Question

The information below was used to prepare a bank reconciliation for Lorena Company at October 31:

∙      According to the bank statement, the bank balance as of October 31 was $8,765. According to the books, the cash balance as of October 31 is $9,557.

∙      Outstanding checks totaled $1,433.

∙      A customer's check for $999 was returned for NSF.

∙      October's service charge was $100.

∙      The bank collected $1,600 from a customer of Lorena Company in payment of a note receivable, including interest of $100.

∙      A new bookkeeper had errors in posting checks and recording cash receipts:

       1. Check #930 for Salaries Expense written for $930, recorded as $430.

       2. A cash sale for $2,300 on October 15 was not recorded by the bookkeeper since she was in a hurry to go to lunch. Ignore Cost of Goods Sold.

∙      A deposit was made by the company for $900. This was the correct amount, however, the bank made a mistake and recorded the deposit as $890.

∙      Deposits made at month-end totaled $4,516; these were not shown on the bank statement.

Required:

1. Prepare the bank reconciliation at October 31.

2. Prepare the journal entries at October 31.

Answer 1

1.

Lorena Company
Bank Reconciliation
Oct-31
Balance as per bank	$    8,765
Add: Deposit in transit	$    4,516
Deduct: Outstanding checks	$ (1,433)
Add: bank error	$          10
Adjusted bank balance	$ 11,858
Balance as per books	$    9,557
Deduct: NSF Check	$     (999)
Deduct: Bank charges	$     (100)
Add: Note collected by bank	$    1,500
Add: Interest on note	$        100
Deduct: wrong entry of salary ($930-$430)	$     (500)
Add: Cash sales not accounted	$    2,300
Asjusted book balance	$ 11,858

2. Journal entries

Accounts receivable	$     999
Bank charges	$     100
Salary expense	$     500
Cash	$ 2,301
Note receivable		$ 1,500
Interest revenue		$     100
Cash Sales		$ 2,300