Question

During the bank reconciliation process at A. Fontes Consultancy on May 2, 2019, the following two errors were discovered in the firm’s records.

1. The checkbook and the cash payments journal indicated that Check 2206 dated April 17 was issued for $703 to make a cash purchase of supplies. However, examination of the canceled check and the listing on the bank statement showed that the actual amount of the check was $18.
2. The checkbook and the cash payments journal indicated that Check 2247 dated April 20 was issued for $130 to pay a utility bill. However, examination of the canceled check and the listing on the bank statement showed that the actual amount of the check was $172.
   

Required:

1. Prepare the adjusted book balance section of the firm’s bank reconciliation statement. The book balance as of April 30 was $20,295. The errors listed above are the only two items that affect the book balance.
2. Prepare general journal entries to correct the errors. Check 2206 was correctly debited to Supplies on April 17, and Check 2247 was debited to Utilities Expense on April 20.
   

Analyze:
If the errors described had not been corrected, would net income for the period be overstated or understated? By what amount?

Answer 1

1	FONTES CONSULTANCY
	Bank Reconciliation Statement
	Balance in books	$20,295
	Additions:
	Check 2206	$685
		$20,980
	Deductions:
	Check 2247	$42
	Adjusted book balance	$20,938	$643
2
Date	General Journal	Debit	Credit
May 02	Cash	$685
	Supplies		$685
	($703 - $18)
May 02	Utilities expense	$42
	Cash		$42
	($172 - $130)
3	Net income would have been overstated by 42