Question

Bank Reconciliation and Entries

The cash account for American Medical Co. at April 30 indicated a balance of $8,960. The bank statement indicated a balance of $10,190 on April 30. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

A. Checks outstanding totaled $3,670.

B. A deposit of $3,820, representing receipts of April 30, had been made too late to appear on the bank statement.

C. The bank collected $1,990 on a $1,890 note, including interest of $100.

D. A check for $440 returned with the statement had been incorrectly recorded by American Medical Co. as $400. The check was for the payment of an obligation to Targhee Supply Co. for a purchase on account.

E. A check drawn for $60 had been erroneously charged by the bank as $600.

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

Required:

1. Prepare a bank reconciliation.

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 American Medical Co. on April 30, what amount should be reported as cash?

Answer 1

AMERICAN MEDICAL COMPANY
Bank Reconciliation
April 30
Cash balance according to bank statement		$10,190
Add: Deposit of April 30, Not recorded by bank	$3,820
Add: Bank Error in Charging check as $600 instead of $60 [$600 - $60]	$540	$4,360
Deduct: Outstanding Checks		$3,670
Adjusted balance		$10,880
Cash balance according to company’s records		$8,960
Add: Note and Interest Collected by bank		$1,990
Deduct: Error in Recording Check                 [$440 - $400]	$40
Deduct: Bank Service Charges	$30	$70
Adjusted balance		$10,880

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Journal entries
	Date	Account Titles and Explanation	Debit	Credit
a.	April 30	Cash	$1,990
		Notes Receivable		$1,890
		Interest Income / Interest Revenue		$100
b.	April 30	Accounts Payable - Targhee Supply Co [$440 - $400]	$40
		Miscellaneous Expenses                          [Bank service charge]	$30
		Cash		$70

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c. If a balance sheet is prepared for American Medical Co. on April 30, the amount that should be reported as cash

$10,880