Question

Part of your duties as the company's Chief Internal Control Officer (CICO) is to prepare a bank reconciliation each month to ensure proper accounting and safeguarding of cash. The bank reconciliation involves you comparing information in the bank statement to information in the company's cash records. 

• At the beginning of the month, both the bank and the company had a beginning cash balance of $23,470. 

•  By the end of the month, the bank statement shows a month-end cash balance of $20,680, while the company's records indicate a month-end cash balance of $24,820. 

• The left circle encompasses all cash transactions for the month reflected in the bank's balance of cash.

• The right circle encompasses all cash transactions for the month reflected in the company's current balance of cash.

Answer the following questions (Use the following codes: DEP = deposits; EFT = electronic funds transfer; INT = interest earned; NOTE = note collected; NSF = non sufficient funds; SF = service fees)

Required:

 1. Which transactions are shown in the intersection of the two circles?

 2. Which transactions are not yet reflected in the company's cash records?

 3. Which transactions are not yet reflected in the bank's cash records for July?

 4. Calculate the bank's adjusted balance of cash and the company's adjusted balance of cash (Hint: Begin with the month-end balances of cash in the bank statement and company records in the given information above).

 5. Record the entries to adjust the company's cash balance. The EFT for $900 includes the cost of utilities in the current month. 

Answer 1

Solution 1:

Transaction shown in intersection of two circles are recorded in company's and bank records.

Solution 2:

Transaction that are not reflected in company's cash records are left side of circle excluding intersection portion.

Solution 3:

Transaction that are not reflected in bank's cash records are right side of circle excluding intersection portion.

Solution 4:

Bank Reconciliation
Bank's Cash balance		Company's cash balance
Particulars	Amount	Particulars	Amount
Ending balance as per Bank Statements	$20,680.00	Ending Balance as per cash books	$24,820.00
Additions:		Additions:
Outstanding Deposits	$7,720.00	Note collection	$1,000.00
		Interest earned	$50.00
Deductions:		Deductions:
Outstanding Checks	$4,200.00	NSF Cheque	$700.00
		EFT	$900.00
		Service fees	$70.00
Up to date cash balance as per bank	$24,200.00	Up to date cash balance as per books	$24,200.00

Solution 5:

Journal Entries
Event	Particulars	Debit	Credit
1	Cash Dr	$1,000.00
	To Notes receivables		$1,000.00
	(To record note collection)
2	Cash Dr	$2,645.00
	To Interest revenue		$70.00
	(To record interest revenue)
3	Accounts receivables Dr	$700.00
	To Cash		$700.00
	(To record NSF check from customer)
4	Utilities expense Dr	$900.00
	To Cash		$900.00
	(To record utilities payment)
5	Service fees expense Dr	$70.00
	To Cash		$70.00
	(Being service charge debited by bank)