On may 31, 2007, ABC company had a cash balance per books of 5,781.80. The bank statement from dashen bank on that date showed a balance of 6,804.60. A comparison of the statement with the cash account revealed the following facts.
A. The statement included a debit memo of 40 for the printing of additional company checks.
B. Cash sales of 836.15 on may 12, where deposited in the bank. The cash receipts journal entry and the deposit slip were incorrectly made for 846.15. The bank credited ABC company for the correct balance.
C. Outstanding checks at may 31, totalled $1,276.25. And deposits in transit were $ 936.15
D. On may 18, the company issued check No.1181 for $685 to Abebe, on account. The check, which cleared the bank in may, was incorrectly journalized and posted by ABC company for $658.
E. A$2000 note receivable was collected by the bank for ABC company on may 31 plus $80 interest. The bank charged a collection fee of $20. No interest has been accrued on the note.
F. Included with the cancelled checks was a check issued by XYZ company to Zelalem for $600 that was incorrectly charged to ABC company by the bank.
G. On may 31, the bank statement showed an NSF charged of $700 for a check issued by Tamirat, a customer, to ABC company on account.
INSTRUCTIONS :
A. Prepare the bank reconciliation at may 31, 2007.
B. Prepare the necessary adjusting entery for ABC company at may 31, 2007.
A. Bank Reconciliation at May 31, 2007:
Cash balance per books: $5,781.80
Add: Deposit in transit: $936.15
Total: $6,717.95
Less: Outstanding checks: $1,276.25
Adjusted book balance: $5,441.70
Bank balance: $6,804.60
Less: Debit memo for checks: $40.00
Less: NSF charge: $700.00
Less: Erroneous charge from XYZ company: $600.00
Adjusted bank balance: $5,464.60
Adjusted book balance: $5,441.70
Adjusted bank balance: $5,464.60
B. Adjusting Entry at May 31, 2007:
Debit: Accounts Receivable (Tamirat) - $700.00
Credit: Sales Revenue - $700.00
Explanation: Since the check issued by Tamirat was returned as NSF, the entry adjusts the accounts receivable and removes the revenue earned from the sale.
Note: Additional adjusting entries may be necessary depending on the specific accounting treatment for the other discrepancies in the bank reconciliation process.