Question

On August 31, 20X1, the balance in the checkbook and the Cash account of the Dry Creek Bed and Breakfast was $12,263. The balance shown on the bank statement on the same date was $13,187.

Notes

1. The firms records indicate that a $1,430 deposit dated August 30 and a $699 deposit dated August 31 do not appear on the bank statement.
2. A service charge of $8 and a debit memorandum of $310 covering an NSF check have not yet been entered in the firm’s records. (The check was issued by Art Corts, a credit customer.)
3. The following checks were issued but have not yet been paid by the bank:

Check 712,	$	108
Check 713,	$	123
Check 716,	$	236
Check 736,	$	575
Check 739,	$	76
Check 741,	$	118

4. A credit memorandum shows that the bank collected a $2,074 note receivable and interest of $61 for the firm. These amounts have not yet been entered in the firm’s records.

Required:

1. Prepare a bank reconciliation statement for the firm as of August 31.
2. Record general journal entries for items on the bank reconciliation statement that must be journalized. Date the entries August 31, 20X1.

Analyze:
What effect did the journal entries recorded as a result of the bank reconciliation have on the fundamental accounting equation?

Answer 1

1.

Particulars	Amount ($)	Amount ($)
Balance on Bank Statement		13187
Additions:
Deposit of August 30 in Transit	1430
Deposit of August 31 in Transit	699
Total additions		2129
		15316
Deduction:
Check 712	108
Check 713	123
Check 716	236
Check 736	575
Check 739	76
Check 741	118
Total deduction		(1236)
Adjusted Bank Balance		14,080
Balance in books		12263
Additions:
Notes Receivables	2074
Interest on note receivable	61
Total Additions		2135
		14398
Deductions:
NSF Check	310
Service Charge	8
Total Deductions		(318)
Adjusted Book Balance		14,080

2. Journal entries

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
1.	No Entry Required For Deposit in Transit
2.	Service fee	8
	Cash		8
	(To record the bank service fee)
3.	Account Receivable	310
	Cash		310
	(To record the returned check)
4.	No Entry Required Record the outstanding checks.
5.	Cash	2135
	Note Receivable		2074
	Interest		61
	(To record the note collected by the bank plus interest)

3. Net effect =  Increase by $53 (61 - 8)