Bank Reconciliation Shown below is the information needed to prepare a bank reco

Question

Bank Reconciliation

Shown below is the information needed to prepare a bank reconciliation for Warren Electric at December 31:

1.At December 31, cash per the bank statement was $15,200; cash per the company’s records was $17,500.

2.Two debit memoranda accompanied the bank statement: service charges for December of $25, and a $775 check drawn by Jane Jones marked “NSF.”

3.Cash receipts of $10,000 on December 31 were not deposited until January 4.

4.The following checks had been issued in December but were not included among the paid checks returned by the bank: no. 620 for $1,000, no. 630 for $3,000, and no. 641 for $4,500.

a.Prepare a bank reconciliation at December 31.

b.Prepare the necessary journal entry or entries to update the accounting records.

c.Assume that the company normally is not required to pay a bank service charge if it maintains a minimum average daily balance of $1,000 throughout the month. If the company’s average daily balance for December had been $8,000, why did it have to pay a $25 service charge?

Explanation / Answer

a)

Prepare the bank reconciliation statement of W Electric at December 31 as follows:

WARREN ELECTRICALS

BANK RECONCILIATION

DECEMBER 31

Particulars

Amount

Balance as per Bank Statement

$15,200

Add: UnDeposited receipts of December 31

$10,000

$25,200

Less: Checks outstanding

Checks # 620

$ 1,000

Checks # 630

$3,000

Checks # 641

$4,500

$8,500

Adjusted Cash balance

$16,700

Balance as per Books on December 31

$17,500

Less:

Bank's service charges

$25

NSF check Jane Jones

775

    800

Adjusted Cash Balance

$16,700

Therefore, the adjusted cash balance is $16,700.

b) Pass the Journal entry in Warren Electric records as follows:

General Journal

Date

Account Title and Explanation

Post Ref.

Debit ($)

Credit ($)

31-Dec

Bank's service charges

$25

Accounts Receivable- Jane Jones

$775

Cash

$800

(To record bank service charge for December and NSF check returned by bank.)

Explanation: The transaction affects are as follows:

(c) There is a nominal fee chargeable by bank for each NSF check processed. Normally, this fee is added to the balance of customer’s receivable account. Here, $25 are the service charge and it results from $775 to $800 due to NSF(Non- Sufficient Funds).

WARREN ELECTRICALS

BANK RECONCILIATION

DECEMBER 31

Particulars

Amount

Balance as per Bank Statement

$15,200

Add: UnDeposited receipts of December 31

$10,000

$25,200

Less: Checks outstanding

Checks # 620

$ 1,000

Checks # 630

$3,000

Checks # 641

$4,500

$8,500

Adjusted Cash balance

$16,700

Balance as per Books on December 31

$17,500

Less:

Bank's service charges

$25

NSF check Jane Jones

775

    800

Adjusted Cash Balance

$16,700

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