A company has a current balance in its Cash account of $3,400....

Question

A company has a current balance in its Cash account of $3,400. The bank statement arrived showing a bank balance of $5,900. Prepare the cash reconciliation noting the following events:

• Deposits in transit total $600

• EFT receipt of dividend revenue of $900

• Bank error:the bank deducted $100 for a check written by another company.

• Service charge $20

• NSF check from a customer $50

• Book error:Company Check no. 333 was recorded for $510. The actual amount paid on account was $150.

• Outstanding checks total $2,010

Accepted Answer

Alright. Let's try this one here. A company has a current balance in its cash account of $$34100. The bank statement arrived showing a bank balance of 59100. So $$notice there's difference in the account, right? The book is showing 34100 in our t account when we show cash. It says, oh right now we have 34100 but the bank says there's 59100. What's the difference? Well, it has to do with all of these items here. So let's prepare our bank reconciliation and let's go ahead and show you how I do that. What we're going to do is we're going to have 2 columns. We're going to have 1 column for the book and 1 column for the bank. We're going to start with our beginning balance in each. We're going to add stuff subtract stuff and get to an ending balance. The ending balance should be the same for both of them and that's how you know you did it correctly. Alright, let's check it out. So I'm gonna make a column here for book, a column here for bank. Okay. So let's go ahead and start with our beginning balance in each and let's see what those were. The book balance was current balance in its cash account 34100. 34100 and this one started at 59100, right? Those are our beginning balances right there. So let's go ahead and 1 by 1, we're gonna add and subtract these things based on whether they affect the book or the bank. Never is there gonna be a thing that I can think of or that I've ever seen in a question that one of these items would affect both. They're always only going to affect one column here. Okay? So let's check it out. Deposits in transit. So a deposit in transit totaling $$600. This means that the company had received 600. $$Right? They had received a check, let's say, for $$600 and they're like, oh, sweet. Let's deposit this. So they put it into the bank account but the bank has not cleared those checks yet. Right? So the bank account does not show that we received these 600 so we$$'re gonna put the deposits in transit to increase our bank balance. The deposits in transit are gonna increase our bank balance by 600, right, because that's money that we put into our book balance, but we have not increased the bank for those 600. The bank has not cleared those check and increased our balance by 600 yet. Okay? So that would increase the bank by 600. Let's go on to the next one. EFT receipt of dividend revenue. So an EFT receipt, this is where we had an automatic receipt of money. Okay? When we have automatic receipts of money, we probably didn't get some signal that we received this money. Only when we checked the bank statement we're like, hey, we received $$900. So we wouldn't have made that entry into the books yet, Okay. So we're finally finding out about this 900. So we're gonna increase the cash in the books by 900. So that dividends are gonna increase our book balance by 900, right? Because we had not made that entry. We received that money but we did not know about it till right now. Next is a bank error. Okay. So notice when the bank makes an error, we know it's gonna be on the bank side, but we have to figure out is it gonna be an increase, a decrease, right? They could make an error in the positive direction or an error in the negative direction. So you have to be able to figure it out. Let's check it out. Bank error. The bank deducted a 100 $$for a check written by another company. So maybe there's another company with a name similar to ours and the bank took a $$100 out of our account. Well we're gonna call them and get that 100 $$back, right? So the bank error, they had previously decreased our balance. So our balance is showing a $$100 less than it should. We need to increase our balance by a 100. So that's a positive 100. That's gonna increase our bank balance by a 100. $$Okay? So, right, that makes sense. Right? Because they had deducted our account previously. Well, we need to increase it again to get that money back. Next one, service charge of $$20. So service charge of 20 $$this means that the bank charged us money but we didn't know about it yet. We looked at our statement and we saw, hey, there's a $$20 service charge. We need to decrease our cash in the books by 20. $$Right? The bank already took the $$20 out of our account. Now, the book needs to take the 20 $$out of the account. So this is gonna be service charge but this one is going to be a negative twenty. Right? It's gonna be in parenthesis, right? Tell us it's a negative number. So it's negative twenty for the service charge there. Let's go on to the next one. NSF check from a customer for $$50. So an NSF check, this is not sufficient funds check. Okay? And they were nice enough to tell you that it said from a customer. Usually, they're not even gonna give you that information. Not sufficient fund check, that means that a customer wrote