Question

Gato Painting Company maintains a checking account at American Bank. Bank statements are prepared at the end of each month. The November 30, 2021, reconciliation of the bank balance is as follows:

Balance per bank, November 30				$	3,431
Add: Deposits outstanding					1,400
Less: Checks outstanding
#363	$	143
#365		221
#380		76
#381		106
#382		290			(836	)
Adjusted balance per bank, November 30				$	3,995

The company’s general ledger checking account showed the following for December:

Balance, December 1		$	3,995
Receipts			44,650
Disbursements			(43,853	)
Balance, December 31		$	4,792

The December bank statement contained the following information:

Balance, December 1		$	3,431
Deposits			45,000
Checks processed			(43,918	)
Service charges			(42	)
NSF checks			(640	)
Balance, December 31		$	3,831

The checks that were processed by the bank in December include all of the outstanding checks at the end of November except for check #365. In addition, there are some December checks that had not been processed by the bank by the end of the month. Also, you discover that check #411 for $870 was correctly recorded by the bank but was incorrectly recorded on the books as a $780 disbursement for advertising expense. Included in the bank’s deposits is a $3,300 deposit incorrectly credited to the company’s account. The deposit should have been posted to the credit of the Los Gatos Company. The NSF checks have not been redeposited and the company will seek payment from the customers involved.

Required:
1. Prepare a bank reconciliation for the El Gato checking account at December 31, 2021.
2. Prepare any necessary adjusting journal entries indicated.

Answer 1

Solution 1:

EI Gato Painting company
Bank Reconciliation Statement
31-Dec-21
Particulars		Amount
Balance on bank statement		$3,831.00
Additions:
Outstanding Deposits ($44,650 - $45,000 + $1,400 + $3,300)	$4,350.00
Total Additions		$4,350.00
Deductions:
Outstanding checks($43,853 + $90 - $43,918 + $836)	$861.00
Bank Error	$3,300.00
Total Deductions		$4,161.00
Adjusted bank balance		$4,020.00
Balance in books		$4,792.00
Deductions:
Service Charge	$42.00
NSF Check	$640.00
Incorrect recording of check 411	$90.00
Total Deductions		$772.00
Adjusted book balance		$4,020.00

Solution 2:

Journal Entries - EI Gato Painting
Date	Particulars	Debit	Credit
31-Dec-21	Accounts receivables Dr	$640.00
	Miscellenous Expenses Dr	$42.00
	Advertising Expense Dr	$90.00
	To Cash		$772.00
	(To record NSF check, service charge and correction entry for check no 411)