PART I Identify each of the following reconciling items as:
an addition to the cash balance according to the bank statement
a deduction from the cash balance according to the bank statement
an addition to the cash balance according to the company's records
a deduction from the cash balance according to the company's records
(None of the transactions reported by bank debit and credit memos have been recorded by the company.)
Item Treatment
1. Bank service charges, $75.
2. Check of a customer returned by bank to company because of insufficient funds, $880.
3. Check for $275 incorrectly recorded by the company as $725.
4. Check for $100 incorrectly charged by bank as $1,000.
5. Deposit in transit, $5,550.
6. Outstanding checks, $10,350.
7. Note collected by bank, $12,720.
PART II
Entries Based on Bank Reconciliation
Which of the reconciling items listed below require an entry in the company's accounts? (None of the transactions reported by bank debit and credit memos have been recorded by the company.)
Item Entry Required
1. Bank service charges.
2. NSF check returned to company by the bank.
3. Check incorrectly recorded by company.
4. Check incorrectly charged by bank.
5. Deposit in transit.
6. Outstanding checks.
7. Note collected by bank.
PART III
The cash account for Brentwood Bike Co. at May 1, 2016, indicated a balance of $33,857. During May, the total cash deposited was $139,616, and checks written totaled $138,547. The bank statement indicated a balance of $43,270 on May 31. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:
A. Checks outstanding totaled $6,340.
B. A deposit of $1,858 representing receipts of May 31, had been made too late to appear on the bank statement.
C. The bank had collected for Brentwood Bike Co. $5,565 on a note left for collection. The face of the note was $5,300.
D. A check for $590 returned with the statement had been incorrectly charged by the bank as $950.
E. A check for $210 returned with the statement had been recorded by Brentwood Bike Co. as $120. The check was for the payment of an obligation to Adkins Co. on account.
F. Bank service charges for May amounted to $36.
G. A check for $1,217 from Jennings Co. was returned by the bank due to insufficient funds.
Instructions
1. Prepare a bank reconciliation as of May 31. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. "Deduct:" or "Add:" will automatically appear if it is required.
BRENTWOOD BIKE CO.
Bank Reconciliation
May 31, 2016
1 Cash balance according to bank statement
2
3
4
5
6 Adjusted balance
7
8 Cash balance according to company’s records
9
10
11
12
13
14 Adjusted balance
2. Journalize the necessary entries. The accounts have not been closed. Refer to the Chart of Accounts for exact wording of account titles.
JOURNAL
DATE DESCRIPTION POST. REF. DEBIT CREDIT
1
2
3
4
5
6
7
3. If a balance sheet were prepared for Brentwood Bike Co. on May 31, 2016, what amount should be reported as cash?