Question

On October 31, 2021. Damon Company's general ledger shows a checking account balance of $8.457. The company's cash receipts for the month total $74,720, of which $71,395 has been deposited in the bank. In addition, the company has written checks for $72,527, of which $71,342 has been processed by the bank. 

The bank statement reveals an ending balance of $13,187 and includes the following items not yet recorded by Damon: bank service fees of $350, note receivable collected by the bank of $7,000, and interest earned on the account balance plus from the note of $1.320. After closer inspection, Damon realizes that the bank incorrectly charged the company's account $1,100 for an automatic withdrawal that should have been charged to another customer's account. The bank agrees to the error. 

Required:

 1. Prepare a bank reconciliation to calculate the correct ending balance of cash on October 31, 2021. (Amounts to be deducted should be indicated with a minus sign.) 

 2. Record the necessary entries to adjust the balance for cash (If no entry is required for a transaction/event, select "No Journal Entry Required in the first account field.) 

Answer 1

1.

Bank Reconciliation

October 31, 2021

Bank's cash Balance		Company's cash Balance
Per bank statement	13,187	Per general ledger	8,457
Correction of bank error	1,100	Interest revenue	1,320
Deposit in transit	3,325	Collection of note receivable	7,000
Outstanding checks	-1,185	Bank service charge	-350
Bank balance as per reconciliation	$16,427	Company balance as per reconciliation	$16,427

Deposit in transit = Cash receipts - Deposited in bank

= 74,720 - 71,395

= $3,325

Outstanding checks = Checks written - Checks processed

= 72,527 - 71,342

= $1,185

2.

Journal

Date	Account Title and Explanation	Debit	Credit
Oct 31	Cash	7,000
	Note receivable		7,000
Oct 31	Cash	1,320
	Interest revenue		1,320
Oct 31	Bank service charge	350
	Cash		350

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Answer 2

DAMON COMPANY
Bank Reconciliation
October 31, 2021
Bank's Cash Balance		Company's Cash Balance
Per bank statement	$13,187	Per general ledger	$8,457
Additions:		Additions:
Bank Error	$1,100	Collection of Note receivable	$7,000
Deposits in transit	$3,325	Interest Earned	$1,320
	$17,612		$16,777
Deductions:		Deductions:
Outstanding checks	$1,185	Service Charges	$350
Bank balance per reconciliation	$16,427	Company balance per reconciliation	$16,427