Question

The bank statement for the checking account of Management Systems Inc. (MSI) showed a December 31, 2021, balance of $15,333.87. Information that might be useful in preparing a bank reconciliation is as follows: a. Outstanding checks were $1,391.30. b. The December 31, 2021, cash receipts of $610 were not deposited in the bank until January 2, 2022 c. One check written in payment of rent for $253 was correctly recorded by the bank but was recorded by MSI as a $267 disbursement d. In accordance with prior authorization, the bank withdrew $520 directly from the checking account as payment on a note payable. The interest portion of that payment was $385. MSI has made no entry to record the automatic payment. e. Bank service charges of $21 were listed on the bank statement. 1. A deposit of $910 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. G. The bank statement included a charge of $60 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 $270 petty cash fund that was appropriately reimbursed at the end of December According to instructions from MSI on December 30, the bank withdrew $13.500 from the account and purchased U.S. 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 sheet?

Answer 1

$15,333.87 Management Systems, Inc. Bank Reconciliation December 31, 2021 Balance per bank statement Add: Deposits outstanding Leave this row blank Deduct: Outstanding Checks Bank Error in recording other's deposit Corrected Cash Balance $610.00 $0.00 $1,391.30 $910.00 $13,642.57 $13,959.57 [Ref: Workings] $14.00 [$267.00 - $253.00 = $14.00] $270.00 Balance per books Add: Error in recording rent pay check by firm Petty cash balance reimbursed by firm Deduct: Automatic mortgage note payment Bank service charges debited by bank NSF check returned by bank Leave this row blank Corrected Cash Balance $520.00 $21.00 $60.00 $0.00 $13,642.57

Workings: $15,333.87 Cash balance per bank Add: Deposits outstanding Automatic mortgage note payment Bank service charges debited by bank NSF check returned by bank Total additions $610.00 $520.00 $21.00 $60.00 $1,211.00 $16,544.87 [$267.00 - $253.00 = $14.00] Less: Outstanding Checks Error in recording rent pay check by firm Bank Error in recording other's deposit Petty cash balance reimbursed by firm Total deductions Balance as per cash book $1,391.30 $14.00 $910.00 $270.00 $2,585.30 $13,959.57

2) Ajusting Entries: NOTE: Credit $14.00 $270.00 Date Account Titles and Explanation Debit Dec. 31 Cash $14.00 Rent Expense (To correct error in recording rent pay check) Dec. 31 Petty Cash Fund $270.00 Cash |(To replenish petty cash fund) Dec. 31 Note Payable $135.00 Interest Expense $385.00 Cash (To record note payable paid by bank) Dec. 31 Bank service charge expense $21.00 Cash (To record bank charges debited) Dec. 31 Accounts Receivable $60.00 Cash (To record NSF check returned) Adjusting entries in company's books are required to be passed only for those transactions which would affect company records' balance. In other words, transactions which would affect bank records shall not be recorded in company's books of accounts. So, outstanding checks and deposits in transit are not recorded in adjusting entries. [$520 - $385] Also, as the firm has received bank advice about U.S.T-Bills purchased on Dec. 31 and firm also recorded the same in its books of accounts on Dec. 31 itself, it won't lead to difference in balance between bank books and firm's accounting books. Accordingly, no adjustment is required for this transaction in the bank reconciliation process. $520.00 $21.00 $60.00

c) Balance as per cash book Add: Error in recording rent pay check by firm $13,959.57 [As calculated in Part-(a)] $14.00 [$267.00 - $253.00 = $14.00] $13,973.57 [Including interest thereon] Less: Automatic mortgage note payment $520.00 Bank service charges debited by bank $21.00 NSF check returned by bank $60.00 Total deductions Cash & Cash Equivalents to be reported on balance sheet (It includes petty cash fund of $270.00 also) $601.00 $13,372.57