El Gato Painting Company maintains a checking account at American Bank. Bank sta

Question

El Gato Painting Company maintains a checking account at American Bank. Bank statements are prepared at the end of each month. The November 30, 2016, reconciliation of the bank balance is as follows:

Balance per bank, November 30

$3,231

Add: Deposits outstanding

1,200

Less: Checks outstanding

#363

$123

#365

201

#380

56

#381

86

#382

340

(806)

Adjusted balance per bank, November 30

$3,625

The company's general ledger checking account showed the following for December:

Balance, December 1

$ 3,625

Receipts

42,650

Disbursements

(41,853)

Balance, December 31

$ 4,422

The December bank statement contained the following information:

Balance, December 1

$3,231

Deposits

43,000

Checks processed

(41,918)

Service charges

(22)

NSF checks

(440)

Balance, December 31

$3,851

The checks that were processed by the bank in December include all of the outstanding checks at the end of November except for check#365. In addition, there are some December checks that had not been processed by the bank by the end of the month. Also, you discover that check#411 for $320 was correctly recorded by the bank but was incorrectly recorded on the books as a $230 disbursement for advertising expense. Included in the bank's deposits is a $1,300 deposit incorrectly credited to the company's account. The deposit should have been posted to the credit of the Los Gatos Company. The NSF checks have not been redeposited and the company will seek payment from the customers involved.

Required:

1. Prepare a bank reconciliation for the El Gato checking account at December 31, 2016.

2. Prepare any necessary adjusting journal entries indicated.

Balance per bank, November 30

$3,231

Add: Deposits outstanding

1,200

Less: Checks outstanding

#363

$123

#365

201

#380

56

#381

86

#382

340

(806)

Adjusted balance per bank, November 30

$3,625

Explanation / Answer

Bank Reconciliation

A company's cash balance at bank and its cash balance according to its accounting records usually do not match. This is due to the fact that, at any particular date, checks may be outstanding, deposits may be in transit to the bank, errors may have occurred etc. Therefore companies have to carry out bank reconciliation process which prepares a statement accounting for the difference between the cash balance in company's cash account and the cash balance according to its bank statement.

Following are the transactions which usually appear in company's records but not in the bank statement:

Following are the transactions which usually appear in bank statement but not in company's cash account:

  

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