Bank Reconciliation The following data were accumulated for use in reconciling t

Question

Bank Reconciliation The following data were accumulated for use in reconciling the bank account of Mathers Co. for July: Cash balance according to the company's records at July 31 $22,130. Cash balance according to the bank statement at July 31, $23,520. Checks outstanding, $4,490. Deposit in transit, not recorded by bank, $3,610. A check for $170 in payment of an account was erroneously recorded in the check register as $710. Bank debit memo for service charges, $30. a. Prepare a bank reconciliation, using the format shown in Exhibit 14. Mathers Co. Bank Reconciliation July 31 Cash balance according to bank statement $ 23,520 -4,490 3,610 Adjusted balance $ Cash balance according to company's records $ Adjusted balance $ b. If the balance sheet is prepared for Mathers Co. on July 31, what amount should be reported for cash? $ c. Must a bank reconciliation always balance (reconcile)?

Explanation / Answer

Solution: a. Mathers Co Bank Reconciliation July 31 Cash balance according to bank statement $23,520 Deduct: Checks outstanding ($4,490) Add :Deposit in transit, not recorded by bank $3,610 Adjusted balance $22,640 Cash balance according to company's records $22,130 Deduct: Bank service charges ($30) Add : error of check recording $540 Adjusted balance $22,640 Working Notes: Mathers Co Bank Reconciliation July 31 Cash balance according to bank statement $23,520 a Deduct: Checks outstanding ($4,490) b [deducted since it is already deducted in cash book as it is outstanding it is not deducted in bank balance ] Add :Deposit in transit, not recorded by bank $3,610 c [ Added since it is already added in cash book as it is deposit in transit it is not reflected in bank balance ] Adjusted balance $22,640 d=a-b+c Cash balance according to company's records $22,130 e Deduct: Bank service charges ($30) f [deducted since it is already charged in bank statement & not deducted in cash book ] Add : error of check recording $540 g [payment check of $170 is recorded as $710 means cash book is over charged by ($710 - $170 =$540) , hence added back] Adjusted balance $22,640 h=e-f+g b. $22,640 should be reported as cash balance in balance sheet for Mathers Co. on July 31 as calculated in above bank reconciliation Notes: Bank reconciliation helps to know the true cash of firm as it adjust all the mis matching of payments & cash deposit and other cash & bank account error of book keeping c. Yes, a bank reconciliation must always balance (reconcile) to an adjusted balance. Notes: Yes, a bank reconciliation must always balance (reconcile) to an adjusted balance. If not , there is chances of error in books of accounts or fraud done by employee of the firm Please feel free to ask if anything about above solution in comment section of the question.

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