Chapter 7 The Cash Account For Pala Medical Co. At June 30,

Ch 7thecashaccount For Pala Medical Co At June 30, 20y1, Indicated A

Compare the bank statement balance with the company's cash account balance at June 30, 20Y1. Reconcile the differences by preparing a bank reconciliation that accounts for outstanding checks, deposits in transit, bank collections, errors, and bank service charges. Journalize the necessary adjusting entries to record items such as bank collections, errors, and bank charges. Determine the correct amount of cash to report on the company's balance sheet after adjustments.

Sample Paper For Above instruction

Effective cash management and accurate financial reporting are essential components of a company's financial health. The process of bank reconciliation serves to verify the consistency between a company's recorded cash balance and the bank's reported balance. This process not only detects discrepancies but also ensures that the financial statements reflect the true cash position of the company. This paper will demonstrate the preparation of a bank reconciliation for Pala Medical Co. as of June 30, 20Y1, journalize necessary adjustments, and conclude with identifying the reported cash balance on the balance sheet.

At June 30, 20Y1, Pala Medical Co.'s cash account indicated a balance of $166,436, while the bank statement showed a balance of $195,688. The reconciliation process begins by identifying and adjusting for reconciling items, such as outstanding checks and deposits in transit. Outstanding checks totaling $19,427 have been recorded by the company but not yet cleared by the bank, thus reducing the bank's balance. Deposits in transit amounting to $12,300 had been made by the company but not yet reflected on the bank statement; thus, they increase the bank's reported balance.

Further adjustments include bank collections on behalf of the company. The bank collected $26,500 on a note with an interest component of $1,500. Since the note is an asset to the company, this collection increases the company's cash balance. An error occurred when recording a check for Skyline Supply Co., which was recorded as $400 but was actually $4,000. Correcting this error increases the company's cash by $3,600. Likewise, a bank charging a check for $915 instead of $195 was corrected by adjusting the company's books. Bank service charges of $55 further reduce the company's cash balance.

The steps in preparing the bank reconciliation involve adjusting the company's cash balance for bank errors and service charges, as well as adding deposits in transit and subtracting outstanding checks to arrive at the reconciled cash balance. The adjustment for the bank's collection on the note, corrected checks, and bank service charges are journalized in the company's records to reflect the accurate cash position. These entries typically include debit to Cash for collections and corrections, and debit to Expenses for bank charges, with appropriate credits to other accounts as necessary.

After completing the reconciliation and journal entries, the company's cash balance to be reported on the balance sheet is adjusted to reflect all reconciling items and journal entries. Based on the analysis, the company's adjusted cash balance as of June 30, 20Y1, would be approximately $166,436, factoring in all adjustments. Accurate recording of these adjustments ensures that financial statements present a truthful account of the company's cash position, which is vital for management decision-making and stakeholder confidence.

References

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