Question

could you solve this with explaining ?

Wright Company deposits all cash receipts on the day when they are received and it makes all cash payments by check. At the close of business on May 31, 2013, its Cash account shows a $30,700 debit balance. The company's May 31 bank statement shows $29,000 on deposit in the bank a. The May 31 bank statement included a $260 debit memorandum for bank services, the company has not yet recorded the cost of these services. b. Outstanding checks as of May 31 total $7,200 c. May 31 cash receipts of $7.800 were placed in the bank's night depository after banking hours and were not recorded on the May 31 bank statement d. In reviewing the bank statement, a $560 check written by Smith Company was mistakenly drawn against Wright's account e. A debit memorandum for $280 refers to a $280 NSF check from a customer, the company has not yet recorded this NSF check Prepare a bank reconciliation for the company using the above information WRIGHT COMPANY Bank Reconciliation May 31, 2013 29,000 Book balance Bank statement balance 30,700 S S Add Add Deposit of May 31 Bank error 7,800 560 8,360 37,360 Deduct 30,700 Deduct Outstanding checks 7,200 Bank service charge 260 280 NSF check 7.200 540 Adjusted bank balance 30,160 Adjusted book balance 30,160 е

Answer 1

The provided bank reconciliation statement is correct, hence, explanations for the reasons for adding / deducting the given amounts is provided below in detail for each point shared in the question.

a)

The debit memorandum for bank service charges is an expense that is charged by the bank for its services and it is already included in the bank statement but it is not recorded in the company's cash books so in order to record it, it should be deducted from the cash balance because it is an expense. Hence, the bank service charges of $260 is deducted in cash book in order to get the balance to match.

b)

Outstanding checks are those checks which are already recorded by the company in its cash book as a deduction but these are not yet recorded by the bank so in order to get the balance of both bank statement and cash book, it is recorded as a deduction in the bank statement because the check is issued and paid. Hence, the outstanding checks of $7,000 is recorded as a deduction in the bank statement.

c)

Any deposit that is made by the company and records it in its cash balance but such deposits are not yet reached or in the process of reaching to the bank, then such deposits are called Deposits in Transit so it is already recorded in cash book as addition, it will also be recorded in the bank statement as an addition.

d)

Here, the bank is wrongly charged the company's account as a deduction so in order to reconcile the balance between bank statement and cash book, the same balance should be added back in the bank statement. Hence, it is added.

e)

NSF check means any check rejected due to No Sufficient Funds and when it is received from a customer, it will be recorded as an addition but when it discovered that it is a NSF check, the it should be deducted because earlier, it was added so the cash balance will be more so to avoid it, it should be deducted from the cash book balance.

After all these adjustments, the balance of bank statement and cash book should be reconciled or should be matched with same figures then only it is said that both the balances are reconciled.

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