On May 31 2017 Terrell Ltd cash balance per book of 6,781.50. The bank statement from home town bank on that date showed balance of 6,824.60. A comparison of statement with the cash account revealed the following facts.
1. The statement included a debit memo of 60 for the printing of additional campany checks.
2. Cash sales of 836.15 on May 12 were deposited in the bank. The receipt journal entry and deposit slip were incorrectly made for 886.15. The bank credited Terrell campany for the correct amount.
3. Outstanding checks at May 31 totaled 276.25. Deposit in transit were 1,916.15.
4. On May 18 the campany issued check No. 1181 for 685 to Barry dietz on account. The check which cleared the in May, was incorrectly journalized and posted by Terrell for 658.
5. A 3000 note receivable was collected by the bank for Terrell on May 31 plus 80 interest. A bank charged a collection fee of 20. No interest has been accrued on the note.
6. Included with canceled checks was a check issued by Bridges plc to Jon Newton for 600 that was incorrectly charged to Terrell by the bank.
7. On May 31 the bank statement showed an NSF charge of 640 for a check issued by sandy Grifton, a customer, to Terrell on account.
INSTRUCTIONS
a) prepare the bank reconciliation on May 31,2017
b) prepare the necessary adjusting entries for Terrell on May 31,2017
a) Bank Reconciliation on May 31, 2017:
Balance per bank statement: $6,824.60
Add: Deposit in transit: $1,916.15
Less: Outstanding checks: $276.25
Adjusted balance per bank: $8,464.50
Balance per book: $6,781.50
Add: Debit memo for printing of company checks: $60.00
Less: Incorrect deposit: $50.00 ($886.15 - $836.15)
Add: Interest on note receivable: $80.00
Less: Collection fee: $20.00
Less: Incorrectly charged check: $600.00
Less: NSF charge: $640.00
Adjusted balance per book: $5,611.50
b) Adjusting entries for Terrell on May 31, 2017:
1. Debit: Printing Expense - $60.00
Credit: Cash - $60.00
2. Debit: Cash - $50.00
Credit: Accounts Receivable - $50.00
3. Debit: Cash - $80.00
Credit: Interest Income - $80.00
4. Debit: Interest Expense - $20.00
Credit: Cash - $20.00
5. Debit: Accounts Receivable - $600.00
Credit: Cash - $600.00
6. Debit: Accounts Receivable - $640.00
Credit: Cash - $640.00
Note: Adjusting entries may vary depending on the account titles used in the company's chart of accounts.
a) To prepare the bank reconciliation on May 31, 2017, we need to compare the cash balance per book (Terrell Ltd) with the balance per the bank statement (Home Town Bank) and make adjustments for any discrepancies.
Step 1: Start with the cash balance per book
Cash balance per book (Terrell Ltd): $6,781.50
Step 2: Add or subtract any items that affect the cash balance per book:
- Add: Deposits in transit
Deposits in transit: $1,916.15
Adjusted cash balance per book: $6,781.50 + $1,916.15 = $8,697.65
Step 3: Add or subtract any items that affect the balance per the bank statement:
- Add: Debit memo for printing of additional company checks
Debit memo: $60
- Add: Corrected cash sales deposit
Difference in deposit amount: $886.15 - $836.15 = $50
- Deduct: Outstanding checks
Outstanding checks: $276.25
- Add: Collection of note receivable (including interest) and collection fee
Collection of note receivable and interest: $3,080
Bank collection fee: $20
- Deduct: Incorrectly charged check issued by Bridges plc
Incorrectly charged check: $600
- Deduct: NSF charge for check issued by Sandy Grifton
NSF charge: $640
Adjusted balance per bank statement: $6,824.60 + $60 + $50 + $3,080 + $20 - $276.25 - $600 - $640 = $8,418.35
Step 4: Compare the adjusted cash balance per book with the adjusted balance per the bank statement:
Adjusted cash balance per book: $8,697.65
Adjusted balance per bank statement: $8,418.35
Step 5: Make adjustments to reconcile the two balances:
Adjusted cash balance per book: $8,697.65
Adjusted balance per bank statement: $8,418.35
- Deduct: Adjusted balance per bank statement
Adjusted balance per bank statement: $8,418.35
- Add: Adjusted cash balance per book
Adjusted cash balance per book: $8,697.65
Difference: $8,697.65 - $8,418.35 = $279.30
Therefore, the bank reconciliation on May 31, 2017 would show a difference of $279.30. This difference will need to be investigated and reconciled.
b) To prepare the necessary adjusting entries for Terrell on May 31, 2017, based on the bank reconciliation:
1. Adjusting Entry for Corrected Cash Sales Deposit:
Debit: Cash
Credit: Sales Revenue
2. Adjusting Entry for NSF Charge:
Debit: Accounts Receivable - Sandy Grifton
Credit: Cash
3. Adjusting Entry for Collection of Note Receivable:
Debit: Cash
Credit: Note Receivable
Credit: Interest Revenue
4. Adjusting Entry for Printing of Additional Company Checks:
Debit: Miscellaneous Expense
Credit: Cash
After making these adjusting entries, the cash account should reflect the corrected balances and the discrepancies found in the bank reconciliation.