us a check and we said, oh great. We received 50. $$But in reality the check bounced and we didn't receive that money. So we had previously made an entry to increase our cash because we thought this check was good. So our check our cash balance is already increased by $$50 But now we're learning, hey, we'd never received that 50. So we $$have to decrease our our book balance by 50. You see the logic there? It's that we thought we had received this money so we had increased the balance, but in reality, we did not receive this money because the check bounced. So we have to decrease the balance again. And get lo and behold, we have a book error for the next one. Wow. There was a bank error and a book error. Everyone is making errors today. Let's see what happened here. So since it's a book error, we know it's going to be on the book column. Company check number 333 was recorded for 5.10. The actual amount paid was 1.50. Okay. So you have to be really careful when you read this. This can be pretty confusing. It was recorded for 510. That means we deducted we reduced our cash by 510. Right? When we recorded the entry, we reduced our cash account on our books by 510. But the actual amount paid was 1.50. So this means in this situation, did we take out too much cash or take out too little cash? We took out too much cash from our account. Right? Because we took out $$510 from the account rather than a 150 $$from the account. So we have to think about what would have been correct. If we had done this correct, we would have taken a 150 out, but we took out too much. We took out 510, so we have to think of the difference. 510-150, that's $$360. Okay? So now we have to think about that 360$$, does that increase or decrease our book balance? So what we need to do is decrease our book balance, right? Because in this situation, we recorded it for 510 or excuse me, sorry we need to increase our cash balance. Sorry. Sorry. Sorry. We had already decreased our cash balance by 510, Right? We had decreased it by 510 but we should have only decreased it by 150. So we need to increase it by the 360 to get it back to the correct amount. Right? So if you think about it, we have our cash account here. We decreased it all the way to 510 by 510 but we should have only gone to 150 here. So we need to bring it back up by the 360. Okay. So we're increasing it by 360. Even though it was a payment, yes, we paid money but we said we paid too much. So this is gonna increase the cash balance by 360. And last but not least, we've got one more. Outstanding checks total 2010 2010. So what does this mean? This means that the company has written all sorts of checks. They wrote checks to their suppliers and we had written the record on our books. We had decreased our cash balance because of these checks, but the bank has not cleared these checks yet. Right? Maybe the the person we paid hasn't gone to the bank to cash it or the bank's still clearing it. Whatever the reason, eventually it's gonna come out of the bank account. Right? Because we wrote those checks, they're gonna come out of the bank account. So the outstanding checks, they're gonna decrease our bank balance by that 2,010. Okay. So now we've dealt with all of these issues. We've got something for all of them. The last is to make sure that our adjusted balance is the same. Alright. So let's go ahead and do this math and see if our adjusted balance is the same. Balance. So 34100 plus 900, minus 20, minus 50, minus 360. Oh, no it wasn't minus 360. Dang it. 34100 plus 900-twenty-fifty plus 360, 4590. Okay. 4590. Now fingers crossed, the other side needs to also equal 4590. Let's see, 59100 plus 600 plus 100-2010. Yes, 4590 as well. That means we've done it correctly. Okay. We've got the same number for both. That means we've done it correctly. Okay, this is actually a pretty good thing here that we get this final check. Because if we didn't get the same number for both, well we would need to go back and adjust, right? And a nice trick with bank reconciliations is when you're off, you're hopefully off only one number and you can find okay maybe it was the bank like you're off like you know $$300 or 600 you know whatever the number might be you could kind of fiddle around if you forget. I'm hoping you guys remember all this but I know how it can be once you're on the test. So you try your best and if you don't get the same final answer, you don't freak out. Right? You go back and you look and say, oh, what if this should be in the other column. Right? Maybe you had put deposits in transit in the wrong column. You're like, oh, let me see what happens if I put this over here. So keep trying and fiddling and you'll get to the correct answer. Alright? So this is how we set up our bank reconciliation and we get to this adjusted balance. So the final step would be to make journal entries. We would need to make journal entries for these things to get it up to the correct balance. Right? Because our our bank right now shows 34100 $$but it should or excuse me, not our bank. Our cash in our books shows 34100, but it should really show 45.90 because of all of these other things. So we would make journal entries for those and if you need to know the journal entries we'll definitely go over them in another video. Alright, so let's go ahead and pause here and move on.

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