Question

The bank statement for the checking account of Garden Systems Inc. (GSI) showed a December 31, 2018, balance of $15,534.37. Information that might be useful in preparing a bank reconciliation is as follows:

Outstanding checks were $1,411.60.

The December 31, 2018, cash receipts of $620 were not deposited in the bank until January 2, 2019.

One check written in payment of rent for $255 was correctly recorded by the bank but was recorded by GSI as a $271 disbursement.

In accordance with prior authorization, the bank withdrew $540 directly from the checking account as payment on a mortgage note payable. The interest portion of that payment was $395. GSI has made no entry to record the automatic payment.

Bank service charges of $23 were listed on the bank statement.

A deposit of $920 was recorded by the bank on December 13, but it did not belong to GSI. The deposit should have been made to the checking account of GIS, Inc.

The bank statement included a charge of $70 for an NSF check. The check was returned with the bank statement and the company will seek payment from the customer.

MSI maintains a $290 petty cash fund that was appropriately reimbursed at the end of December.

According to instructions from MSI on December 30, the bank withdrew $14,500 from the account and purchased U.S. Treasury bills for GSI. GSI recorded the transaction in its books on December 31 when it received notice from the bank. Half of the Treasury bills mature in two months and the other half in six months.

Required:
1. Prepare a bank reconciliation for the GSI checking account at December 31, 2018. You will have to compute the balance per books.
2. Prepare any necessary adjusting journal entries indicated.
3. What amount would GSI report as cash and cash equivalents in the current asset section of the December 31, 2018, balance sheet?

Could you please explain to me how to do this one?

Answer 1

SOLUTION

1. Computation of balance as per books-

Particulars	Amount ($)
Balance as per bank statement	15,534.37
Add: Deposits outstanding	620
Deduct: Checks outstanding	(1,411.60)
Error in recording rent check (271-255)	(16)
Add: Automatic mortgage payment	540
Add: Bank service charges	23
Deduct: Deposit credit to company's account in error	(920)
Add: NSF checks	70
Balance as per books	14,439.77

Bank reconciliation statement-

Particulars	Amount ($)
Balance as per bank	15,534.37
Add: Deposits outstanding	620
Less: Deposit credit to company's account in error	(920)
Less: Outstanding checks	(1,411.60)
Adjusted balance as per bank	13,822.77
Balance as per books	14,439.77
Add: Error in recording rent check	16
Deduct: Automatic mortgage loan payment	(540)
Service charges	(23)
NSF Check	(70)
Adjusted balance as per books	13,822.77

2. Journal entries-

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
1.	Cash	16
	Rent expense		16
2.	Interest expense	395
	Mortgage note payable	145
	Miscellaneous expense (Bank service charge)	23
	Accounts receivable (NSF check)	70
	Cash		633

3. Cash and cash equivalent-

Particulars	Amount ($)
Checking account balance	13,822.77
Petty cash	290
U.S. Treasury bill (14,500/2)	7,250
Total cash and cash equivalent	21,362.77