Question

connect ACCOUNTING Problem Set A -07-3 EM 7.1A. onciliation The cash transactions and cash balances of Banner, Inc., for July were as follows: 1. The ledger account for Cash showed a balance at July 31 of $125,568. 2. The July bank statement showed a closing balance of $114,828. 3. The cash received on July 31 amounted to $16,000. It was left at the bank in the night deposi. tory chute after banking hours on July 31 and therefore was not recorded by the bank on the July statement. 4. Also included with the July bank statement was a debit memorandum from the bank for $50 representing service charges for July. 5. A credit memorandum enclosed with the July bank statement indicated that a non-interest- bearing note receivable for $4,000 from Rene Manes, left with the bank for collection, had been collected and the proceeds credited to the account of Banner, Inc 6. Comparison of the paid checks returned by the bank with the entries in the accounting records revealed that check no. 821 for $519, issued July 15 in payment for office equipment, had been erroneously entered in Banner's records as $915. 7. Examination of the paid checks also revealed that three checks, all issued in July, had not yet been paid by the bank: no. 811 for $314, no. 814 for $625; no. 823 for $175. 8. Included with the July bank statement was a $200 check drawn by Howard Williams, a cus- tomer of Banner, Inc. This check was marked "NSE." It had been included in the deposit of July 27 but had been charged back against the company's account on July 31. Instructions a. Prepare a bank reconciliation for Banner, Inc., at July 31. b. Prepare iournal entries in general journal form) to adjust the accounts at July 31 Asume that the accounts have not been closed. c. State the amount of cash that should be included in the balance sheet at July 31 d. Explain why the balance per the company's bank statement is often larger than the shown in its accounting records.

Answer 1

Banner Inc.'s BRS
Cash Balance according to statement		114828	Cash Balance according to books		125568
Add:			Add:-
Deposit in transit		16000	Proceeds of note collected by bank	4000
		130828	Error ( 915 - 519 ) ( excess payment was recorded )	396	4396
Less:- Outstanding Checks			Less:-		129964
Ch. No. 811	314		NSF check	200
Ch. No. 814	625		Bank Service charges	50
Ch. No. 823	175
		1114			250
Adjusted Balance		129714	Adjusted Balance		129714
Journal entries
Accounts receivable -Williams	200
Cash		200
( To record NSF check )
Bank charges	50
cash		50
( to record service charges )
Cash	396
Office equipment		396
( to record error made in recognising payment made )
cash	4000
Notes receivable		4000
( to record collection of note )
No adjusting entry is required for outstanding checks and deposit in transits as it will get auto corrected in the next period.
Part c - $ 129714
Part d -
Purpose of bank reconciliation- Why we need this ???
Each entity needs bank recociliation in order to know that whether the balance showing in the books of entity
is the same as the balance showing in the statement or not. If not, then what is the amount of difference and
what are the possible reasons of such differences - whether these differences will get auto corrected in the passage
of time or needs correction and if it needs correction, then who needs to pass that correcting entry - entity or bank .
Bank reconciliation can also perform an auto check on the entity 's performance as one can measure that the differences
that arose were natural or were due to errors.
It happens that there arises a need to tally the bank balance as per statement and as per books as
there can be several reasons for differences between them like :-
1. Checks may have been issued to the creditors etc. but they may have not presented for payment in the
bank due to which book balance will show a decreased amount and bank balance will show an increased amount.
2. Checks may have been received by the debtors etc. but have not been presented in the bank for collection
due to which book balance will show a increased amount and bank balance will show a decreased amount.
3. Amount directly collected by the bank .
4. Amount directly paid by the bank according to the standing instructions.
5. Dishonoured cheques
6. Bank charges, interest collected.
The balance per the company's bank statement is often larger since the adjustments for deposit in transit and outstsanding checks
have not been made.