Question

On August 31, 2019, the balance in the checkbook and the Cash account of the Dry Creek Bed and Breakfast was $12,362. The balance shown on the bank statement on the same date was $13,242.

Notes

The firms records indicate that a $1,540 deposit dated August 30 and a $710 deposit dated August 31 do not appear on the bank statement.

A service charge of $8 and a debit memorandum of $365 covering an NSF check have not yet been entered in the firm's records. (The check was issued by Art Corts, a credit customer.)

The following checks were issued but have not yet been paid by the bank:

  Check 712,$119 Check 713,$134 Check 716,$238 Check 736 ,$586 Check 739,$87 Check 741,$129

A credit memorandum shows that the bank collected a $2,129 note receivable and interest of $72 for the firm. These amounts have not yet been entered in the firm's records.

Required:

Make a bank reconciliation statement for the firm as of August 31.

Record general journal entries for items on the bank reconciliation statement that must be journalized.

Analyze:

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

Answer 1

Solution:

Bank Reconciliation - August 31
Ending balance as per Bank Statements		$13,242.00
Additions:
Deposit in transit:
Deposit dated August 30	$1,540.00
Deposit dated August 31	$710.00
Total Additions		$2,250.00
Deductions:
Outstanding Checks:
Check 712	$119.00
Check 713 *	$143.00
Check 716	$238.00
Check 736	$586.00
Check 739	$87.00
Check 741	$129.00
Total Deductions		$1,302.00
Adjusted Bank Balance		$14,190.00
Ending Balance as per cash books		$12,362.00
Additions:
Note receivable	$2,129.00
Interest on Note receivable	$72.00
Total Additions		$2,201.00
Deductions:
NSF Cheque	$365.00
Service Charge	$8.00
Total Deductions		$373.00
Adjusted Cash Balance		$14,190.00

*Note: Some figures is not correct as bank Reconciliation is not matching and in order to match bank reconciliation it is assumed that Check no 713 was issued for $143 wrongly mentioned in question as $134.

Journal Entries
S. No.	Particulars	Debit	Credit
1	Cash A/c Dr	$2,201.00
	To Note Receivable		$2,129.00
	To Interest Revenue		$72.00
	(To record note receivable collect by bank and interest thereon)
2	Accounts receivables Dr	$365.00
	To Cash A/c		$365.00
	(To record NSF cheque)
3	Service Charges Dr	$8.00
	To Cash A/c		$8.00
	(Being bank charges debited by bank)

Analysis:

	Effcet on Fundament Accounting Equation
Particulars	Assets	=	Liabilities	+	Equity
Cash ($2201-$365-8)	$1,828.00
Note Receivable	-$2,129.00
Accounts receivables	$365.00
Interest revenue					$72.00
Service charges					-$8.00
Net Effect	$64.00				$64.00