Bank Reconciliation and Entries

The cash account for Brentwood Bike Co. at May 1 indicated a balance of $13,110. During May, the total cash deposited was $65,030 and checks written totaled $60,380. The bank statement indicated a balance of $22,050 on May 31. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:

1. Checks outstanding totaled $9,820.
2. A deposit of $8,000, representing receipts of May 31, had been made too late to appear on the bank statement.
3. The bank had collected for Brentwood Bike Co. $4,230 on a note left for collection. The face of the note was $3,900.
4. A check for $490 returned with the statement had been incorrectly charged by the bank as $940.
5. A check for $410 returned with the statement had been recorded by Brentwood Bike Co. as $140. The check was for the payment of an obligation to Adkins Co. on account.
6. Bank service charges for May amounted to $60.
7. A check for $980 from Jennings Co. was returned by the bank because of insufficient funds.

Instructions:

1. Prepare a bank reconciliation as of May 31.

Brentwood Bike Co.
Bank Reconciliation
May 31
Cash balance according to bank statement		$
Add deposit of May 31, not recorded by bank	$
Add bank error in charging check as $940 instead of $490
		$
Deduct outstanding checks
Adjusted balance		$
Cash balance according to company's records		$
Add note and interest collected by bank
		$
Deduct check returned because of insufficient funds	$
Deduct bank service charges
Deduct error in recording check
Adjusted balance		$

Feedback

1. Set up two columns: one for the company cash account section and the other for the bank balance section. Determine the effect of the data on each column. Recall that when you are finished, the adjusted balances in the bank and company sections of the reconciliation must be equal. If not, an item has been overlooked or treated in error.

2. Journalize the necessary entries (a.) that increase cash and (b.) that decrease cash. The accounts have not been closed. For a compound transaction, if an amount box does not require an entry, leave it blank.

a. May 31	Cash
	Notes Receivable
	Interest Revenue
b. May 31	Accounts Payable-Adkins Co.
	Accounts Receivable-Jennings Co.
	Miscellaneous Expense
	Cash

Feedback

2. Keep in mind that the company needs to journalize any adjusting items in the company section of the bank reconciliation, because these have not been previously recorded by the company. Debit memo items like bank service charges decrease Cash. Items that come from credit memos like collections of notes or interest by the bank increase cash. If the company made an error that overstates or understates cash in the company section, the journal adjustment would decrease Cash or increase Cash, respectively.

3. If a balance sheet is prepared for Brentwood Bike Co. on May 31, what amount should be reported as cash? $