In: Accounting
Bank Reconciliation The following data were accumulated for use in reconciling the bank account of Mathers Co. for July: Cash balance according to the company's records at July 31 $22,130. Cash balance according to the bank statement at July 31, $23,520. Checks outstanding, $4,490. Deposit in transit, not recorded by bank, $3,610. A check for $170 in payment of an account was erroneously recorded in the check register as $710. Bank debit memo for service charges, $30. a. Prepare a bank reconciliation, using the format shown in Exhibit 14. Mathers Co. Bank Reconciliation July 31 Cash balance according to bank statement $ 23,520 -4,490 3,610 Adjusted balance $ Cash balance according to company's records $ Adjusted balance $ b. If the balance sheet is prepared for Mathers Co. on July 31, what amount should be reported for cash? $ c. Must a bank reconciliation always balance (reconcile)?
Solution: | ||||
a. | Mathers Co | |||
Bank Reconciliation | ||||
July 31 | ||||
Cash balance according to bank statement | $23,520 | |||
Deduct: Checks outstanding | ($4,490) | |||
Add :Deposit in transit, not recorded by bank | $3,610 | |||
Adjusted balance | $22,640 | |||
Cash balance according to company's records | $22,130 | |||
Deduct: Bank service charges | ($30) | |||
Add : error of check recording | $540 | |||
Adjusted balance | $22,640 | |||
Working Notes: | ||||
Mathers Co | ||||
Bank Reconciliation | ||||
July 31 | ||||
Cash balance according to bank statement | $23,520 | a | ||
Deduct: Checks outstanding | ($4,490) | b | ||
[deducted since it is already deducted in cash book as it is outstanding it is not deducted in bank balance ] | ||||
Add :Deposit in transit, not recorded by bank | $3,610 | c | ||
[ Added since it is already added in cash book as it is deposit in transit it is not reflected in bank balance ] | ||||
Adjusted balance | $22,640 | d=a-b+c | ||
Cash balance according to company's records | $22,130 | e | ||
Deduct: Bank service charges | ($30) | f | ||
[deducted since it is already charged in bank statement & not deducted in cash book ] | ||||
Add : error of check recording | $540 | g | ||
[payment check of $170 is recorded as $710 means cash book is over charged by ($710 - $170 =$540) , hence added back] | ||||
Adjusted balance | $22,640 | h=e-f+g | ||
b. | $22,640 should be reported as cash balance in balance sheet for Mathers Co. on July 31 as calculated in above bank reconciliation | |||
Notes: | Bank reconciliation helps to know the true cash of firm as it adjust all the mis matching of payments & cash deposit and other cash & bank account error of book keeping | |||
c. | Yes, a bank reconciliation must always balance (reconcile) to an adjusted balance. | |||
Notes: | Yes, a bank reconciliation must always balance (reconcile) to an adjusted balance. | |||
If not , there is chances of error in books of accounts or fraud done by employee of the firm | ||||
Please feel free to ask if anything about above solution in comment section of the question. |