Wright Company's cash account shows a $28,700 debit balance and its bank statement shows $27,000 on deposit at the close of business on May 31.
The May 31 bank statement lists $160 in bank service charges; the company has not yet recorded the cost of these services.
Outstanding checks as of May 31 total $6,200.
May 31 cash receipts of $6,800 were placed in the bank’s night depository after banking hours and were not recorded on the May 31 bank statement.
In reviewing the bank statement, a $460 check written by Smith Company was mistakenly drawn against Wright’s account.
The bank statement shows a $480 NSF check from a customer; the company has not yet recorded this NSF check.
To reconcile the cash account, we need to adjust for the items that are not yet recorded in the company's records and the bank statement.
1. Add the outstanding checks to the bank statement balance:
Bank statement balance: $27,000
Add: Outstanding checks: $6,200
Adjusted bank statement balance: $33,200
2. Deduct the unrecorded deposit:
Adjusted bank statement balance: $33,200
Deduct: Unrecorded deposit: $6,800
Adjusted bank statement balance: $26,400
3. Deduct the bank service charges:
Adjusted bank statement balance: $26,400
Deduct: Bank service charges: $160
Adjusted bank statement balance: $26,240
4. Deduct the check drawn by Smith Company:
Adjusted bank statement balance: $26,240
Deduct: Check drawn by Smith Company: $460
Adjusted bank statement balance: $25,780
5. Deduct the NSF check:
Adjusted bank statement balance: $25,780
Deduct: NSF check: $480
Adjusted bank statement balance: $25,300
After reconciling, the adjusted bank statement balance is $25,300. To match this balance with the company's cash account, we need to adjust the company's records accordingly.
1. Deduct the unrecorded deposit:
Cash account balance: $28,700
Deduct: Unrecorded deposit: $6,800
Adjusted cash account balance: $21,900
2. Add the outstanding checks:
Adjusted cash account balance: $21,900
Add: Outstanding checks: $6,200
Adjusted cash account balance: $28,100
3. Deduct the bank service charges:
Adjusted cash account balance: $28,100
Deduct: Bank service charges: $160
Adjusted cash account balance: $27,940
4. Deduct the check drawn by Smith Company:
Adjusted cash account balance: $27,940
Deduct: Check drawn by Smith Company: $460
Adjusted cash account balance: $27,480
5. Deduct the NSF check:
Adjusted cash account balance: $27,480
Deduct: NSF check: $480
Adjusted cash account balance: $27,000
After adjusting for all the items, the reconciled cash account balance matches the $27,000 balance on the bank statement.
To reconcile the cash account, we need to make adjustments for the items listed and determine the correct cash balance. Here are the steps to reconcile the account:
Step 1: Start with the balance per the company's records.
Balance per company's records = $28,700 (debit)
Step 2: Add or subtract any outstanding checks.
Outstanding checks = $6,200
Adjusted balance per company's records = Balance per company's records + Outstanding checks
Adjusted balance per company's records = $28,700 + $6,200 = $34,900 (debit)
Step 3: Add or subtract any deposits in transit.
Deposits in transit = $6,800
Adjusted balance per company's records = Adjusted balance per company's records + Deposits in transit
Adjusted balance per company's records = $34,900 + $6,800 = $41,700 (debit)
Step 4: Compare the adjusted balance per company's records with the balance shown on the bank statement.
Balance per bank statement = $27,000
Step 5: Identify any bank errors or adjustments.
Bank service charges = $160 (not recorded by the company)
Bank error for the check mistakenly drawn against Wright's account = $460
NSF check from customer = $480 (not recorded by the company)
Step 6: Make the necessary adjustments to the company's records.
Adjusted balance per bank statement = Balance per bank statement + Bank service charges - NSF check
Adjusted balance per bank statement = $27,000 + $160 - $480 = $26,680
Step 7: Compare the adjusted balance per bank statement with the adjusted balance per company's records.
If the two balances match, the cash account is reconciled. If not, continue to the next step.
Step 8: Prepare any additional journal entries or adjustments to reconcile the account.
To adjust the cash balance per company's records to match the adjusted balance per bank statement, we need to record the NSF check and the bank service charges:
- Record the NSF check:
Debit Accounts Receivable/Sales Returns and Allowances (to reduce the amount owed by the customer)
Credit Cash (to reduce the cash balance)
Debit Bank Service Charges Expense (to record the bank service charges)
Credit Cash (to reduce the cash balance by the charges)
Note: Please consult with an accounting professional or refer to your company's specific accounting policies to ensure accuracy while making journal entries.
Step 9: After recording the necessary journal entries, re-check the adjusted balances per the bank statement and the company's records. If they match, the cash account is reconciled. If not, review the steps again to ensure accuracy in recording the adjustments.
By following these steps, the Wright Company can reconcile its cash account and determine the correct cash balance.
To reconcile the cash account for Wright Company, we need to go through a series of steps to account for the various discrepancies between the company's records and the bank statement. Here's how we can calculate the correct cash balance:
1. Start with the bank's ending balance from the statement, which is $27,000.
2. Add any outstanding checks that have not yet been cleared by the bank. In this case, the outstanding checks total $6,200. So, we add $6,200 to the bank's ending balance. The new balance is $33,200.
3. Deduct any deposits or cash receipts that have not yet been recorded by the bank. In this case, we have $6,800 in cash receipts deposited in the bank's night depository on May 31 but not yet recorded by the bank. So, we deduct $6,800 from the balance calculated in step 2. The new balance is $26,400.
4. Deduct any bank service charges not yet recorded by the company. The bank statement shows $160 in service charges. Since the company has not yet recorded this cost, we deduct $160 from the balance calculated in step 3. The new balance is $26,240.
5. Deduct any checks drawn by other companies against Wright's account. The bank statement shows a $460 check written by Smith Company. Since this check was mistakenly drawn against Wright's account, we deduct $460 from the balance calculated in step 4. The new balance is $25,780.
6. Add any deposits in transit. Since there is no information provided about deposits in transit, we don't have any amount to add.
Finally, we consider the non-sufficient funds (NSF) check from a customer. Although the bank statement shows a $480 NSF check, the company has not yet recorded it. Since it is not recorded, we do not make any adjustments to the balance.
Therefore, the reconciled cash balance for Wright Company is $25,780.