Question

Prepare bank reconciliation and adjusting entries.

(LO 3), AP

Perth Inc.'s bank statement from Main Street Bank at August 31, 2017, gives the following information.

Balance, August 1	$18,400	Bank debit memorandum:
August deposits	71,000	Safety deposit box fee	$     25
Checks cleared in August	68,678	Service charge	50
Bank credit memorandum:		Balance, August 31	20,692
Interest earned	45

A summary of the Cash account in the ledger for August shows the following: balance, August 1, $18,700; receipts $74,000; disbursements $73,570; and balance, August 31, $19,130. Analysis reveals that the only reconciling items on the July 31 bank reconciliation were a deposit in transit for $4,800 and outstanding checks of $4,500. In addition, you determine that there was an error involving a company check drawn in August: A check for $400 to a creditor on account that cleared the bank in August was journalized and posted for $40.

Instructions:

Determine deposits in transit.

Determine outstanding checks.

(Hint: You need to correct disbursements for the check error.)

Prepare a bank reconciliation at August 31.

Journalize the adjusting entry(ies) to be made by Perth Inc. at August 31.

Answer 1

Answer:-

Deposits in transit = $4,800 + (74,000 - 71,000) = 7,800

Outstanding checks = $4,500 + (73,570 - 68,678) + 360 = 9,752

Perth Inc. BANK RECONCILIATION August 31, 2017 Bank: Balance as per Bank Statement, August 31, 2017 ADD: Deposit in transit (4,800 + (74,000 - 71,000) $ 20,692 $ 7,800 $ 28,492 $ 9,752 $ 18,740 LESS: Outstanding checks ((73,570 - 68,678) + 4,500 + 360] Adjusted cash balance per bank Books: Balance as per depositor's record, August 31, 2017 ADD: Interest earned $ 19,130 $ 45 $ 19,175 LESS: Service charges Error on check (400 - 40) Safety deposit box rent Adjusted cash balance per book $ $ $ 50 360 25 $ 435 $ 18,740

Credit Date Aug.31 Journal Entry for Adjustment to Book Balance Account & Explanations Debit Cash Interest revenue (to record interest revenue) 45 Aug.31 360 Account payable Cash (to correct error in recording check) 360 Aug.31 Bank charge Cash |(to record service charges and safety deposit box fee)