Question

Bank Reconciliation and Entries

The cash account for Brentwood Bike Co. at May 1 indicated a balance of $14,640. During May, the total cash deposited was $73,260 and checks written totaled $68,020. The bank statement indicated a balance of $24,840 on May 31. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:

1. Checks outstanding totaled $11,060.
2. A deposit of $9,010, representing receipts of May 31, had been made too late to appear on the bank statement.
3. The bank had collected for Brentwood Bike Co. $4,760 on a note left for collection. The face of the note was $4,400.
4. A check for $490 returned with the statement had been incorrectly charged by the bank as $940.
5. A check for $520 returned with the statement had been recorded by Brentwood Bike Co. as $250. The check was for the payment of an obligation to Adkins Co. on account.
6. Bank service charges for May amounted to $30.
7. A check for $1,100 from Jennings Co. was returned by the bank because of insufficient funds.

Instructions:

1. Prepare a bank reconciliation as of May 31.

Brentwood Bike Co.
Bank Reconciliation
May 31
Cash balance according to bank statement		$
Add deposit of May 31, not recorded by bank	$
Add bank error in charging check as $940 instead of $490
		$
Deduct outstanding checks
Adjusted balance		$
Cash balance according to company's records		$
Add note and interest collected by bank
		$
Deduct check returned because of insufficient funds	$
Deduct bank service charges
Deduct error in recording check
Adjusted balance		$

2. Journalize the necessary entries (a.) that increase cash and (b.) that decrease cash. The accounts have not been closed. For a compound transaction, if an amount box does not require an entry, leave it blank.

a. May 31	Cash
	Notes Receivable
	Interest Revenue
b. May 31	Accounts Payable-Adkins Co.
	Accounts Receivable-Jennings Co.
	Miscellaneous Expense
	Cash

3. If a balance sheet is prepared for Brentwood Bike Co. on May 31, what amount should be reported as cash?
$

Answer 1

Brentwood Bike Co.
Bank Reconciliation
May 31
Cash balance according to bank statement		$24,840
Add: Deposit of May 31, Not recorded by bank	$9,010
Add: Bank Error in Charging check as $940 instead of $490               [$940 - $490]	$450	$9,460
		$34,300
Deduct: Outstanding Checks		$11,060
Adjusted balance		$23,240
Cash balance according to company’s records    [Refer working note]		$19,880
Add: Note and Interest Collected by bank		$4,760
		$24,640
Deduct: Check returned because of insufficient funds	$1,100
Deduct: Bank Service Charges	$30	$1,400
Deduct: Error in Recording Check                         [$520 - $250]	$270
Adjusted balance		$23,240

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.

.

Journal entries
	Date	Account Titles and Explanation	Debit	Credit
a.	May 31	Cash	$4,760
		Notes Receivable		$4,400
		Interest Revenue          [$4,760 - $4,400]		$360
b.	May 31	Accounts Payable - -Adkins Co.	$270
		Accounts Receivable-Jennings Co	$1,100
		Miscellaneous Expenses	$30
		Cash		$1,400

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c. If a balance sheet is prepared for Brentwood Bike Co. on May 31, what amount should be reported as cash = $23,240

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Working note - Computation of cash balance on May 31 according to the company’s records
Cash balance on May 1 according to the company’s records	$14,640
Add: Total cash deposited as per company’s records during May	$73,260
	$87,900
Deduct: Total checks written as per the company’s records during May	$68,020
Cash balance on May 31 according to the company’s records	$19,880