Question

On May 31st, 2015, Rubber Company had a balance in its cash book of Rs. 678,150. Its bank book

showed a balance of Rs. 640,460. A comparison revealed the following facts:

a. The statement included a debit memo of Rs. 4,000 for the printing of additional company cheques.

b. Cash sales of Rs. 83,615 on May 12 were deposited in the bank. The cash receipts journal entry and

the deposit slip were incorrectly made for Rs. 88,615. The bank credited Rubber Company for the

correct amount.

c. Unpresented cheques at May 31st totaled Rs. 57,625. Deposits in transit were Rs. 241,615.

d. On May 18th

, the company issued cheque no. 1181 for Rs. 68,500 to Ms. Laila on account. The cheque,

which cleared the bank in May, was incorrectly journalized and posted by Rubber Company for Rs.

65,800.

e. A Rs. 300,000 note receivable was collected by the bank for Rubber Company on May 31 plus

Rs. 8,000 interest. The bank charged a collection fee of Rs. 2,000. No interest has been accrued on the

note.

f. Included with the canceled cheques was a cheque issued by Straight Company to Red Cross for Rs.

80,000 that was incorrectly charged to Rubber Company by the bank.

g. On May 31st

, the bank book showed an NSF charge of Rs. 68,000 for a cheque issued by Mr. Ali, a

customer, to Rubber Company on account.

Instructions

i. Prepare the bank reconciliation at May 31, 2015. (answer: Rs. 904,450)

ii. Prepare the necessary adjusting entries for Rubber Company at May 31st, 2015.

Answer 1

Solution i:

Rubber Company
Bank Reconciliation
May 31,2015
Bank Statement Balance		$6,40,460	Cash Balance per Company's Records		$6,78,150
Add:			Add:
Deposit in transit	$2,41,615		Note Collected	$3,00,000
Bank Error in posting another company's Check	$80,000	$3,21,615	Interest on Note	$8,000	$3,08,000
Subtotal		$9,62,075	Subtotal		$9,86,150
Deduct:			Deduct:
Outstanding Checks	$57,625		Bank Service Charges (For Printing Checks)	$4,000
		$57,625	Cash deposit slips incorrectly recorded ($88615-$83615)	$5,000
			Incorrect recording of Check 1181 ($68500-$65800)	$2,700
			Collection Fee on Note	$2,000
			NSF Check	$68,000	$81,700
Adjusted Bank Balance		$9,04,450	Adjusted Cash Balance		$9,04,450

Solution ii:

Journal Entries
S.No	Particulars	Debit	Credit
a.	Bank Service Charges Dr	$4,000
	To Cash		$4,000
	(To record Service charges for printing Cheques)
b.	Sales Dr ($88615-$83615)	$5,000
	To Cash		$5,000
	(To correct the Cash sales deposits)
c.	No entry required
d.	Accounts Payable Dr	$2,700
	To Cash		$2,700
	(To correct payment on account of check 1181)
e.	Cash Dr	$3,06,000
	Bank Service Charges Dr (Collection Fee)	$2,000
	To Note Receivable		$3,00,000
	To Interest Revenue		$8,000
	(To record Note collected by bank and collection fee charged on it)
f.	No Entry required
g.	Accounts Receivable Dr	$68,000
	To Cash		$68,000
	(To record NSF Check from customer)