Preparing A Bank Reconciliation And Related Journal Entries

Preparing A Bank Reconciliation And Related Journal Entries L

The task involves preparing a detailed bank reconciliation for Jefferson Company as of April 30, 2014, reviewing the bank statement and ledger accounts, and making necessary journal entries. The company's bank statement shows an ending bank balance, deposits, checks cleared, interest collected, NSF checks, and bank charges. The company's ledger shows an initial cash balance, deposits, checks written, and other transactions. Several adjustments such as outstanding checks, deposits in transit, bank charges, NSF checks, and interest need to be considered to reconcile the bank statement with the company's books. After the reconciliation, journal entries must be prepared to record adjustments such as bank service charges, NSF checks, interest collected, or other applicable items. Additionally, the cash balance as of May 1, 2014, and the total cash to be reported on the company's balance sheet must be determined based on the reconciliation.

Paper For Above instruction

Preparing a bank reconciliation is an essential control process that ensures the company's cash records match the bank's records, identifying discrepancies, errors, or unrecorded transactions. Proper reconciliation helps in maintaining accurate financial records, detecting fraud or errors, and ensuring compliance with accounting standards. This process involves comparing the company's ledger cash balance with the bank statement balance, then adjusting both for items such as outstanding checks, deposits in transit, bank charges, NSF checks, and interest earned.

Introduction

In the context of financial management, the bank reconciliation process plays a pivotal role in safeguarding assets and maintaining the integrity of financial data. For Jefferson Company, the April 30, 2014, reconciliation involves analyzing bank and book records to identify timing differences and recording necessary adjustments. This paper presents a step-by-step approach to reconcile the bank statement with the company's ledger, followed by preparing the required journal entries and calculating the final cash balances.

Bank Reconciliation Procedure

The initial step involves comparing the bank statement balance with the company's ledger cash account. The bank statement shows an ending balance of $24,870, whereas the ledger indicates a different amount. Adjustments need to be made for deposits in transit, outstanding checks, and bank charges. Importantly, certain items like bank service charges and NSF checks need to be recorded as journal entries to reflect actual expenses and recoveries.

Beginning with the bank statement balance, adjustments involve adding deposits in transit ($37,100 minus deposits already accounted for), and subtracting outstanding checks totaling $5,600. Similarly, the company's ledger should be adjusted for bank service charges of $70, NSF check returned from A.B. Wright amounting to $120, and interest collected of $1,280. The objective is to arrive at a "corrected" cash balance after these adjustments, which should match for both records.

Journal Entries for Reconciliation

Based on the reconciliation adjustments, specific journal entries are necessary. For example:

  • To record bank service charges: Debit Bank Charges Expense, Credit Cash.
  • To record NSF check: Debit Accounts Receivable—A.B. Wright, Credit Cash.
  • To record interest collected: Debit Cash, Credit Interest Revenue.

These entries ensure the company's books reflect true cash amounts after accounting for bank fees, non-sufficient funds checks, and interest income.

Final Cash Balance and Reporting

As of May 1, 2014, the cash balance in the company's ledger should reflect all adjustments made during reconciliation. The total cash amount reported on the balance sheet will be the final adjusted cash figure, considering all reconciling items.

Conclusion

Regular bank reconciliation is vital for accurate financial reporting and internal control. For Jefferson Company, meticulously reconciling the bank statement with the ledger and recording the pertinent journal entries ensures transparency and reliability of financial data. This process not only detects discrepancies but also prevents potential misappropriation of assets, streamlining subsequent audits and financial analysis.

References

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  • International Financial Reporting Standards (IFRS). (2021). IAS 7 Statement of Cash Flows. IFRS Foundation.

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