Question

Bank Reconciliation and Entries

The cash account for American Medical Co. at April 30 indicated a balance of $11,030. The bank statement indicated a balance of $12,850 on April 30. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

1. Checks outstanding totaled $4,630.
2. A deposit of $4,820, representing receipts of April 30, had been made too late to appear on the bank statement.
3. The bank collected $2,510 on a $2,380 note, including interest of $130.
4. A check for $880 returned with the statement had been incorrectly recorded by American Medical Co. as $800. The check was for the payment of an obligation to Targhee Supply Co. for a purchase on account.
5. A check drawn for $40 had been erroneously charged by the bank as $400.
6. Bank service charges for April amounted to $60.

Required:

1. Prepare a bank reconciliation.

American Medical Co.
Bank Reconciliation
April 30
Cash balance according to bank statement		$
Add deposit of April 30, not recorded by bank	$
Add bank error in charging check as $400 instead of $40
Deduct outstanding checks
Adjusted balance		$
Cash balance according to company's records		$
Add note and interest collected by bank
Deduct error in recording check	$
Deduct bank service charges
Adjusted balance		$

Feedback

1. Set up two columns: one for the company cash account section and the other for the bank balance section. Determine the effect of the data on each column. Recall that when you are finished, the adjusted balances in the bank and company sections of the reconciliation must be equal. If not, an item has been overlooked or treated in error.

2. Journalize the necessary entries (a.) that increase cash and (b.) that decrease cash. The accounts have not been closed. For a compound transaction, if an amount box does not require an entry, leave it blank.

a. April 30	Cash
	Notes Receivable
	Interest Revenue
b. April 30	Notes Payable
	Miscellaneous Expense
	Cash

3. If a balance sheet is prepared for American Medical Co. on April 30, what amount should be reported as cash?
$

Answer 1

Answer:

1.

AMERICAN MEDICAL CO.
Bank Reconciliation
April 30
Cash balance according to bank statement		12,850
Add: Deposit of April 30, not recorded by bank	4,820
Add: Bank error in charging check as $400 instead of $40	360	5,180
		18,030
Deduct: Outstanding checks		4,630
Adjusted balance		13,400
Cash balance according to company's records		11,030
Add: Note and interest collected by bank		2,510
		13,540
Deduct: Error in recording check	80
Deduct: Bank service charges	60	140
Adjusted balance		13,400

2.

No.	Date	General Journal	Debit	Credit
a	Apr-30	Cash	2,510
		Notes receivable		2,380
		Interest revenue		130
b	Apr-30	Accounts Payable	80
		Miscellaneous Expense	60
		Cash		140

3.

Amount reported as cash

13,400

Calculation:

1.

To prepare the reconciliation, first we need to take the Cash balance according to bank statement and then, we need to add the Deposit of April 30, not recorded by bank and the Bank error in charging check.

Bank error in charging check as $400 instead of $40. We need to add 400-40 = 360

Then, we need to deduct the Outstanding checks, so we get the Adjusted balance.

Then, we need to take Cash balance according to company's records, and then we need to add the Note and interest collected by bank. Then we need to deduct the Error in recording check and Bank service charges, so we get the Adjusted balance.

Error in recording check = 880 - 800 = 80

2.

Entry #1:

The bank collected $2,510 on a $2,380 note, including interest of $130

So, cash received = 2,510

Notes receivable = 2,380

Interest = 2,510 - 2,380 = 130

Entry #2:

Check for $880 returned with the statement had been incorrectly recorded as $800

So, Accounts payable = 880 - 800 = 80

Bank service charges for April amounted to $60.

So, Miscellaneous Expense = 60

Cash paid = 80 + 60 = 140

3.

If a balance sheet is prepared for American Medical Co. on April 30, the amount should be reported as cash is 13,400 which is the adjusted balance from the bank reconciliation should be reported as cash on the April 30.