Question

The Mesa Ho Ho Kam’s (affectionately known as the Mesa Ho’s) are a community service organization that supports a variety of charities throughout the Valley of the Sun. The following information is available to reconcile the Mesa Ho’s book balance of cash with its bank statement as of April 30 of the current year.

1. After all posting is complete on April 30, the Ho’s book balance of cash is $1,404.58 debit balance, but its bank balance is $2,050.00
2. Checks #124 for $150 and #126 for $200 are outstanding.
3. The April 30 a deposit of $145 was placed in the night depository after banking hours on that date, and does not appear on the bank statement.
4. A credit memorandum enclosed with the bank statement indicates that the bank collected a $500 (minus a $15 collection fee) note and $8.42 of related interest on the Ho’s behalf. This transaction was not recorded by the Mesa Ho’s prior to receiving the bank statement.
5. Debits on the Ho’s bank statement that are not yet recorded include a $23 charge for check printing and an NSF check for $20 plus a $10 processing fee. The NSF check is dated April 16 and was included in the book balance.

In good order and form, prepare the bank reconciliation for the Mesa Ho Ho Kam’s for the month of April.

In proper order and form, record the necessary adjusting entries for the Mesa Ho Ho Kam’s.

Define the following terms.

Bank Reconciliation

Cash Equivalents

Liquidity

Petty Cash

Name and Identify one (1) item that would be deducted from the Bank Statement Balance during the bank reconciliation process.

Answer 1

Solution:

Bank reconciliation statement of Mesa Ho on April 30

Balance as per bank statement		$2050
Less: checks#124 and #126 issued but not cleared ($150+$200)	($350)
Collection of note and interest by the bank minus collection fees($500-15+8.42)	($493.42)
Add: deposit not credited as it was placed after banking hours	$145
Debits on the bank statement that are not recorded($23+$20+$10)	$53
Balance as per books		$1404.58

Adjusting entries of Mesa Ho

Account Name	DEBIT	CREDIT
1) Cash Dr.	$493.42
Bank charges Dr.	$15
Note Receivable		$500
Interest earned		$8.42
2)Check printing charges Dr.	$23
Accounts receivable Dr.	$20
Bank charges Dr.	$10
Cash

Bank reconciliation - It is the process of matching the balances of the bank statements (I.e as per the the bank) with the balances in an entity's accounting records for a cash account.The aim is to find differences between the two and record these changes in the accounts.

Cash equivalents-These are short term investments which are highly liquid and have a low risk low return profile.These include treasury Bill's, marketable securities, commercial papers, money market funds, short term government bonds.

Liquidity- It describes the degree to which an asset can be converted into cash i.e sold in the market without affecting the assets price

Petty cash- It is a small amount of money available for paying small expenses without writing a check.The amount from main cash balance is transfered to pretty cash for expenses which are very small or pretty in nature.

One(1) item that would be deducted in bank reconciliation process is

Checks issued but not cleared( outstanding).