Question

On August 31, 2019, the balance in the checkbook and the Cash account of the Dry Creek Bed and Breakfast was $12,343. The balance shown on the bank statement on the same date was $13,232. Notes The firm’s records indicate that a $1,520 deposit dated August 30 and a $708 deposit dated August 31 do not appear on the bank statement. A service charge of $7 and a debit memorandum of $355 covering an NSF check have not yet been entered in the firm’s records. (The check was issued by Art Corts, a credit customer.) The following checks were issued but have not yet been paid by the bank: Check 712, $ 117 Check 713, $ 132 Check 716, $ 245 Check 736, $ 584 Check 739, $ 85 Check 741, $ 127 A credit memorandum shows that the bank collected a $2,119 note receivable and interest of $70 for the firm. These amounts have not yet been entered in the firm’s records. Required: Prepare a bank reconciliation statement for the firm as of August 31. Record general journal entries for items on the bank reconciliation statement that must be journalized. Analyze: What effect did the journal entries recorded as a result of the bank reconciliation have on the fundamental accounting equation?

Answer 1

1]	BANK RECONCILIATION STATEMENT
	Balance per bank		$       13,232
	Add:
	Deposits in transit [1520+708]	$          2,228	$         2,228
			$       15,460
	Deduct:
	Outstanding checks [117+132+245+584+85+127]	$          1,290	$         1,290
	Adjusted balance		$       14,170
	Balance per books		$       12,343
	Add:
	Note collected by bank	$          2,119
	Interest on note	$                70
			$         2,189
	Deduct:		$       14,532
	Bank charges	$                  7
	NSF check	$              355	$ 362
	Adjusted balance		$       14,170
2]	JOURNAL ENTRIES:
a]	Cash	$          2,189
	Interest income		$ 70
	Notes receivable		$         2,119
b]	Bank charges	$                  7
	Cash		$ 7
c]	Accounts receivable [for NSF check]	$              355
	Cash		$             355
3]	Effect on the accounting equation:
a]	Assets will increase to the extent of = 2189-2119 =	$                70
	Retained earnings will also increase to the extent of	$                70
b]	Retained earnings will decrease to the extent of	$                  7
	Assets will decrease to the extent of	$                  7
c]	There will no effect on the equation as cash will
	decrease and accounts receivable will increase to the
	extent of $355.