Question

During the bank reconciliation process at A. Fontes Consultancy on May 2, 2019, the following two errors were discovered in the firm’s records.

1. The checkbook and the general journal indicated that Check 2206 dated April 17 was issued for $711 to make a cash purchase of supplies. However, examination of the canceled check and the listing on the bank statement showed that the actual amount of the check was $22.
2. The checkbook and the general journal indicated that Check 2247 dated April 20 was issued for $130 to pay a utility bill. However, examination of the canceled check and the listing on the bank statement showed that the actual amount of the check was $180.

Required:

1. Prepare the adjusted book balance section of the firm’s bank reconciliation statement. The book balance as of April 30 was $20,315. The errors listed above are the only two items that affect the book balance.
2. Prepare general journal entries to correct the errors. Check 2206 was correctly debited to Supplies on April 17, and Check 2247 was debited to Utilities Expense on April 20.

Analyze:
If the errors described had not been corrected, would net income for the period be overstated or understated? By what amount?

Answer 1

1.

Balance as per books	$20,315
Add: incorrect recording of check (711-22)	$689
	$21,004
Less: utility expesnes incorrectly recorded (180-130)	$50
Adjusted Balance per books	$20,954

2.

Date	Account title	Debit	Credit
30-Apr	Cash	689
	Supplies		689
30-Apr	Utlitity expense	50
	Cash		50

3.

f the errors described had not been corrected, net income for the period would be overstated by $50.