Small-Business Analysis Purpose: To help you understand the importance of cash flows in the operation of a small business. You own a business. You are like the Millers of the Bold City Brewery. Youre pretty excited about your businesss cash balance at the end of the month, because you had planned to take a large bonus. With that bonus you were going to make a down payment on a new house. You were waiting on a big check to come in from Hastings & Associates, Inc., a client that has owed you for several months. You had considered writing it off because you had heard through some business associates that the company had been experiencing some financial difficulties. However, after your telephone call to the company the first of the week, the check finally arrived. You rushed the check to the bank and deposited it. A couple days later, you access your account online at the bank to figure out how much of a bonus check you can afford to write yourself. After depositing the $9,000 from your client, you expect to have a balance of about $35,000, and because you always like to keep a balance of at least $10,000 in your account as a buffer, you figure you can easily write a bonus check for $20,000 for your down payment. After reviewing your account, youre concerned when you see that your bank balance is only about $26,000! What happened? You scroll down through the screen for an explanation and you see the following: NSF checkHastings & Associates, Inc.$9,000.00 Return check charge $35.00 Monthly service charge $50.00

Requirements 1. Explain why your bank balance is $9,085 lower than you had anticipated. When you prepare your bank reconciliation, what journal entries will you have to make as a result of these three items from your bank?

2. Assume you ultimately end up having to write off the amount owed by Hastings & Associates, Inc. What would be the journal entry for that transaction, assuming you use the allowance method to account for bad debts?