On May 31, 2011, James Logan Company had a cash balance per books of $6,781.50. The bank statement from Farmers State Bank on that date showed a balance of $6,404.60. A comparison of the statement with the cash account revealed the following facts.
The statement included a debit memo of $40 for the printing of additional company checks.
Cash sales of $836.15 on May 12 were deposited in the bank. The cash receipts journal entry and the deposit slip were incorrectly made for $886.15. The bank credited Logan Company for the correct amount.
Outstanding checks at May 31 totaled $576.25. Deposits in transit were $1,916.15.
On May 18, the company issued check No. 1181 for $685 to Barry Trest, on account. The check, which cleared the bank in May, was incorrectly journalized and posted by Logan Company for $658.
A $2,500 note receivable was collected by the bank for Logan Company on May 31 plus $80 interest. The bank charged a collection fee of $20. No interest has been accrued on the note.
Included with the cancelled checks was a check issued by Bridgetown Company to Tom Lujak for $800 that was incorrectly charged to Logan Company by the bank.
On May 31, the bank statement showed an NSF charge of $680 for a check issued by Sandy Grifton, a customer, to Logan Company on account.
a. Prepare the bank reconciliation at May 31, 2011
b. Prepare the necessary adjusting entries for Logan Company at May 31, 2011
Membantu saya
a. Prepare the bank reconciliation at May 31, 2011:
Step 1: Compare the cash balance per books and the cash balance per bank statement.
Cash balance per books: $6,781.50
Cash balance per bank statement: $6,404.60
Step 2: List the items that have not been recorded in the bank statement.
- Debit memo for printing of additional company checks: -$40.00
- Outstanding checks: -$576.25
Step 3: List the items that have not been recorded in the cash account.
- Deposits in transit: $1,916.15
Step 4: Adjust the bank balance for the items not recorded in the bank statement.
Cash balance per bank statement: $6,404.60
Add: Debit memo for printing of additional company checks: $40.00
Deduct: Outstanding checks: $576.25
Adjusted bank balance: $5,868.35
Step 5: Adjust the book balance for the items not recorded in the cash account.
Cash balance per books: $6,781.50
Add: Deposits in transit: $1,916.15
Adjusted book balance: $8,697.65
Step 6: Compare the adjusted bank balance and adjusted book balance.
Adjusted bank balance: $5,868.35
Adjusted book balance: $8,697.65
Step 7: Identify the difference between the adjusted bank balance and adjusted book balance.
Adjusted book balance - Adjusted bank balance = $8,697.65 - $5,868.35 = $2,829.30
Step 8: Analyze the items causing the difference and reconcile the bank statement.
- May 12 cash sales deposit error: $886.15 - $836.15 = $50.00
- Check No. 1181 incorrect journal entry: $685.00 - $658.00 = $27.00
- NSF charge: $680.00
Adjusted book balance - Identified differences = $2,829.30 - $50.00 - $27.00 - $680.00 = $2,072.30
The final reconciled adjusted book balance is $2,072.30.
b. Prepare the necessary adjusting entries for Logan Company at May 31, 2011:
1. Adjusting entry for the cash sales deposit error:
Debit: Cash Sales (Income) $50.00
Credit: Cash (Asset) $50.00
2. Adjusting entry for Check No. 1181 incorrect journal entry:
Debit: Accounts Payable (Liability) $27.00
Credit: Cash (Asset) $27.00
3. Adjusting entry for NSF charge:
Debit: Accounts Receivable (Asset) $680.00
Credit: Cash (Asset) $680.00
These adjusting entries will correct the errors and bring the financial records in line with the bank statement.
To prepare the bank reconciliation at May 31, 2011, follow these steps:
Step 1: Start with the cash balance per books
The cash balance per books is $6,781.50.
Step 2: Add or subtract any items from the bank statement that are not recorded in the cash balance per books
a. Debit memo for the printing of additional company checks: Add $40. This is an item that is not recorded in the cash balance per books but is shown on the bank statement.
Step 3: Adjust for any errors made in recording transactions
a. Incorrectly recorded cash sales and deposit: Deduct $50. The cash receipts journal entry and the deposit slip were made for $886.15, but the bank statement shows a correct deposit of $836.15. The difference of $50 needs to be deducted.
Step 4: Account for outstanding checks and deposits in transit
a. Outstanding checks: Deduct the total amount of outstanding checks. In this case, $576.25.
b. Deposits in transit: Add the total amount of deposits in transit. In this case, $1,916.15.
Step 5: Consider any adjustments made by the bank
a. Adjustments for incorrectly recorded checks: Deduct $27. The bank cleared check No. 1181 for $685, but it was incorrectly recorded and posted as $658 by Logan Company. The difference of $27 needs to be deducted.
b. Collection of a note receivable: Add $2,500. The bank collected a $2,500 note receivable for Logan Company on May 31, plus $80 interest. The bank charged a $20 collection fee.
Step 6: Account for any errors made by the bank
a. Incorrectly charged check: Deduct $800. The bank charged Logan Company for a check issued by Bridgetown Company to Tom Lujak, but this should not be included in Logan Company's cash balance.
Step 7: Consider any adjustments for NSF charges
a. NSF charge for a customer check: Deduct $680. The bank statement shows an NSF charge of $680 for a check issued by Sandy Grifton, a customer, to Logan Company.
Step 8: Calculate the adjusted cash balance
The adjusted cash balance is the sum of all the adjustments made. In this case, it is $6,225.50 ($6,781.50 + $40 - $50 - $576.25 + $1,916.15 - $27 + $2,500 - $800 - $680).
To prepare the necessary adjusting entries for Logan Company at May 31, 2011, consider the adjustments made in the bank reconciliation:
1. Adjust cash balance per books to match the adjusted cash balance:
Debit: Cash (Adjustment)
Credit: Cash (Balance per Books)
2. Correct any errors made in recording transactions:
Debit: Cash (Adjustment)
Credit: Sales Revenue (to decrease the revenue recorded in error)
3. Adjust for the collection of the note receivable and associated fees:
Debit: Cash (Adjustment)
Debit: Note Receivable (to decrease the asset)
Credit: Interest Revenue (to record the interest income)
Credit: Collection Fee Expense (to record the collection fee)
4. Reverse the incorrectly charged check:
Debit: Cash (Adjustment)
Credit: Accounts Payable (to reverse the charge)
5. Account for the NSF charge:
Debit: Accounts Receivable - Sandy Grifton (to record the loss from the NSF charge)
Credit: Sales Revenue (to reverse the revenue recorded)
These adjusting entries will ensure that Logan Company's books reflect the accurate cash balance and account for any errors or adjustments identified in the bank reconciliation process.