Corporate Financial Accounting
Corporate Financial Accounting
15th Edition
ISBN: 9781337398169
Author: Carl Warren, Jeff Jones
Publisher: Cengage Learning
bartleby

Concept explainers

Question
100%
Book Icon
Chapter 7, Problem 7.5BPR

 (a)

To determine

Bank reconciliation: Bank statement is prepared by bank. The company maintains its own records from its perspective. This is why the cash balance per bank and cash balance per books seldom agree. Bank reconciliation is the statement prepared by company to remove the differences and disagreement between cash balance per bank and cash balance per books.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To prepare: Bank reconciliation of Company SI as at July 31, 20Y5

 (a)

Expert Solution
Check Mark

Answer to Problem 7.5BPR

The adjusted cash balance per bank, and the adjusted cash balance per books of Company SI is $11,494.0

Prepare bank reconciliation of Company SI as at July 31, 20Y5.

Company SI
Bank Reconciliation
July 31, 20Y5
Particulars Amount ($) Amount ($)
Cash balance as per bank statement   11,601.41
Add:    
Deposit of July 31, not recorded by bank   1,177.84
Less: Outstanding checks    
No : 613 137.50  
No : 628 837.70  
No : 633 310.08 1,285,.28
Adjusted cash balance per bank   11,494.00
     
Cash balance as per books   7,664.00
Add:    
Notes and interest receivable collected by bank 4,160.00  
Error in July 23 deposit  18.00  
Error in recording check no.627  63.00 4,241.00
Less:    
Checks returned because of insufficient funds  375.00  
Bank service charges 36.00 411.00
Adjusted cash balance per books   11,494.00
     
 

Table (1)

Working Notes:

Determine the balance per company’s book, June 30

Balance per Bank account, July 31 = (Cash balance, July 1 + July receipts – July disbursments)=$9,578.00+$6,465.42$8,379.42=$7,664.00

Explanation of Solution

  • The deposits which are not recorded by the bank are referred to as deposits in transit. Since the deposits in transit are not reflected on the bank statement, the company should add deposits in transit to cash balance per bank, while preparation of bank reconciliation statement.
  • Outstanding checks are the checks that are issued by the company, but not yet paid by the bank. When the check is issued for payment, the company deducts the cash balance immediately. But the bank deducts only when the cash is paid for the issued check. So, company deducts the cash balance per bank to remove the differences.
  • Notes receivable being collected by bank, is credited to bank account. But the company is not aware of it. So, while preparing bank reconciliation statement, company should add the amount to the cash balance per books.
  • Error in recording checks and banks deducting service charge for the services rendered like lock box rental, or printed checks. But the company is not aware of such deductions. So, company deducts the cash balance per books while bank reconciliation preparation.

(b)

To determine

To prepare: Adjusting journal entries for Company SI

(b)

Expert Solution
Check Mark

Answer to Problem 7.5BPR

Prepare journal entry to record account receivable collected by bank.

Date Account Titles and Explanation Ref. Debit ($) Credit ($)
       
July 31 Cash   4,241.00  
           Notes Receivable     4,000
           Interest Revenue       160.00
            Sales     18.00
           Accounts payable     63.00
    (To record receivable collected by bank)      

Table (2)

Explanation of Solution

  • Cash is an asset account. The amount is increased because bank collected note receivable, and an increase in assets should be debited.
  • Notes Receivable is an asset account. The amount has decreased because the amount to be received is collected by the bank, and, a decrease in assets should be credited.
  • Interest revenue is a revenue account and increases the stockholders’ equity. Thus, increases in the stockholders’ equity should be credited.
  • Sales is revenue and increases the stockholders’ equity. So, credit the same.
  • Accounts payable is a liability and decreased as there is receipt of cash. So, credit accounts payable account.  

Prepare journal entry to record book error amount.

Date Accounts and Explanation Post Ref. Debit ($) Credit ($)
       
June 30 Accounts receivables   375.00  
    Miscellaneous expenses    36.00  
             Cash     411.00
    (To record amount under-payable by accountant)      

Table (3)

  • Accounts receivable is an asset account. It is increased and thus, current asset is increased and debited.
  • Miscellaneous expenses are expenses account and decrease the stockholders’ equity. Thus, decrease in the stockholders’ equity should be debited.
  • Cash is an asset account. The amount is decreased to pay the under-paid check, and a decrease in asset is credited.

(c)

To determine

To report:  Amount of cash in the balance sheet on June 30.

(c)

Expert Solution
Check Mark

Explanation of Solution

Thus, the adjusted balance from the bank reconciliation should be reported as cash on the July 31 balance sheet for SI is $11,494.00

(d)

To determine

To explain: The error to be included in the bank reconciliation.

(d)

Expert Solution
Check Mark

Explanation of Solution

Error amount of $1,610 ($1,800 – $180) is the cancelled check. It is added in the “balance according to bank statement” on the bank reconciliation statement. Thus, the cancelled checks are being presented in the bank. When the check is presented to the bank, bank balance is corrected.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Calculate 2.5 hours cost
Help me
I won't answer? ?

Chapter 7 Solutions

Corporate Financial Accounting

Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
Text book image
College Accounting (Book Only): A Career Approach
Accounting
ISBN:9781337280570
Author:Scott, Cathy J.
Publisher:South-Western College Pub
Text book image
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning
Text book image
Century 21 Accounting Multicolumn Journal
Accounting
ISBN:9781337679503
Author:Gilbertson
Publisher:Cengage
Text book image
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Text book image
Century 21 Accounting General Journal
Accounting
ISBN:9781337680059
Author:Gilbertson
Publisher:Cengage