On December 31, 2024, Lally Company had a cash balance per books of $8,981. The bank statement on that date showed a balance of $10,155. A comparison of the statement with the Cash account revealed the following:
1. The statement included debit memos of $70 for the printing of additional company cheques and $30 for bank service charges.

2. Cash sales of $417 on December 12 were deposited in the bank. The journal entry to record the cash receipt and the deposit slip were incorrectly made out and recorded by Lally as $741. The bank detected the error on the deposit slip and credited Lally Company for the correct amount.
3. The November 30 deposit of $985 was included on the December bank statement. The deposit had been placed in the bank’s night deposit vault on November 30.
4. The December 31 deposit of $960 was not included on the December bank statement. The deposit had been placed in the bank’s night deposit vault on December 31.
5. Cheques #1006 for $415 and #1072 for $975 were outstanding on November 30. Of these, #1072 cleared the bank in December. All the cheques written in December except for #1278 for $555, #1284 for $646, and #1285 for $315 had cleared the bank by December 31.
6. On December 18, the company issued cheque #1181 for $457 to Harper & Co., on account. The cheque, which cleared the bank in December, was incorrectly journalized and posted by Lally Company for $574.
7. A review of the bank statement revealed that Lally Company received electronic payments from customers on account of $1,875 in December. The bank had also credited the account with $25 of interest revenue on December 31. Lally had no previous notice of these amounts.
8. Included with the cancelled cheques was a cheque issued by Mally Company for $585 that was incorrectly charged to Lally Company by the bank.
9. On December 31, the bank statement showed an NSF charge of $805 for a cheque issued by W. Hoad, a customer, to Lally Company on account. This amount included a $16 service charge by the bank. The company’s policy is to pass on all NSF fees to the customer.

Instructions
a. Prepare the bank reconciliation at December 31.
b. Prepare the necessary journal entries at December 31.

Taking It Further

What are the risks of not performing bank reconciliations? Why not just rely on the bank records?