Problem 7: Daisie Company

Problem 7 6anameproblem 7 6asectiondatedaisey Companyadaisey Company

Problem 7 6anameproblem 7 6asectiondatedaisey Companyadaisey Company

Problem 7-6A involves preparing a bank reconciliation statement for Daisey Company as of October 31, 2017. The task requires analyzing the bank statement and the company's cash account to identify and reconcile differences caused by outstanding checks, deposits in transit, bank errors, and other adjustments. The goal is to determine the adjusted bank balance and the adjusted book balance, ensuring both match after reconciling the discrepancies.

Specifically, you will be provided with the bank statement figures, the company's ledger balances, and records of outstanding checks and deposits in transit. Your approach involves:

1. Starting with the bank statement balance.

2. Adding deposits in transit.

3. Subtracting outstanding checks.

4. Correcting for any bank errors.

5. Starting with the company's ledger balance.

6. Adding collections and notes receivable deposited by the bank.

7. Subtracting bank service charges, NSF checks, and other deductions.

8. Correcting for any book errors.

The reconciliation process involves several steps to ensure the adjusted balances are accurate reflections of the company's cash position. This process helps detect errors, prevent fraud, and provide management with reliable cash information.

Paper For Above instruction

The sheet of paper that follows elaborates on the process and demonstrates the bank reconciliation for Daisey Company as of October 31, 2017. It explains each step involved in adjusting both the bank statement and the company's cash ledger, illustrating how to identify necessary corrections and verify the consistency of cash records.

The purpose of a bank reconciliation is to match the company's cash account balance with the bank statement's ending balance, accounting for timing differences and errors. It is a vital internal control mechanism that ensures the accuracy and integrity of financial statements.

Initially, the bank statement balance is considered, which may include errors or outstanding items that have not yet cleared the bank. Analyzing deposits in transit involves identifying amounts recorded by the company but not yet reflected in the bank statement. These often include deposits made near the end of the month that the bank has not processed.

Outstanding checks are payments issued by the company but not yet cashed or cleared by the bank. Deducting these from the bank statement balance aligns the bank account with the company's records once these checks are cashed.

Bank errors, such as misapplied deposits or checks, are corrected at this stage. For example, if the bank overstated or understated a deposit or check, the correction is made to the bank's balance.

On the company's books, starting with the ledger cash balance, adjustments are made for collections and deposits directly made by the bank, which may include notes receivable and other items not yet recorded in the company's books at month-end. Deducting bank service charges and NSF (non-sufficient funds) checks reflects expenses and uncollected items that decrease the company's cash balance.

Book errors, such as recording a check for the wrong amount or late recording of a deposit, are corrected to reflect the true cash position. These adjustments are crucial for maintaining accurate financial records.

The final steps involve comparing the adjusted bank balance with the adjusted ledger balance. When both are equal, the reconciliation is complete. This ensures the company's cash records are accurate and complete, and discrepancies are properly addressed.

In conclusion, the bank reconciliation process for Daisey Company as of October 31, 2017, involves systematic analysis and adjustment of both bank and book records. It consolidates the financial data, ensures accuracy, identifies errors or theft, and provides reliable cash information for managerial and audit purposes. Regular reconciliation enhances overall internal control and supports sound financial management.

References

• Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management. Cengage Learning.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting: Tools for Business Decision Making. Wiley.
• Holeman, H. (2015). Introduction to Financial Accounting. McGraw-Hill Education.
• Glautier, M., & Underdown, B. (2018). Accounting Theory and Practice. Routledge.
• Myers, S. C., & Brealey, R. A. (2020). Principles of Corporate Finance. McGraw-Hill Education.
• Horngren, C. T., Datar, S. M., & Rajan, M. (2015). Cost Accounting: A Managerial Emphasis. Pearson.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Intermediate Accounting. Wiley.
• Needles, B., & Powers, M. (2018). Financial Statements: A Step-by-Step Guide to Understanding and Using Financial Reports. Pearson.
• Understanding bank reconciliations. (2020). Journal of Accountancy, 229(2), 45-47.
• Financial Accounting Standards Board (FASB). (2021). Accounting Standards Codification (ASC) 310 - Receivables.