Question

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Q1. Discuss in your words the purpose of a bank reconciliation. (1 point)

Q2. Prepare general journal entries for the following transactions of this company for the current year: (2 points).

Apr. 25

Sold SAR 4,500 of merchandise to CBC Corp., receiving a 10%, 60-day, SAR 4,500 note receivable.

June 24

The note of CBC Corp., received on April 25 was dishonored.

Answer 1

Answer 1. A bank reconciliation statement is prepared by the company to see whether there is any mismatch between the records of banking transactions of company and records as maintained by bank (passbook). This statement can be prepared every month, quarter or year based on the need of reconciliation and the volume of transactions. A bank reconciliation statement will help the accountant of the company to recheck the transactions recorded by him with the transactions recorded by bank.

Answer 2: In case of sale is made for a note receivable, the journal entry will be as follows:

Amount is SAR

April 25

Notes receivable (10%) a/c Dr.                                           4500

      To sales a/c                                                               4500

(Goods purchased with note)

June 24

On this date, the note is dishonored, in this case, the company can record the transaction in two ways. In the first way, if the company expects that the payment will ultimately be received, then interest is also recognized and entry will be

Accounts receivable a/c Dr.                                      4575

        To Notes receivable a/c                                    4500

        To interest Revenue                                          75

        (Dishonor Note with interest)

In case, the company expects that the amount is not expected then the same will be treated as bad debt and calculation of interest will be done because the same is not going to be received anyway.

Allowance for Bad debts a/c Dr.                                      4500

        To Notes receivable a/c                                         4500  

       ( Note uncollectible)