Question

The cash account for American Medical Co. at April 30 indicated a balance of $334,985. The bank statement indicated a balance of $388,600 on April 30. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:

Checks outstanding totaled $61,280.

A deposit of $42,500, representing receipts of April 30, had been made too late to appear on the bank statement.

The bank collected $42,000 on a $40,000 note, including interest of $2,000.

A check for $7,600 returned with the statement had been incorrectly recorded by American Medical Co. as $760. The check was for the payment of an obligation to Targhee Supply Co. for a purchase on account.

A check drawn for $240 had been erroneously charged by the bank as $420.

Bank service charges for April amounted to $145.

Instructions

1. Prepare a bank reconciliation.

2. Journalize the necessary entries. The accounts have not been closed.

3. If a balance sheet is prepared for American Medical Co. on April 30, what amount should be reported as cash?

Answer 1

SOLUTION

1. Bank reconciliation statement-

Particulars	Amount ($)
Balance as per bank stattement	388,600
Add: Deposit in transit	42,500
Add: Error in recording the check (420-240)	180
	431,280
Less: Outstanding checks	(61,280)
Adjusted balance as per Bank statement	370,000
Balance as per books	334,985
Add: Note collected	40,000
Add: Interest collected	2,000
	376,985
Less: Error in recording check (7,600-760)	(6,840)
Less: Service charges levied	(145)
Adjusted balanace as per books	370,000

2. Journal entries-

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
1.	Cash	42,000
	Notes receivable		40,000
	Interest revenue		2,000
2.	Accounts payable	6,840
	Cash		6,840
3.	Service charges expense	145
	Cash		145

3. Amount to be reported as cash is $370,000.