Question

Part of your duties as the company's Chief Internal Control Officer (CICO) is to prepare a bank reconciliation each month to ensure proper accounting and safeguarding of cash. The bank reconciliation involves you comparing information in the bank statement to information in the company's cash records. 

• At the beginning of the month, both the bank and the company had a beginning cash balance of $23,470. 

•  By the end of the month, the bank statement shows a month-end cash balance of $20,680, while the company's records indicate a month-end cash balance of $24,820. 

• The left circle encompasses all cash transactions for the month reflected in the bank's balance of cash.

• The right circle encompasses all cash transactions for the month reflected in the company's current balance of cash.

Answer the following questions (Use the following codes: DEP = deposits; EFT = electronic funds transfer; INT = interest earned; NOTE = note collected; NSF = non sufficient funds; SF = service fees)

Required:

 1. Which transactions are shown in the intersection of the two circles?

 2. Which transactions are not yet reflected in the company's cash records?

 3. Which transactions are not yet reflected in the bank's cash records for July?

 4. Calculate the bank's adjusted balance of cash and the company's adjusted balance of cash (Hint: Begin with the month-end balances of cash in the bank statement and company records in the given information above).

 5. Record the entries to adjust the company's cash balance. The EFT for $900 includes the cost of utilities in the current month. 

Answer 1

Solution 1:

Transaction shown in intersection of two circles are recorded in company's and bank records.

Solution 2:

Transaction that are not reflected in company's cash records are left side of circle excluding intersection portion.

Solution 3:

Transaction that are not reflected in bank's cash records are right side of circle excluding intersection portion.

Solution 4:

Bank Reconciliation
Bank's Cash balance		Company's cash balance
Particulars	Amount	Particulars	Amount
Ending balance as per Bank Statements	$20,680.00	Ending Balance as per cash books	$24,820.00
Additions:		Additions:
Outstanding Deposits	$7,720.00	Note collection	$1,000.00
		Interest earned	$50.00
Deductions:		Deductions:
Outstanding Checks	$4,200.00	NSF Cheque	$700.00
		EFT	$900.00
		Service fees	$70.00
Up to date cash balance as per bank	$24,200.00	Up to date cash balance as per books	$24,200.00

Solution 5:

Journal Entries
Event	Particulars	Debit	Credit
1	Cash Dr	$1,000.00
	To Notes receivables		$1,000.00
	(To record note collection)
2	Cash Dr	$2,645.00
	To Interest revenue		$70.00
	(To record interest revenue)
3	Accounts receivables Dr	$700.00
	To Cash		$700.00
	(To record NSF check from customer)
4	Utilities expense Dr	$900.00
	To Cash		$900.00
	(To record utilities payment)
5	Service fees expense Dr	$70.00
	To Cash		$70.00
	(Being service charge debited by bank)

Answer 2

4) Calculation of bank and company's adjusted cash balance Bank Reconciliation Statement For the Month Ended July (Amounts in S) Cash balance as perbankstatement, July 31 Add: Cash sales not recordedin bank $20,680 $7720 $28,400 Less: Outstanding Checks Check 534 Check 535 Adjusted cash balance as per bank Cash balance as per comparty's records, July 31 Add: Note collected by bank Interest eamed $1,800 $2,400 $4,200 $24,200 $24,820 $1,000 $50 $1,050 $25,870 $700 $900 Less: NSF Check Electronic Funds Transfer Service Charges Adjusted cash balance as per company $70 $1,670 $24,200 Therefore adjusted cash balance as per books and company is $24,200.

5) The required journal entry to adjust the company's cash balance is shown as follows Journal Entries (Amounts in $) Date General Journal 1 Cash Debit Credit $1,050 $1,000 Note Receivable Interest reverne $50 (Being record the cash collected fromnote receivable with interest) Accounts Receivable $700 Utilities $900 Service Fees $70 Cash $1,670 (Being record the cash paid against accounts receivable, utilities and service fees)
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Answer 3

1) In the intersection of the circle, the common transactions are shown which are recorded by both bank and the company. It means these transactions are correctly recorded in both and no adjustment required for these transactions in bank reconciliation.

Hence the correct option is C) Transactions currently recorded by both the company and the bank.

2) Transactions not yet reflected in the company's cash record are those transactions which are currently recorded by the bank but not yet by the company. (The transactions which are in the left side of the blue circle, these needs to be adjusted in bank reconciliation).

3) Transactions not yet reflected in the bank's cash record for July are those transactions which are currently recorded by the company but not yet by the bank. (The transactions which are in the right side of the yellow circle, these needs to be adjusted in bank reconciliation).

4) Calculation of bank and company's adjusted cash balance

Bank Reconciliation Statement

For the Month Ended July   (Amounts in $)

Cash balance as per bank statement, July 31		20,680
Add: Cash sales not recorded in bank		7720
		28,400
Less: Outstanding Checks
Check 534	1,800
Check 535	2,400	4,200
Adjusted cash balance as per bank		24,200
Cash balance as per company's records, July 31		24,820
Add: Note collected by bank	1,000
Interest earned	50	1,050
		25,870
Less: NSF Check	700
Electronic Funds Transfer	900
Service Charges	70	1,670
Adjusted cash balance as per company		24,200

Therefore adjusted cash balance as per books and company is $24,200.