In: Accounting
Chapter 7 ex 07-18
The following data were accumulated for use in reconciling the bank account of Creative Design Co. for August 20Y6:
1. | Cash balance according to the company’s records at August 31, $24,556. |
2. | Cash balance according to the bank statement at August 31, $31,856. |
3. | Checks outstanding, $13,280. |
4. | Deposit in transit, not recorded by bank, $6,392. |
5. | A check for $48 in payment of an account was erroneously recorded in the check register as $480. |
6. | Bank debit memo for service charges, $20. |
A. | Prepare a bank reconciliation,
using the format shown in
Exhibit 13 . Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. |
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B. | If the balance sheet were prepared for Creative Design Co. on August 31 what amount should be reported for cash? | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
C. | Must a bank reconciliation
always balance (reconcile)?
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Solution
Creative Design Co.
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Bank Reconciliation Statement |
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August 31, 20Y6 |
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Cash balance according to bank statement |
$31,856 |
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Adjustments: |
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Deposits in transit |
$6,392 |
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Less: outstanding checks |
($13,280) |
($6,888) |
Corrected cash balance |
$24,968 |
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Cash balance according to company records |
$24,556 |
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Adjustments: |
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Add: erroneous entry of check (480 - 48 = 432) |
$432 |
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Less: Bank service charges |
($20) |
$412 |
Corrected cash balance |
$24,968 |
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B Determination of the amount to be reported for cash in the company’s balance sheet:
If the balance sheet was prepared for Creative Design Co. on August 31, the amount to be reported for cash is $24,968.
C Must a bank reconciliation always balance:
Yes, the purpose of bank reconciliation is to tally the transactions involving bank with both the cash book and the bank version, the bank book. The books generally show differences between the balances for reasons of erroneous entries, electronic fund transfer, deposits in transit, outstanding checks, bank charges not debited in cash book and NSF checks. In order the books to show correct balances, the reasons should be tracked down and the differences to be corrected by providing the needed adjustments.