Bank Reconciliation The following information is available to assist you in preparing a bank reconciliation for Karen's Catering on March 31: The balance on the March 31 bank statement is $6,506.10. Not included on the bank statement is a $423 deposit made by Karen's late on March 31.

A comparison between the canceled checks listed on the bank statement and the company records indicated that the following checks are outstanding at March 31:

No. 112 $42.92

No. 117 307.00

No. 120 10.58

No. 122 86.97

The bank acts as a collection agency for checks returned for insufficient funds. The March bank statement indicates that one such check in the amount of $45.00 was collected and deposited and a collection fee of $15.57 was charged.

Interest earned on the checking account and added to Karen's account during March was $4.30. Miscellaneous bank service charges amounted to $22.

A comparison between the deposits listed on the bank statement and the company's books revealed that a customer's check in the amount of $1,250 appears on the bank statement in March but was never added to the customer's account on the company's books.

The comparison of checks cleared per the bank statement with those per the books revealed that the wrong amount was charged to the company's account for a check. The amount of the check was $990. The proof machine encoded the check in the amount of $909, the amount charged against the company's account.

1. Determine the balance on the books before any adjustments as well as the corrected balance to be reported on the balance sheet.

Karen's Catering Bank Reconciliation March 31

Balance per bank statement, March 31			$fill in the blank
Add: Bank errorAdd: Customer check collectedAdd: Deposit in transitAdd: Outstanding checks			- Select -
Deduct:
Bank service charges:Collection fee:NSF check:Outstanding checks:
No. 112	$fill in the blank
No. 117	fill in the blank
No. 120	fill in the blank
No. 122	fill in the blank	$fill in the blank
Bank errorBank service chargesCollection feeCustomer check collectedDeposit in transit		- Select -	- Select -
Adjusted balance, March 31			$fill in the blank
Balance per books, March 31			$fill in the blank
Add: Bank errorAdd: Customer check collectedAdd: Deposit in transitAdd: Outstanding checks		$- Select -
Add: Bank service chargesAdd: Collection feeAdd: Interest earned on accountAdd: Outstanding checks		- Select -
Add: Bank errorAdd: Bank service chargesAdd: Customer check not recordedAdd: Deposit in transit		- Select -	- Select -
Deduct: Collection feeDeduct: Customer check collectedDeduct: Deposit in transitDeduct: Interest earned on account		$- Select -
Deduct: Bank service chargesDeduct: Customer check collectedDeduct: Customer check not recordedDeduct: Deposit in transit		- Select -	- Select -
Adjusted balance, March 31			$fill in the blank

2) What should Karen, the owner of Karen's Catering, do as a result of the bank error and why?

It is illegal for her to not tell the bank about the error and she could face jail time and penalties.

It is unethical for her not to tell the bank and payee about the error and to pay the amount owed.

Since the bank made the error, the bank has to absorb the cash they did not charge her account for.

It is neither illegal nor unethical to wait to see if the bank catches its error.