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Chapter 7: Q9SE (page 413)

Preparing a bank reconciliation

The Cash account of Guard Dog Security Systems reported a balance of \(2,540 at December 31, 2018. There were outstanding checks totaling \)400 and a December 31 deposit in transit of \(100. The bank statement, which came from Park Cities Bank, listed the December 31 balance of \)3,340. Included in the bank balance was a collection of \(510 on account from Brendan Ballou, a Guard Dog customer who pays the bank directly. The bank statement also shows a \)30 service charge and $20 of interest revenue that Guard Dog earned on its bank balance. Prepare Guard Dog’s bank reconciliation for December 31.

Short Answer

Expert verified

The ending balance of the bank reconciliation statement is $3,040.

Step by step solution

01

Step-by-Step SolutionStep 1: Definition of the bank reconciliation statement

A bank reconciliation statement is a statement that is prepared to remove the difference in the balance of cash balance and bank balance.

02

Bank reconciliation statement

In the bank reconciliation statement, there are two sides one is the bank, and the second is the book side. On the bankside, the opening balance of the bank account is entered. After this, the amount of deposit transit is added to the bank balance, and the number of outstanding checks is deducted.

The second side of the bank reconciliation statement is started with the opening balance of the company’s book. After this, the amount of bank collection and interest revenue is added to the balance, and the amount of service charge is deducted from the book side balance.

Guard Dog Security Systems
Bank Reconciliation Statement
December 31, 2018
Bank
Book

Balance, December 31, 2018

$3,340

Balance, December 31, 2018

$2,540

Add:

Add:

  1. Deposit in transit

$100

  1. Bank Collection

$510

$3,440

  1. Interest Revenue

$20

$3,070

Less:

Less:

  1. Outstanding Checks

$400

  1. Service Charge

$30

Adjusted bank balance, December 31, 2018

$3,040

Adjusted cash balance December 31, 2018

$3,040

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Most popular questions from this chapter

Question: Understanding bank account controls

Answer the following questions about the controls in bank accounts:

Requirements

1. Which bank control protects against forgery?

2. Which bank control reports the activity in the customer’s account each period?

3. Which bank control confirms the amount of money put into the bank account?

Question: What is the difference between an internal auditor and an external auditor?

Identifying internal control weakness in cash receipts

Seawind Productions makes all sales on credit. Cash receipts arrive by mail. Justin

Broadway, the mailroom clerk, opens envelopes and separates the checks from

the accompanying remittance advices. Broadway forwards the checks to another

employee, who makes the daily bank deposit but has no access to the accounting

records. Broadway sends the remittance advices, which show cash received, to

the accounting department for entry in the accounts. Broadway’s only other duty

is to grant sales allowances to customers. (A sales allowancedecreases the customer’s

account receivable.) When Broadway receives a customer check for \(600 less a

\)30 allowance, he records the sales allowance and forwards the document to the

accounting department.

Requirements

1. Identify the internal control weakness in this situation.

2. Who should record sales allowances?

3. What is the amount that should be shown in the ledger for cash receipts?

Preparing a bank reconciliation and journal entries

This problem continues the Canyon Canoe Company situation from Chapter 6.

Canyon Canoe Company has decided to open a new checking account at River

Nations Bank during March 2019. Canyon Canoe Company’s March Cash T-account

for the new cash account from its general ledger is as follows:

Cash—River Nations Bank Checking Account

Balance

Deposit

Deposit

Deposit

Deposit

200

4,300

750

1,675

1,500

14,165

Mar. 1

2

13

20

27

Deposit

10,000

2,325

2,750

4,500

31 3,490

Mar. 2

4

9

14

21

Ck#101

Ck#102

Ck#103

Ck#104

Ck#105

175

300

28

30

Ck#106

Ck#107

Balance

Canyon Canoe Company’s bank statement dated March 31, 2019, follows:

Beginning Balance, March 1, 2019

Deposits and other credits:

Mar. 2

14

21

28

29 EFT Sport Shirts(1)

(1) Sport Shirts is a customer making a payment on account.

(2) Bank Checks is a company that prints business checks (considered

a bank expense) for Canyon Canoe Company

\(10,000

2,325

2,750

4,500

500

Checks and other debits:

Mar. 2 EFT to Bank Checks(2)

Ending balance, March 31, 2019

\) 0

31 Interest Revenue 45

3 Ck#101

6 Ck#102

15 Ck#104

16 Ck#103

55

200

4,300

1,675

750

28 EFT to Rivers Energy(3) 270

29 Ck#106 175

31 Bank service charge 70

20,120

(7,495)

$ 12,625

(3) Rivers Energy is a utility provider.

Requirements

1. Prepare the bank reconciliation at March 31, 2019.

2. Journalize any transactions required from the bank reconciliation.

3. Compute the adjusted account balance for the Cash T-account, and denote thebalance as End. Bal. Does the adjusted balance of the Cash T-account match theadjusted book balance on the bank reconciliation?

Classifying bank reconciliation items

The following items could appear on a bank reconciliation:

a. Outstanding checks, \(670.

b. Deposits in transit, \)1,500.

c. NSF check from customer, no. 548, for \(175.

d. Bank collection of note receivable of \)800, and interest of \(80.

e. Interest earned on bank balance, \)20.

f. Service charge, \(10.

g. The business credited Cash for \)200. The correct amount was \(2,000.

h. The bank incorrectly decreased the business’s account by \)350 for a check written

by another business.

Classify each item as (1) an addition to the book balance, (2) a subtraction from the

book balance, (3) an addition to the bank balance, or (4) a subtraction from the bank

balance.
See all solutions

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