Question

The bank statement for the checking account of Management Systems Inc. (MSI) showed a December 31, 2021, balance of $15.734.87 Information that might be useful in preparing a bank reconciliation is as follows: a. Outstanding checks were $1,431.90 b. The December 31, 2021, cash receipts of $630 were not deposited in the bank until January 2, 2022 One check written in payment of rent for $257 was correctly recorded by the bank but was recorded by MSI as a $275 disbursement d. In accordance with prior authorization, the bank withdrew $560 directly from the checking account as payment on a note payable. The interest portion of that payment was $405. MSI has made no entry to record the automatic payment. e. Bank service charges of $25 were listed on the bank statement. f. A deposit of $930 was recorded by the bank on December 13, but it did not belong to MSI. The deposit should have been made to the checking account of MIS, Inc. 9. The bank statement included a charge of $80 for an NSF check. The check was returned with the bank statement and the company will seek payment from the customer. h. MSI maintains a $200 petty cash fund that was appropriately reimbursed at the end of December L According to instructions from MSI on December 30, the bank withdrew $15,500 from the account and purchased US Treasury bills for MSI, MSI recorded the transaction in its books on December 31 when it received notice from the bank. Half of the Treasury bills mature in two months and the other half in six months. Required: 1. Prepare a bank reconciliation for the MSI checking account at December 31, 2021. You will have to compute the balance per books. 2. Prepare any necessary adjusting journal entries indicated. 3. What amount would MSI report as cash and cash equivalents in the current asset section of the December 31, 2021, balance shept?

Answer 1

1.       Bank Reconciliation Statement as on December 31, 2021

Balance as per Bank Statement	$15734.87
Add:-
Cash receipts of $ 630 not deposited with bank until January 2, 2022	630.00
$ 560 withdrawn by bank for payments of Notes payable ( It includes $ 405 interest portion and $ 155 Principal portion)	560.00
Bank service charges listed on the bank statement only	25.00
Charges debited for an NSF check in bank statement	80.00
	$17,029.87
Less:-
Outstanding Checks	1,431.90
Check for rent payment wrongly recorded in Cash book. (difference amount between actual check amount and wrong entry. ie. 257-275=18)	18.00
MIS Inc check wrongly credited in bank statement in MSI Account	930.00
Balance per Books	$14,649.97

2. Adjusting Journal entries required

a) Rent amount wrongly recorded in books as $ 275 instead of $ 257

To reverse the wrong entry -

Bank A/C .................... Dr $ 275

To Rent $ 275

To record the correct entry -

Rent A/C ........................Dr $ 257

To Bank $ 257

b) $ 560 withdrawn for payment of Notes payable

Notes Payable A/C ..................................... Dr $ 155

Interest on Notes Payable A/C ................... Dr $ 405

To Bank $ 560

(Notes payable will be debited with only the the principal portion and interest portion debited to Interest on Notes Payable A/C)

c) Bank Service charges $ 25

Miscellaneous Expense a/C............................... Dr $ 25

To Bank $ 25

d) charges debited in Bank Statement for an NSF check $ 80

Miscellaneous expense A/C ..............................Dr $ 80

To Bank $ 80

Note:- No Journal entry required for all other transactions.

3. Calculation of Cash and Cash equivalents to be shown under Current assets

Petty Cash Fund	$ 200.00
Bank Balance per Books	$ 14,649.97
Treasury Bills maturing in 2 months ($ 15500/2)	$ 7,750.00
Total Cash and Cash equivalents on December 31, 2021	$ 22,599.97

Note:- Treasury bills maturing within 3 months only will be shown under "Cash and cash Equivalents"