Identify Each Of The Following Reconciling Items As An Addit ✓ Solved

Identify Each Of The Following Reconciling Items Asan Addition To The

Identify Each Of The Following Reconciling Items Asan Addition To The

Identify each of the following reconciling items as: an addition to the cash balance according to the bank statement, a deduction from the cash balance according to the bank statement, an addition to the company's records, or a deduction from the company's records. (None of the transactions reported by bank debit and credit memos have been recorded by the company.)

Item Treatment:

  • 1. Bank service charges, $30.
  • 2. Check of a customer returned by bank to company because of insufficient funds, $400.
  • 3. Check for $320 incorrectly recorded by the company as $230.
  • 4. Check for $1,100 incorrectly charged by bank as $110.
  • 5. Deposit in transit, $3,300.
  • 6. Outstanding checks, $7,950.
  • 7. Note collected by bank, $10,500.

Sample Paper For Above instruction

Introduction

Bank reconciliations are essential for ensuring the accuracy of a company's cash records. Reconciling items can be categorized based on their impact on either the bank statement or the company's records. Understanding which items require adjustments helps maintain accurate financial statements.

Analysis of Reconciling Items

1. Bank Service Charges ($30)

This is a bank fee that the bank deducts from the account but has not yet been recorded by the company. Since the bank has already deducted this fee, it represents a deduction from the company's book balance. Therefore, it should be recorded as an entry in the company's books to reflect the service charges correctly. However, in terms of reconcilement, it is a deduction from the company's records.

2. Customer's Check Returned by Bank ($400)

The bank has returned a check due to insufficient funds, representing a check previously recorded in company's books, but not cleared by the bank. This is a deduction from the company's records because the company must reduce its cash balance accordingly.

3. Check Recorded Incorrectly by Company ($320 vs. $230)

If the company recorded a check for $230, but the bank shows it as $320, the company's records need adjustment. This item requires adjustment in the company's books, specifically an addition of $90 to correct the error. It is an adjustment to the company's records.

4. Incorrect Bank Charge ($1,100 vs. $110)

The bank charged $1,100, but only $110 was recorded by the bank as the correct amount. Since the bank's statement shows an incorrect charge (which is actual bank error), the company needs to adjust its records accordingly. Typically, this would be a deduction from the company's records to reflect the actual charge. However, if it is an error in the bank statement, correction is required in the bank's records, but from the company's perspective, it is an adjustment to the company's books — specifically, a deduction.

5. Deposit in Transit ($3,300)

This is a deposit made by the company that has not yet cleared the bank. It appears on the company's books but not on the bank statement. This is an addition to the bank statement balance, but from the company's perspective, it does not require entry; it's an outstanding item.

6. Outstanding Checks ($7,950)

Checks issued by the company that have not cleared the bank yet. They are recorded in the company's books but not reflected in the bank statement. This is a deduction from the bank statement balance. It does not require a journal entry to be made by the company.

7. Note Collected by Bank ($10,500)

The bank has collected a note on behalf of the company, and it has recorded this transaction. From the company's records perspective, an entry is required to recognize the receipt of cash. Therefore, this is an addition to the company's records.

Conclusion

In summary, the adjustments needed depend on the nature of each reconciling item. Items that require journal entries include bank service charges, NSF checks, incorrect recording, and bank collection notices. Items like deposits in transit and outstanding checks are adjustments made directly to the bank statement balance during reconciliation.

References

  • Brigham, E. F., & Houston, J. F. (2018). Fundamentals of Financial Management. Cengage Learning.
  • Gibson, C. H. (2017). Financial Reporting & Analysis. South-Western College Publishing.
  • Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2020). Financial Statement Analysis. McGraw-Hill Education.
  • Horngren, C. T., Harrison, W. T., & Oliver, M. (2019). Financial & Managerial Accounting. Pearson.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
  • American Institute of CPAs (AICPA). (2020). Financial Accounting and Reporting. AICPA Publications.
  • Ross, S. A., Westerfield, R., & Jaffe, J. (2019). Corporate Finance. McGraw-Hill Education.
  • Heinrichs, C., & Chen, Z. (2018). Principles of Accounting. Pearson.
  • Padilla, A. (2021). Advanced Financial Accounting. Springer.
  • Levy, H. & Ellis, H. (2020). Financial Accounting for Dummies. Wiley.

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