Question

During the bank reconciliation process at A. Fontes Consultancy on May 2, 2019, the following two errors were discovered in the firm’s records.

The checkbook and the general journal indicated that Check 2206 dated April 17 was issued for $695 to make a cash purchase of supplies. However, examination of the canceled check and the listing on the bank statement showed that the actual amount of the check was $14.

The checkbook and the general journal indicated that Check 2247 dated April 20 was issued for $130 to pay a utility bill. However, examination of the canceled check and the listing on the bank statement showed that the actual amount of the check was $164.

Required:

Prepare the adjusted book balance section of the firm’s bank reconciliation statement. The book balance as of April 30 was $20,275. The errors listed above are the only two items that affect the book balance.

Prepare general journal entries to correct the errors. Check 2206 was correctly debited to Supplies on April 17, and Check 2247 was debited to Utilities Expense on April 20.

Analyze:
If the errors described had not been corrected, would net income for the period be overstated or understated? By what amount

Answer 1

Balance in books – 20275

Addition:

Check 2206 – (695 – 14) = $681

Balance in books = 20956

Deduction:

Check 2247 - (164 – 130) = 34

Balance in books = 20922

Journal entries will be as follows

Date	Accounts	Dr	Cr
30-Apr-16	Cash	681
	Supplies		681
30-Apr-16	Utilities expense	34
	Cash		34

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For the purchase of supplies instead of 695 only 14 was paid, however this transaction will not have any effect on net income, because both are balance sheet item.

In second case (164 – 130 = 34) was paid against the utility bill payment, 34 was paid more than what should have been paid, so net income will be understated by $34.

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Hope this answer your query.

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