Question

Friends, Inc. received its bank statement for the month ended 12/31/18. The bank statement showed a balance of $10,102.87. The company’s general ledger showed a balance of $8,656.11.

The following items were discovered when comparing the bank statement to the books of the company:

The bank charged check processing fees of $25.00.

There was a $1,825.52 automatic withdrawal to pay the mortgage. Of the $1,825.52, $1,572.86 was for interest which had been accrued.

The bank charged Friends, Inc. account $250.00 for a NSF check. The check was returned to Friends, Inc. and Friends, Inc. will seek repayment of the $250 from the customer

A check for $210.50 written by Friends, Inc. was cleared by the bank on Friends Are Us, Inc.’s account.

The bank collected a note receivable for Friends in the amount of $1,775.50 and deposited it to Friends’ account. The principal repayment was for $1,490.00; the balance was interest, which had not been accrued.

The bank charged the company $50.00 to print new checks.

The bank correctly cleared check #2501 for $482.00. The company had recorded this check in its books for $582.00. The check had been written in payment of utilities.

A $2,075.00 deposit was recorded on the company books on 12/31/18. The deposit was taken to the bank too late to be recorded on that day. The bank recorded the deposit on 1/2/19.

Outstanding checks totaled $1,524.28.

Friends’ income tax refund of $2,062.00 was directly deposited in the bank account. A receivable had been set up in 2018 in anticipation of the refund.

Required:

Prepare a bank reconciliation in good form.

Make all necessary journal entries to adjust Friends, Inc.’s books.

For Bank Reconciliation

Friends, Inc. received its bank statement for the month ended 12/31/18. The bank statement showed a balance of $10,102.87. The company’s general ledger showed a balance of $8,656.11. The following items were discovered when comparing the bank statement to the books of the company: 1. The bank charged check processing fees of $25.00. 2. There was a $1,825.52 automatic withdrawal to pay the mortgage. Of the $1,825.52, $1,572.86 was for interest which had been accrued. 3. The bank charged Friends, Inc. account $250.00 for a NSF check. The check was returned to Friends, Inc. and Friends, Inc. will seek repayment of the $250 from the customer 4. A check for $210.50 written by Friends, Inc. was cleared by the bank on Friends Are Us, Inc.’s account. 5. The bank collected a note receivable for Friends in the amount of $1,775.50 and deposited it to Friends’ account. The principal repayment was for $1,490.00; the balance was interest, which had not been accrued. 6. The bank charged the company $50.00 to print new checks. 7. The bank correctly cleared check #2501 for $482.00. The company had recorded this check in its books for $582.00. The check had been written in payment of utilities. 8. A $2,075.00 deposit was recorded on the company books on 12/31/18. The deposit was taken to the bank too late to be recorded on that day. The bank recorded the deposit on 1/2/19. 9. Outstanding checks totaled $1,524.28. 10. Friends’ income tax refund of $2,062.00 was directly deposited in the bank account. A receivable had been set up in 2018 in anticipation of the refund. Required: a. Prepare a bank reconciliation in good form. b. Make all necessary journal entries to adjust Friends, Inc.’s books. For Bank Reconciliation

Answer 1

Solution:

Friends Inc.
Bank Reconciliation - December 31
Bank's Cash balance		Company's cash balance
Particulars	Amount	Particulars	Amount
Ending balance as per Bank Statements	$10,102.87	Ending Balance as per cash books	$8,656.11
Additions:		Additions:
Outstanding cash receipt	$2,075.00	Note Receivable Collection	$1,775.50
		Incorrect recording of check ($582 - $482)	$100.00
		Income tax refund	$2,062.00
Deductions:		Deductions:
Outstanding Checks	$1,524.28	NSF Cheque	$250.00
Incorrect clearing of check by bank	$210.50	Service Charge	$25.00
		Mortagage payment	$1,825.52
		Check print charges	$50.00
Up to date cash balance as per bank	$10,443.09	Up to date cash balance as per books	$10,443.09

Journal Entries - Friends Inc.
S. No.	Particulars	Debit	Credit
1	Cash Dr	$1,775.50
	To Notes Receivables		$1,490.00
	To Interest Revenue		$285.50
	(Being collection of note receivables
2	Cash A/c Dr	$100.00
	To Accounts payable		$100.00
	(Being Incorrect recording of check corrected)
3	Cash A/c Dr	$2,062.00
	To Income tax refund receivable		$2,062.00
	(Being receipt of Income tax refund)
4	Accounts receivables Dr	$250.00
	To cash		$250.00
	(Being check dishonored by bank)
5	Service charges Dr	$25.00
	To cash		$25.00
	(Being service charges debited by bank)
6	Bank loan Dr	$1,572.86
	Interest expense Dr	$252.66
	To cash		$1,825.52
	(Being mortagage payment debited by bank)
7	Service charges Dr	$25.00
	To cash		$25.00
	(Being check printing charges debited by bank)