Kesler Co. deposits all receipts intact on the day received and makes all payments by cheque. On July 31, 2014, after all posting was completed; its Cash account showed an $11,042 debit balance. However, Kesler's July 31 bank statement showed only $9,860 on deposit in the bank on that day along with the following information.
a. Outstanding cheques, $2,695.
b. Included with the July cancelled cheques returned by the bank was a $42 debit memorandum for bank services.
c. Cheque #919, returned with the cancelled cheques, was correctly drawn for $892 in payment of the utility bill and was paid by the bank on July 15. However, it had been recorded with a debit to Utilities Expense and a credit to Cash as though it were for $982.
d. The July 31 cash receipts, $3,925, were placed in the bank's night depository after banking hours on that date and were unrecorded by the bank at the time the July bank statement was prepared.
Required
a. Prepare bank reconciliation for Kesler Co. at July 31.
b. Give the journal entries that Kesler Co. should make as a result of having prepared the bank reconciliation in part (a).
Analysis Component: Identify whether net income, assets, liabilities, and equity would be over- or understated if the journal entries in part (b) were not recorded.