The cash account for Online Medical Co. at June 30, 2012, indicated a balance of

Question

The cash account for Online Medical Co. at June 30, 2012, indicated a balance of $9,375. The bank statement indicated a balance of $10,760 on June 30, 2012. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

1. Checks outstanding totaled $3,900.
2. A deposit of $4,000, representing receipts of June 30, had been made too late to appear on the bank statement.
3. The bank had collected $2,100 on a note left for collection. The face of the note was $2,000.
4. A check for $550 returned with the statement had been incorrectly recorded by Online Medical Co. as $500. The check was for the payment of an obligation to Hirsch Co. for the purchase on account.
5. A check drawn for $60 had been erroneously charged by the bank as $600.
6. Bank service charges for June amounted to $25.

Explanation / Answer

I assume that we have to prepare bank reconciliation Bank Balance = 10,760 Adjust: Check outstanding = -3,900 Adjust: Deposit in transit = +4,000 Adjust: Bank error = +540 (600 - 60) Adjusted Amount = 11,400 Book (Accounting) Balance = 9,375 Adjust: Bank service charge = -25 Adjust: Book error = -50 (550 - 500) Adjust: Note collected not recorded yet = +2,100 Adjusted Amount = 11,400 The following journal entries shall be made: Dr. Bank service charge 25 Cr. Cash 25 Dr. Accounts payable 50 Cr. Cash 50 Dr. Cash 2100 Cr. Notes receivable 2000 Cr. Interest revenue 100

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