Question

12. On June 30, 2018, when an accountant for Harris Co., was preparing the bank reconciliation, he/she

       found that the company had outstanding checks in the amount of $1,850 and deposits in transit of  

       $2,000.  Regarding these two items the accountant then took the following action:

A.  Made the following entry:

            Cash     2,000

                        Revenue           2,000

            Operating Expense 1,850

                        Outstanding Checks 1,850

B. Made the following entry:

            Cash     150

                        Cash short and Over  150

C. Made the following entry.

            Cash     2,000

                        Bank Balance   2,000

            Operating Expense 1,850

                        Cash                 1,850

D. The accountant did not make any entry as both items are adjustment to the “Bank balance” only.

Answer 1

Outstanding checks = $1,850

Deposits in transit = $2,000.  

Regarding these two items the accountant then took the following action:

The accountant did not make any entry as both items are adjustment to the “Bank balance” only.

Correct option is (D)

Journal entries are made for those transactions/ errors or omissions which affect company book balance.

Outstanding checks and Deposits in transit affect bank balance only. Both of these have already recorded in the books of accounts and hence these items do not require any journal entries.