Included on a firms bank statement was a credit memorandum, which could indicate:

For each of the following items a through g, indicate whether its amount (1) affects the bank or book side of a bank reconciliation, (2) represents an addition or a subtraction in a bank reconciliation, and (3) requires an adjusting journal entry.Bank or Book Side Add or Subtract Adj. Entry or Note. Credit memo on collection of notes . . . . . . . . . . . . . . .

Answer

  1. The Bank side will be affected

  2. Represents subtraction is a bank reconciliation statement

  3. No adjustment is required in a journal entry

How to Prepare a Bank Reconciliation

Honestly, Bank Reconciliations are pretty easy.The bank statement states that there is a certain amount in the account.The accounting records state a different amount.The goal is to find the correct amount.

Let�s work the following problem:

The bank statement for Corley Co. indicates a balance of $9,000.00 on June 30.After the journals for June had been posted, the cash account had a balance of $4,675.00.Prepare a bank reconciliation on the basis of the following reconciling items:

(a)������� Cash sales of $342 had been erroneously recorded in the cash receipts journal as $324.����

(b)������� Deposits in transit not recorded by bank, $500.00.�����������

(c)������� Bank debit memorandum for service charges, $25.00.�����

(d)������� Bank credit memorandum for note collected by bank, $1,850, including $50 interest.���������

(e)������� Bank debit memorandum for $218.00 NSF (not sufficient funds) check from Alice Martin, a customer.�����

(f)������� Checks outstanding, $3,200.00.

First, determine the bank balance and the book balance.

See the solution so far

Item (a).The company received $342 from cash sales.They recorded that they received $324.They made a mistake!They actually have $18 more cash than they have recorded.Therefore, the BOOKS side needs to be corrected.

See the solution so far

Item (b.)Deposits in transit.These are deposits that the company has made, but the bank has not yet recorded. Therefore the BANK side needs to be corrected.

See the solution so far

Item (c.) Service charges.The bank has already recorded the service charge.The BOOKS side needs to be corrected.

See the solution so far

Item (d.) Note Collected by the bank.The bank has collected some money ($1,850) for the company.Correct the BOOKS.

See the solution so far

Item (e.) NSF Check.Oh no!A customer paid us with a check that was bad!We thought that we had the cash, but we really don�t!Correct the BOOKS.

See the solution so far

Item (f.) Checks Outstanding.These are checks that have been written by the company.The money has been spent, but the checks have not cleared the bank.Correct the BANK side.

See the FINAL solution

After a bank reconciliation is prepared, the company has to make journal entries to record the items that affected the BOOKS side.They have to record the corrections that they have found.Do we make journal entries for the items on the BANK side??? NO � that is the bank�s concern!From this bank reconciliation we would make 4 journal entries.

Journal entry to record Error in recording Cash Sales:

Cash has to be increased, and more sales have to be recorded.

Here is the entry:

CASH������������������������������������������������� 18.00

����������� SALES������������������������������������������������������������ 18.00

Journal entry to record The NOTE Collected by the bank�

Cash has to be increased.We decrease the Notes Receivable by the face amount.We record the interest that was earned.

Here is the entry:

CASH������������������������������������������������� 1,850.00

����������� NOTES RECEIVABLE����������������������������������� 1,800

����������� INTEREST REVENUE����������������������������������� ��� 50

Journal entry to record Service Charge.This is an expense!Cash has to be decreased.

Here is the entry:

MISC ADMINISTRATIVE EXPENSE������ 25.00

����������� CASH������������������������������������������������������������� 25.00

The last journal entry would be to record the NSF check.��� We thought that the customer had paid when actually they did not.Therefore, we need to increase accounts receivable and decrease cash.

Here is the entry:

ACCOUNTS RECEIVABLE��������������������������� 218.00

����������� CASH������������������������������������������������������������� 218.00

Well, what do you think??Why not take this practice quiz over bank reconciliations.

ONLINE QUIZ

Which of the following would be indicated on a debit memo?

In banking, fees are deducted from an account automatically, and the debit memo is recorded on the account's bank statement. The most frequent debit memos are for returned check fees, insufficient funds fees, equipment rental fees, interest fees, check printing fees, and corrections to improper deposits.

For which of the following items on a bank reconciliation statement would a firm record a journal entry after completing the bank reconciliation process?

The correct answer is c. Based on the choices, only a bank service charge is considered a book reconciling item. The other choices do not need to be adjusted in the books. The entry to adjust the bank service charge account includes a debit to bank service charge, which is treated as an expense, and a credit to cash.

What is a form received from the bank showing all transactions recorded in the depositor's account during the month?

A bank statement is a list of all transactions for a bank account over a set period, usually monthly. The statement includes deposits, charges, withdrawals, as well as the beginning and ending balance for the period.

Which of the following items will require an addition to the bank statement balance in a bank reconciliation statement?

Answer and Explanation: Option C is correct. Deposits in transit would be added to the balance per bank statement in a bank reconciliation.