Question

Spielberg Company's general ledger shows a checking account balance of $22,970 on July 31, 2018. The July cash receipts of $1,885, included in the general ledger balance, are placed in the night depository at the bank on July 31 and processed by the bank on August 1. The bank statement dated July 31 shows bank service fees of $55. The bank processes all checks written by the company by July 31 and lists them on the bank statement, except for one check totaling $1,460. The bank statement shows a balance of $22,490 on July 31.

1. Prepeare a bank reconciliation to calculate the correct ending balance of cash on July 31, 2018.
2. Record the necessary entry(ies) to adjust the balance for cash.

Answer 1

Concepts and reason

Bank Reconciliation Statement (BRS): A summary prepared in order to reconcile the differences in the balance of bank account, when the balance as per a company’s cash book does not match with its balance as per bank pass book. This disagreement happens due to various reasons, such as, checks may have been issued but were not present to the bank, or errors, such as error of omission.

Transaction: A transaction is an exchange of goods, services or cash and cash equivalents in between a buyer and a seller. All those transactions which can be assessed monetarily are to be noted in the books of accounts.

Rules of Debit and Credit: For journalizing, rules of debit and credit are followed as per the category of a particular account. These categories of accounts are:

Asset: Asset is a resource, owned and managed by the organization, which is capable of providing some future benefits. Any rise in the asset’s value is debited and any fall in the value of the same is credited.

Liability: Liability is an obligation of the organization which is an outcome of a past event or transaction to be settled by an outflow of the organization’s resources. Any increase in a liability will be credited and any decrease the same will be debited.

Revenue: Revenue is the inflow of money in the organization through its usual business operations. It is earned by the company in exchange of goods sold or any service provided by the organization. Whenever an income is earned or due, its respective account will be credited.

Expense: Expense is the gross outflow incurred by an organization during the course of its business operations. Whenever an expense is incurred, its respective account will be debited.

Capital: Capital is the contribution made by the owner to the business organization, which marks its monetary strength, and is used for the development of business. Whenever any transaction increases the amount of capital, it will be credited.

Fundamentals

Cash: Cash is a legal tender which is a current asset of the company. It is the utmost liquid and simplest asset a company can have. It mainly refers to money in hand or in bank accounts that can be easily accessed.

Bank Statement: A summary of an account holder’s transactions in bank account, which is sent by the bank every month, printed on papers for the period from the previous bank statement to the statement of current month is called a bank statement.

Bank Service Fees: The fees charged by banks from their customers in respect of the administrative tasks performed by it for the management and maintenance of the accounts of the customers.

Outstanding Checks: A check which has either not yet been cashed by the holder or it has been presented to the bank but still remains in the clearing cycle, while it is already recorded by the company which issued it is called an outstanding check.

Journal Entry: Journalizing is an art of recording transactions of a business in the order of chronology using the debit and credit rules. It is a pre-phase of preparation of ledgers.

(1)

BRS for company S is prepared below:

Working Notes:

Computation of adjusted balance as per bank statement:

$\begin{array}{c}\\{\rm{Adjusted balance as per bank statement}} = \left( \begin{array}{c}\\{\rm{Bank Statement Balance}} + \\\\{\rm{Outstanding Deposits}} - {\rm{Outstanding Check}}\\\end{array} \right)\\\\ = \$ 22,490 + \$ 1,885 - \$ 1,460\\\\ = \$ 22,915\\\end{array}$

Computation of adjusted balance as per books of company S:

$\begin{array}{c}\\{\rm{Adjusted balance as per books}} = {\rm{Book Balance}} - {\rm{Service Fees}}\\\\ = \$ 2,2,970 - \$ 55\\\\ = \$ 22,915\\\end{array}$

(2)

Journal entry for adjusting the bank service fees is given below:

Ans: Part 1

The adjusted balance after reconciliation as per both bank statement as well as books is $22,915.