Question

Oscar’s Red Carpet Store maintains a checking account with Academy Bank. Oscar’s sells carpet each day but makes bank deposits only once per week. The following provides information from the company’s cash ledger for the month ending February 28, 2021.

	Date	Amount				No.	Date	Amount
Deposits:	2/4	$	2,350		Checks:	321	2/2	$	4,350
	2/11		1,950			322	2/8		650
	2/18		2,850			323	2/12		2,150
	2/25		3,750			324	2/19		1,850
Cash receipts:	2/26-2/28		1,250			325	2/27		450
		$	12,150			326	2/28		950
						327	2/28		1,550
Balance on February 1		$	6,450					$	11,950
Receipts			12,150
Disbursements			(11,950	)
Balance on February 28		$	6,650

Information from February's bank statement and company records reveals the following additional information:

1. The ending cash balance recorded in the bank statement is $10,665.
2. Cash receipts of $1,250 from 2/26–2/28 are outstanding.
3. Checks 325 and 327 are outstanding.
4. The deposit on 2/11 includes a customer's check for $450 that did not clear the bank (NSF check).
5. Check 323 was written for $2,800 for advertising in February. The bank properly recorded the check for this amount.
6. An automatic withdrawal for Oscar's February rent was made on February 4 for $1,200.
7. Oscar's checking account earns interest based on the average daily balance. The amount of interest earned for February is $165.
8. In January, one of Oscar's suppliers, Titanic Fabrics, borrowed $5,300 from Oscar. On February 24, Titanic paid $5,500 ($5,300 borrowed amount plus $200 interest) directly to Academy Bank in payment for January's borrowing.
9. Academy Bank charged service fees of $100 to Oscar’s for the month.

Required:
A. Prepare a bank reconciliation for Oscar's checking account on February 28, 2021. (Amounts to be deducted should be indicated with a minus sign. Total entries to the same account together when entering in the bank reconciliation.)

B. Record the necessary cash adjustments. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Total entries to the same account together when entering in the journal entry worksheet.)

1. Record the amounts that increase cash.

2. Record the amounts that decrease cash.

Answer 1

Solution a:

Oscar's Red Carpet Store
Bank Reconciliation
February 28, 2021
Bank's Cash Balance		Company's Cash Balance
Per Bank Statement	$10,665	Per General Ledegr	$6,650
Add: Deposits in Transit	$1,250	Add: Interest Earned	$165
		Add: Amount collected by Bank ($5300+$200)	$5,500
Subtotal	$11,915		$12,315
Less: Outstanding check 325	$450	Less: NSF Check	$450
Less: Outstanding check 327	$1,550	Less: Incorrect recording of Check 323 ($2800-$2150)	$650
		Less: Automatic Withdrawal for rent	$1,200
		Less: Bank Service charges	$100
Bank Balance per reconciliation	$9,915	Company Balance per reconciliation	$9,915

Solution b:

Journal Entries
S.No	Particulars	Debit	Credit
a.	Cash	$5,665
	Interest Revenue (165+200)		$365
	Note Receivable		$5,300
b.	Accounts Receivable Dr	$450
	Advertising expense Dr	$650
	Rent Expense Dr	$1,200
	Bank chanrges Dr	$100
	To Cash		$2,400