Question

Bank Reconciliation and Entries

The cash account for Brentwood Bike Co. at May 1 indicated a balance of $13,960. During May, the total cash deposited was $70,250 and checks written totaled $65,230. The bank statement indicated a balance of $23,810 on May 31. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:

A. Checks outstanding totaled $10,610.

B. A deposit of $8,640, representing receipts of May 31, had been made too late to appear on the bank statement.

C. The bank had collected for Brentwood Bike Co. $4,570 on a note left for collection. The face of the note was $4,220.

D. A check for $270 returned with the statement had been incorrectly charged by the bank as $720.

E. A check for $970 returned with the statement had been recorded by Brentwood Bike Co. as $790. The check was for the payment of an obligation to Adkins Co. on account.

F. Bank service charges for May amounted to $30.

G. A check for $1,050 from Jennings Co. was returned by the bank because of insufficient funds.

Instructions:

1. Prepare a bank reconciliation as of May 31.

2. Journalize the necessary entries (a.) that increase cash and (b.) that decrease cash. The accounts have not been closed. For a compound transaction, if an amount box does not require an entry, leave it blank.

3. If a balance sheet is prepared for Brentwood Bike Co. on May 31, what amount should be reported as cash?

Answer 1

Brentwood Bike Co. Bank Reconciliation May 31 Cash Balance according to bank statement Add: Deposit of May 31, not recorded by Bank Add: Bank error in recording check as $720 instead of $270 23,810 8,640 450 9,090 32,900 10,610 22,290 Deduct: Outstanding checks Adjusted Balance Cash balance according to company's records Add: Proceeds of note collected by bank including $350 interest 18,980 4,570 23,550 180 30 Deduct: Error in recording in check (970 - 790) Deduct: Bank service charges Deduct: NSF check Adjusted Balances 1,050 1,260 22,290 $ Working Notes: Cash Balance according to company's record May 1, Balance Add: Cash Deposit Less: Cash disbursement Cash balance according to company's records 13,960 70,250 (65,230) 18,980

Journal Entry Account Titles and Explanation Date Debit Credit May 31 4,570 4,220 Cash Note receivable Interest revenue (increase in cash) 350 May 31 180 1,050 Accounts payable - Adkins Co. Accounts receivable - Jennings Co. Miscellaneous expense Cash (decrease in cash) 30 1,260 Amount reported as cash on May 31 Is 22,290 22,290