. Classify the following items as (a) an addition to the bank balance, (b) a subtraction from the bank balance, (c) an addition to the book balance, or (d) a subtraction from the book balance:
_____ $20 in service charges
_____ A $300 check deposited that was returned NSF
_____ An outstanding check that you wrote for $2,000
_____ A deposit in transit of $5,500
_____ Bank Error: the bank credited your account for a deposit made by another customer
2. During 2011, Jimmy Enterprises completed the following transactions:
a. Sales revenue on account, $550,000.
b. Collections on account, $325,000
c. Write-offs of uncollectible, $13,000
d. Uncollectible account expense, 5% of sales revenue
Required:
1. Prepare the journal entries for the above transactions.
To classify the items as (a) an addition to the bank balance, (b) a subtraction from the bank balance, (c) an addition to the book balance, or (d) a subtraction from the book balance, here is how you can determine the classification for each:
1. $20 in service charges: This item represents a subtraction from the bank balance since it reduces the amount of funds in the bank account. Therefore, the classification would be (b) a subtraction from the bank balance.
2. A $300 check deposited that was returned NSF: When a check is deposited and later returned as NSF (non-sufficient funds), it means that the funds cannot be collected. So, this item represents a subtraction from the book balance since it reduces the amount of funds recorded in the accounting books. Therefore, the classification would be (d) a subtraction from the book balance.
3. An outstanding check that you wrote for $2,000: An outstanding check refers to a check that has been issued but hasn't been cashed or cleared by the bank. Since the check has not yet been deducted from the bank balance, it represents an addition to the bank balance. Therefore, the classification would be (a) an addition to the bank balance.
4. A deposit in transit of $5,500: A deposit in transit is a deposit that has been made but has not yet appeared on the bank statement. Since the deposit has not yet been added to the bank balance, it represents an addition to the bank balance. Therefore, the classification would be (a) an addition to the bank balance.
5. Bank Error: the bank credited your account for a deposit made by another customer: In this case, the bank has accidentally added funds to your account that were not yours to begin with. This represents an addition to both the bank and the book balance. Therefore, the classification would be (a) an addition to the bank balance and (c) an addition to the book balance.
Now, let's move on to the second part of your question about preparing the journal entries for the transactions:
To prepare the journal entries for the transactions, you need to determine the accounts that will be affected by each transaction. Based on the information provided, here are the journal entries for each transaction:
a. Sales revenue on account, $550,000:
Accounts Receivable (+A) $550,000
Sales Revenue (+R, -SE) $550,000
b. Collections on account, $325,000:
Cash (+A) $325,000
Accounts Receivable (-A) $325,000
c. Write-offs of uncollectible, $13,000:
Uncollectible Accounts Expense (+E) $13,000
Allowance for Doubtful Accounts (-XA) $13,000
d. Uncollectible account expense, 5% of sales revenue:
Uncollectible Accounts Expense (+E) $27,500 (5% of $550,000)
Allowance for Doubtful Accounts (-XA) $27,500
Note: In this answer, "(+A)" represents an increase in the asset account, "(+R)" represents an increase in the revenue account, "(-SE)" represents a decrease in the stockholder's equity account, "(-A)" represents a decrease in the asset account, "(+E)" represents an increase in the expense account, and "(-XA)" represents a decrease in the contra-asset account.