Question

Harrison Company maintains a checking account at the First National City Bank. The bank provides a bank statement along with canceled checks on the last day of each month. The July 2018 bank statement included the following information:

Balance, July 1, 2018 $56,428
Deposits 180,100
Checks processed (193,210 )
Service charges (60 )
NSF checks (1,500 )
Monthly loan payment deducted directly by bank from account (includes $520 in interest) (3,620 )
Balance, July 31, 2018 $38,138

The company's general ledger account had a balance of $38,918 at the end of July. Deposits outstanding totaled $6,300 and all checks written by the company were processed by the bank except for those totaling $8,420. In addition, a $2,000 July deposit from a credit customer was recorded as a $200 debit to cash and credit to accounts receivable, and a check correctly recorded by the company as a $30 disbursement was incorrectly processed by the bank as a $300 disbursement.

Required:
a. Prepare a bank reconciliation for the month of July.
b. Prepare the necessary journal entries at the end of July to adjust the general ledger cash account.

Answer 1

A. Corrected bank balance $35,538

Corrected cash balance $35,538

B. 1. Dr Cash 1,800

Cr Accounts receivable 1,800

2.Dr Miscellaneous expense (Bank service charges) 60

Dr Accounts receivable (NSF Check) 1,500

Dr Interest expense 520

Cr Cash 2,080

Step-by-step explanation:

a. Preparation of a bank reconciliation for the month of July.

BANK RECONCILATION STATEMENT

Bank balance to correct balance

Balance per bank statement $38,138

Add: Deposits outstanding 6,300

Add: Bank error in recording check (300-30) 270

Deduct: Checks outstanding ($8,420)

Corrected bank balance $35,538

Book balance to corrected balance

Balance as per books $38,918

Add: Error in recording cash receipt (2,000-200) 1,800

Deduct: NSF checks (1,500)

Deduct: Automatic monthly loan payment (3,620)

Deduct: Service charges (60)

Corrected cash balance 35,538

b. Preparation of the necessary journal entries at the end of July to adjust the general ledger cash account.

1. Dr Cash 1,800

Cr Accounts receivable 1,800

(Being To record the correct error in recording cash receipt)

2.Dr Miscellaneous expense (Bank service charges) 60

Dr Accounts receivable (NSF Check) 1,500

Dr Interest expense 520

Cr Cash 2,080

(To record credit to cash)