The Following Information Is Available To Reconcile Clark Co

The Following Information Is Available To Reconcile Clark Companys Bo

The following information is available to reconcile Clark Company’s book balance of cash with its bank statement cash balance as of July 31, 2011. A. On July 31, the company’s Cash account has a $26,193 debit balance, but its July bank statement shows a $28,020 cash balance. B. Check No. 3031 for $1,380 and Check No. 3040 for $552 were outstanding on the June 30 bank reconciliation. Check No. 3040 is listed with the July canceled checks, but Check No. 3031 is not. Also, Check No. 3065 for $336 and Check No. 3069 for $2,148, both written in July, are not among the canceled checks on the July 31 statement. C. In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that Check No. 3056 for July rent was correctly written and drawn for $1,250 but was erroneously entered in the accounting records as $1,230. D. A credit memorandum enclosed with the July bank statement indicates the bank collected $9,000 cash on a non-interest-bearing note for Clark, deducted a $45 collection fee, and credited the remainder to its account. Clark had not recorded this event before receiving the statement. E. A debit memorandum for $805 lists a $795 NSF check plus a $10 NSF charge. The check had been received from a customer, Jim Shaw. Clark has not yet recorded this check as NSF. F. Enclosed with the July statement is a $15 debit memorandum for bank services. It has not yet been recorded because no previous notification had been received. G. Clark’s July 31 daily cash receipts of $10,152 were placed in the bank’s night depository on that date, but do not appear on the July 31 bank statement.

Paper For Above instruction

Introduction

The process of bank reconciliation is fundamental in ensuring the accuracy of a company’s cash records and detecting discrepancies between its books and the bank statement. This procedure highlights not only the errors that may arise in recording transactions but also the timing differences and undetected fraudulent activities. Clark Company’s example as of July 31, 2011, demonstrates the typical steps involved in reconciling cash balances, addressing outstanding checks, deposits in transit, and adjusting for bank and book errors.

Preparation of Bank Reconciliation

The reconciliation process begins by comparing the bank statement balance with the company’s book balance. According to the available data, Clark’s bank statement shows a balance of $28,020, whereas the company's ledger indicates a balance of $26,193. The first step involves adjusting for outstanding checks and deposits in transit to arrive at a corrected bank balance.

Outstanding checks from June 30, specifically Check No. 3031 for $1,380 and Check No. 3040 for $552, must be considered. Check No. 3040 appears with the July canceled checks but Check No. 3031 does not, indicating a timing issue or an error in recording or processing. In addition, checks written in July, such as Check Nos. 3065 for $336 and 3069 for $2,148, are not reflected on the bank statement, suggesting they are outstanding or uncashed.

Corrections are also necessary for errors in recording check amounts. For example, Check No. 3056 for July rent was correctly written for $1,250 but was entered as $1,230 in the records, leading to a $20 discrepancy. Adjusting for this error increases the book balance to match the actual transaction amount.

Furthermore, the bank’s collection of a non-interest-bearing note for $9,000, minus a fee of $45, was not recorded in the books before the statement date. This collection needs to be added to the book balance. Similarly, bank fees of $15 for services and NSF checks totaling $805 (with particulars regarding Jim Shaw’s NSF check for $795 and a $10 NSF charge) are entries that require updates to the company’s books.

Finally, deposits placed in the night depository on July 31 amounting to $10,152 must be accounted for. Since these do not appear on the current bank statement, they are categorized as deposits in transit during reconciliation.

Reconciliation Summary

By adjusting the bank statement balance for outstanding checks and deposits in transit, and correcting any errors or unrecorded transactions, the company can determine a reconciled bank balance. The same adjustments are then applied to its book balance, incorporating bank collections, service charges, NSF checks, and deposits made but not yet recorded.

Conclusion

The reconciliation process ensures that the company's cash records accurately reflect the actual cash position. It involves adjusting for timing differences, correcting errors, and recording transactions not previously entered in the ledger. By thoroughly performing these steps, Clark Company can detect discrepancies, prevent theft or fraud, and produce accurate financial statements. The methodology demonstrated in this example aligns with best accounting practices for internal control and financial accuracy.

References

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