Larry is trying to complete a bank reconciliation. His March 31st bank statement reads $32,040.02, while his March 31st book balance is 31,591.11.

First, Larry confirms that there are no book or bank errors. Then, he finds all EFT payments (insurance of $522.30 and telecommunications bills totaling $265.19) and receipts (two A/R balances of $500 and $765) on the bank statement and adjusts the book balance accordingly (this is how Larry usually records EFT transactions). He notes that there has been a bounced cheque ($131.10 with a $19 NSF fee) which his customer warned him about in advance- Larry had not updated his book records at that time. Larry deducts both the bounced cheque and the NSF fee from his bank balance. Larry also adds the interest revenue of $1.85 to his book balance and subtracts the bank service charges of $2.25. He confirms there were no bank collections.

Larry subtracts all four cheques he wrote to suppliers this month from the bank balance ($96.49, $167.72, $897.13, and $107.97). He also adds three deposits, all from this month ($601.22, $130.42, and $153.79). All of these transactions have already been recorded in the books.

Larry finds that his adjusted bank and book balances differ by $261.98. Discuss what might have gone wrong. Also, what journal entries does Larry need to make?