Question

1. Deposit in transit.

2. Collection of note receivable by bank.

3. Bank’s recording of a cash receipt that did not belong to Davis Co.

4. Book recording of a check in the general ledger for $10,000 for an equipment purchase

for which the actual check amount and purchase price was $1,000.

5. Outstanding checks.

6. A debit memorandum from the bank for an NSF check received from a customer.

7. A credit memorandum indicating interest was credited to Davis Co.’s account.

8. Bank service charges.

Label each of the above eight items as one of the following four choices: (A) Additions to the bank balance; (B) Deductions from the bank balance; (C) Additions to the book balance per the depositor’s records; or (D) Deductions from the book balance per the depositor’s records.

2. On November 1, 20X1, a small business created a $200 imprest petty cash fund for day-to-day office needs. At the end of November, $37.30 remained in the petty cash fund. Also, receipts for expenses paid using petty cash totaled $162.70 and included the following items: $57.20 for take out pizza for a late night at office; $105.50 for train fare to attend meetings with clients. On November 30, 20X1, the fund was reimbursed for November’s expenditures. Prepare entries for November 20X1 relative to the imprest petty cash fund. Note: Accounts that may be used include Miscellaneous Office Expenses and Travel Expense.

Answer 1

1. Deposits in transit

Additions to the bank balance. (They are recorded in the cash book already, but they have not been deposited with bank, hence for reconciliation, we add it to the bank balance).

2. Collection of Note Receivable by bank

Additions to the book balance per the depositor’s records. (It has been directly collected by bank, hence it needs to be recorded in the cash book).

3. Bank’s recording of a cash receipt that did not belong to Davis Co.

Deductions from the bank balance. (Cash receipt was wrongly recorded by bank, hence it increased the bank balance, so to correct it, it has to be deducted from the bank balance)

4. Error in recording a cheque in the cash book.

Additions to the book balance per the depositor’s records (the bank has correctly charged the correct amount, the book balance was deducted $9,000 more, hence now for the correction, we will have to add the amount to the book balance for reconciliation)

5. Outstanding checks.

Deduction from the bank balance. (They are already deducted from the book balance, hence for reconciliation, we have to deduct them from the bank balance.)

6. NSF Check

Deductions from the book balance per the depositor’s records. (When the cheque was received, it was recorded in the book as a receipt, so now when the actual amount has not been deposited in the bank, it has to be deducted from the book balance).

7. Interest credited

Additions to the book balance per the depositor’s records. (Interest received from the bank is a cash receipt, hence when recorded in the books, it will be added to the book balance).

8. Bank service charges

Deductions from the book balance per the depositor’s records. (It is expense hence it will be deducted in the books of account.)