Question

Bank Reconciliation and Entries

The cash account for Pala Medical Co. at June 30, 20Y1, indicated a balance of $9,165. The bank statement indicated a balance of $10,470 on June 30, 20Y1. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

Checks outstanding totaled $3,770.

A deposit of $3,930, representing receipts of June 30, had been made too late to appear on the bank statement.

The bank collected $2,040 on a $1,940 note, including interest of $100.

A check for $770 returned with the statement had been incorrectly recorded by Pala Medical Co. as $700. The check was for the payment of an obligation to Skyline Supply Co. for a purchase on account.

A check drawn for $50 had been erroneously charged by the bank as $500.

Bank service charges for June amounted to $55.

Required:

1. Prepare a bank reconciliation.

2. Journalize the necessary entries (a.) that increase cash and (b.) that decrease cash. The accounts have not been closed. For a compound transaction, if an amount box does not require an entry, leave it blank.

3. If a balance sheet were prepared for Pala Medical Co. on June 30, 20Y1, what amount should be reported as cash?

Answer 1

Pala Medical Co
Bank Reconciliation
June 30, 20Y1
Cash balance according to bank statement		$10,470.00
Adjustments
Deduct: Outstanding checks	-$3,770.00
Add: Deposit in transit	$3,930.00
Add: Bank error ($500-$50)	$450.00
Total adjustments		$610.00
Adjusted balance		$11,080.00
Cash balance according to company's records		$9,165.00
Adjustments
Add: Note collected by bank	$1,940.00
Add: Interest on note	$100.00
Less: Error in recording of on account payment	-$70.00
Less: Bank service charges	-$55.00
Total adjustments		$1,915.00
Adjusted balance		$11,080.00

Journal Entry
Account Tittle & Explanation	Debit	Credit
Cash	$2,040.00
Note receivable		$1,940.00
Interest income		$100.00
Accounts payable	$70.00
Cash		$70.00
Bank charges	$55.00
Cash		$55.00

3. Balance will show adjusted cash balance which is $11080