Question

In October 2019, Old City Antiques onened a new checking account at Barnett Bank. The bank statement dated October 31, 2019, for Old City Antiques follows: Beginning Balance, October 1, 2019 Deposits and other credits Oct. 2 10 17 19 $36,000 800 14,000 52,000 450 50 103,300 20 24. EFT St. Augustine Hotel 31. Interest revenue Checks and other debits: Oct. 2 EFT to FPL (utilities) 6 Ck#325 10 Ck#327 10 Ck#326 27 Ck#329 27 EFT to ATT 28 Ck#340 31 Bank Service charge Ending Balance, Oct. 31, 2019 3,415 775 2,700 1,925 295 27 (9.232) 94,068 Old City Antiques" cash account in the general Ledger shows the following transactions for October: CashBarnett Bank Checking account Balance Oct. 2 Deposit 36,000 800 14,000 52,000 1,770 3,415 Oct. 2 ck#325 2,070 4 ck#326 775 5 ck#327 402 10 ck#328 1,925 21 ck#329 295 23 ck#340 415 29 ck#341 Balance Requirement: 1. Prepare the bank reconciliation at Oct. 31, 2019 2. Journalize any required entries from the bank reconciliation. Post to the Cash T-Account to verify the balance of the account matchers the adjusted book balance from the bank reconciliation All&checks are for Operating expenses.

Answer 1

Part 1 (Answer 1): Bank reconciliation

Step 1: First we will identify which entries are reflecting in Bank statement and not reflecting in Books and Vice Versa.

As per Books Debit Date As per Bank Debit Date Date Particulars Particulars Credit Date Particulars Particulars Credit 02-10-2019 EFT to FOL (Utilities) 06-10-2019 Chk#325 10-10-2019 Chk#327 10-10-2019 Chk#326 36,000 800 14,000 52,000 02-10-2019 Chk#325 04-10-2019 Chk#326 05-10-2019 Chk#327 10-10-2019 Chk#328 3,415 02-10-2019 Deposit 2,070 10-10-2019 775 17-10-2019 402 19-10-2019 36,000 800 14,000 52,000 20 02-10-2019 3,415 10-10-2019 775 17-10-2019 2,700 19-10-2019 EFT. St Augustine 1,925 24-10-2019 Hotel 75 31-10-2019 Interest Revenue 295 450 1,770 1,925 31-10-2019 295 50 27-10-2019 Chk#329 27-10-2019 EFT to ATT 28-10-2019 Chk#340 31-10-2019 Bank Service Charge 21-10-2019 Chk#329 23-10-2019 Chk#340 29-10-2019 Chk#341 415 9,232 1,03,300 9,297 1,04,570 Total Closing Balance Total Closing Balance 94,068 95,273 Cells highlighted in yellow are matched with bank and books Cells highlighted in green refers to amount mismatched with bank and books Cells highlighted in blue refers to transactions present in books but not reflected in Bank Cells highlighted in red refers to transactions present in Bank but not reflected in Books

Step 2: Add/ Subtract the transactions that are missing in books of accounts from the Bank Statement

Bank Balance Oct 31, 2019 Old Antiques Bank Reconciliation Bank reconciliation Oct 31, 2019 Book Balance Oct 31, 2019 94,068 Amount Particulars Amount ADD: 31-10-2019) 1,770 04-10-2019 Chk#326 630 Particulars ADD: LESS: 10-10-2019 Chk#328 29-10-2019 Chk#341 402 415 Adjusted Bank Balance Oct 31, 2019 Adjusted Bank Balance Oct 31, 2019 95,651

Step 3: Add/ Subtract the transactions that are missing in bank statement from the books of accounts

Old Antiques Bank Reconciliation Bank reconciliation Oct 31, 2019 Bank Book Balance Balance Oct 31, 2019 95,273 Oct 31, 2019 Particulars Amount Particulars ADD: ADD: 24-10-2019 EFT. St Augustine 450 31-10-2019 31-10-2019 Interest Revenue 50 04-10-2019 Chk#326 94,068 Amount 1,770 630 LESS: 402 LESS: 02-10-2019 EFT to FOL (Utiliti 27-10-2019 EFT to ATT 31-10-2019 Bank Service Char 10-10-2019 Chk#328 29-10-2019 Chk#341 Adjusted Bank Balance Oct 31, 2019 Adjusted Bank Balance 95,651 Oct 31, 2019 95,651

Ans: This way we can prepare the bank reconciliation statement for Oct 31, 2019.

