Abby Timmons 201 Financial Accounting Spring 2015 Section

Abby Timmonsacc 201 Financial Accounting Spring 2015 Section 3001

Prepare a bank reconciliation for Diaz's checking account on May 31, 2015, and record the necessary cash adjustments based on the provided bank statement and company records.

Paper For Above instruction

Reconciliation of bank and company records is a crucial process in accounting to ensure the accuracy of cash records. For Diaz Entertainment, a company that manages cash transactions diligently, the May 2015 bank reconciliation involves comparing the company's internal cash records with the bank statement to identify any discrepancies, such as outstanding checks, deposits in transit, bank errors, or book errors.

First, the starting point is the company's cash balance as of May 1, 2015, which is $5,370, and the ending balance as of May 31, 2015, reported as $5,280. Similarly, the bank statement begins with a balance of $6,170 and closes at $6,471 after adjustments. The goal is to reconcile these balances by accounting for timing differences and errors.

In the company's records, the cash balance increased from $5,370 by deposits totaling $11,590 and decreased by checks amounting to $11,680, resulting in a final balance of $5,280. The deposits include sales and other credits, while checks include payments for legal fees, property taxes, salaries, advertising, and supplies. In the bank's record, the beginning balance on May 1 was $6,170, and after credits such as deposits and interest, minus withdrawals like checks and service fees, the ending balance on May 31 aligns at $6,471.

Key adjustments for reconciliation include outstanding checks (#469 and #470), deposits in transit, bank errors, and EFT corrections. Checks #469 and #470 are outstanding as of April 30, 2015, and should be considered when reconciling; if they clear in May, they will be included in the bank's records. Also, the bank mistakenly charged Diaz for a payment that was meant for another account on May 20, which must be corrected.

Steps involve:

  1. Listing all bank and book balances.
  2. Adding deposits in transit to the bank balance.
  3. Subtracting outstanding checks from the bank balance.
  4. Adjusting for any bank errors, such as the erroneous EFT charge.
  5. Making journal entries for any discrepancies, such as correcting bank errors or recording bank fees and interest.

Once the adjustments are made, the adjusted bank balance should match the company's adjusted book balance, confirming that records are accurate.

In this specific case, the bank's accidental EFT charge made in error on May 20 must be reversed, and any adjustments for outstanding checks should be recorded. The journal entries will involve debit and credit to cash and relevant accounts such as bank expense or error correction accounts.

Final reconciliation ensures that Diaz Entertainment's cash records are accurate, reliable, and reflect the true cash position at the end of May 2015. Proper documentation of this process supports internal controls and financial statement integrity.

References

  • Wild, R., Subramanyam, K. R., & Halsey, R. (2014). Financial Statement Analysis (11th ed.). McGraw-Hill Education.
  • Higgins, R. C. (2012). Analysis of Financial Statements (10th ed.). McGraw-Hill Irwin.
  • Gibson, C. H. (2013). Financial Reporting & Analysis (13th ed.). Cengage Learning.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2014). Financial Accounting Theory and Analysis (11th ed.). Wiley.
  • Porter, S., & Norton, C. (2014). Financial Accounting: The Impact on Decision Makers (10th ed.). Cengage Learning.
  • AccountingTools. (2020). Bank Reconciliation: How to Prepare & Why It's Important. https://www.accountingtools.com/articles/2017/5/11/bank-reconciliation
  • Investopedia. (2022). Bank Reconciliation Definition. https://www.investopedia.com/terms/b/bankreconciliation.asp
  • AccountingCoach. (2023). Bank Reconciliation Definition and Standards. https://www.accountingcoach.com/bank-reconciliation/explanation
  • McGraw-Hill Education. (2015). Financial Accounting Resources. McGraw-Hill.
  • Rose, P. (2019). Practical Guide to Bank Reconciliation. Journal of Accountancy, 227(2), 45-50.

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