Question

EX 8-16 Bank reconciliation OBJ. 5 Identify each of the following reconciling items as: (a) an addition to the cash balance according to the bank statement, (b) a deduction from the cash balance according to the bank statement, (c) an addition to the cash balance according to the company's records, or (d) a deduction from the cash balance according to the company's records. (None of the transactions reported by bank debit and credit memos have been recorded by the company.) 1. Bank service charges, $30. 2. Check of a customer returned by bank to company because of insufficient funds, $400. 3. Check for $320 incorrectly recorded by the company as $230. 4. Check for $1,100 incorrectly charged by bank as $110. 5. Deposit in transit, $3,300. 6. Outstanding checks, $7,950. 7. Note collected by bank, $10,500.

Answer 1

1. Bank Service Charges, $30

This transaction was not reported by the Bank so the effect was that Balance as per Bank statement is less than by $30 as comparing to balance as per Company's Record, so the above reconciliation will fall under (d) a deduction from the cash balance according to the Company's records.

2. Check of a customer returned by bank to company because of insufficient funds, $400

This transaction was not reported by the Bank so the effect was that Balance as per Bank statement is less than by $400 as comparing to balance as per Company's Record, so the above reconciliation will fall under (d) a deduction from the cash balance according to the Company's records.

3. Check for $320 incorrectly recorded by the company as $230.

   The effect of this transaction will be that the balance as per Company's records is less then by $90 and this error was made only in company's record so the above reconciliation will fall under (c) an addition to the cash balance according to the company's records.

4. Check for $1100 incorrectly charged by bank as $110

The effect of this transaction will be that the Balance as per Bank statement was more than by $990 as comparing to balance as per Company's record and this error is committed by the bank only so this reconciliation will fall under (b) a deduction from cash balance according to the Bank statement.

5. Deposits in Transit, $3,300

The effect of this transaction will be that the Balance as per Bank statement is less than by $3300 as comparing to balance as per Company's record because the company has entered the deposits in their books but the bank has not credited that yet so the reconciliation can be fall under both category (a) an addition to the cash balance according to the bank statement if the deposits in transit were honoured and (d) a deduction from the cash balance according to the company's records if the deposits were not honoured.

6. Outstanding Checks, $7,950

The effect of this transaction will be that the balance as per Bank statement is more than by $7950 as comparing to the balance as per company's record because the company has entered the checks issued in their records but the bank has not charged the checks yet so assuming the checks will be honoured this reconciliation will fall under (b) a deduction from the cash balance according to the bank statement.

7. Note Collected by Bank, $10,500

   The effect of the above transaction will be that the balance as per bank statement is more than by $10,500 as comparing to balance as per company's record because the company has not entered this transaction so this reconciliation will fall under (c) an addition to the cash balance according to the Company's records.