Part 1 (Answer 2): Journal Entries and Cash account

Step 1: We had already identified and added/ Subtracted the entries in Bank Statement and in Books of Accounts. Now we will Journalize the same as per below:

Date Debit Credit Accounts In Bank Account 24-10-2019 EFT. St Augustine Hotel 450 31-10-2019 Interest Revenue 02-10-2019 EFT to FOL (Utilities) 27-10-2019 EFT to ATT 31-10-2019 Bank Service Charge In Books of accounts 31-10-2019 04-10-2019 Chk#326 10-10-2019 Chk#328 29-10-2019 Chk#341 1,770 630

Step 2: We will prepare T Account for bank checking account

Cash/ Bank checking account Date Particulars Debit Date Particulars Credit 02-10-2019 Chk#325 3,415 02-10-2019 Deposit 36,000 04-10-2019 Chk#326 2,070 10-10-2019 800 05-10-2019 Chk#327 775 17-10-2019 14,000 10-10-2019 Chk#328 40219-10-2019 52,000 21-10-2019 Chk#329 1,925 31-10-2019 1,770 23-10-2019 Chk#340 295 24-10-2019 EFT. St Augustine Hotel 450 29-10-2019 Chk#341 415 31-10-2019 Interest Revenue 50 02-10-2019 EFT to FOL (Utilities) 27-10-2019 EFT to ATT 31-10-2019 Bank Service Charge 1,05,070 Total Closing Balance 9,419 95,651

Kindly note that the transactions that are highlighted in RED are the additional transactions reflecting in Books of accounts.

Part 2: (Answer 1) Acid Test Ratio

Step 1: It is also known as Quick Ratio, we will look at the formula first:

Acid Test Ratio= (Cash & cash equivalents+Short term investments+Current assets)/ Current liabilities

Step 2: Lets identify the heads i.e., current assets, liabilities, short term investment and cash & cash equivalents needed to derive the acid test ratio. Please see below image for more details:

Amount ($) Heads 50,000 Cash and Cash Equivalents 75,000 Current Assets 63,000 Current Assets 55,000 Current Liabilities 3,75,000 Cost of goods sold (COGS Particulars Cash Account Accounts receivables Dec 31, 2019 Dec 31, 2018 Accounts Payables Cost of goods sold Merchandise inventory Dec 31, 2019 Dec 31, 2018 Net credit Sales Revenue Long Term Assets Long Term Liabilities Other Current Assets Other Current Liabilities Short term Investments 2,40,000 Fixed Assets 2,20,000 Fixed Assets 8,20,000 Sales 3,20,000 Long Term Assets 2,40,000 Long Term Liabilities 1,35,000 Current Assets 1,25,000 Current Liabilities 80,000 Short term Investments

Step 3: Now we will sum the total of Current assets, short term investments and cash & cash equivalents

=50,000+75,000+63,000+1,35,000+80,000 = 4,03,000

Step 4: Now we will sum the total of current liabilities

= 55,000+1,25,000 = 1,80,000

Step 5: Acid test ratio = 4,03,000/ 1,80,000 = 2.24

Ans: Acid Test ratio is 2.24

Part 2: (Answer 2) Accounts receivable turnover ratio

Step 1: Formula to derive this ratio = Credit sales / Accounts receivables

In the above Image, credit sales is 8,20,000 and account receivables is 1,38,000 (75,000+63,000)

Step 2:

Accounts receivable turnover ratio = 8,20,000/ 1,38,000 = 5.94

Ans: Accounts receivable turnover ratio = 5.94

Part 2: (Answer 3) Day sales in receivable 2019

Step 1: Formula to derive this ratio = (Accounts receivable/ Net credit Sales) * 365

In the above Image, credit sales is 8,20,000 and Account receivables for 2019 is 75,000

Steps 2:

Days Sale in receivable = (75,000 / 8,20,000) * 365 = (0.09) * 365 = 33.38

Ans: Days sale receivable = 33.38 Days