\$5·50\right)$	$30.50
	Cash		$355.20
	(To record the deductible items not reported in the cash balance)