Question

You are doing a bank recon for May, 2011. You have a $2,785 unadjusted ledger cash balance and the following data:

- Outstanding checks: #719 $200, #727 $800, #732 $625
- Deposits in transit $1,200
- Check # 742 for repairs written for $505 but incorrectly recorded as $550
- NSF check for a customer $500
- Bank service charge for May $5
- Balance per bank statement $2750

What adjustment will you need to make to company books

Answer 1

The student must make the following adjustments to reconcile the company's cash balance: subtract outstanding checks, add deposits in transit, correct the recording error for check #742, and subtract both the NSF check and bank service charge. This results in an adjusted cash balance of $1,900.

Step-by-step explanation:

The student is asking how to adjust the company books based on several discrepant items found during a bank reconciliation for May, 2011. Given the unadjusted ledger cash balance of $2,785, the adjustments to be made would include deducting outstanding checks (#719, #727, #732), adding deposits in transit, correcting the recorded amount for check #742 from $550 to $505, deducting the NSF check, and deducting the bank service charge. After calculating, these adjustments would result in a corrected cash balance to be reflected in the company's financial records.

Adjustments to Company Books:

• Subtract outstanding checks: $200 + $800 + $625 = $1,625
• Add Deposits in transit: $1,200
• Correct check #742 error: Add back the $45 overstatement
• Subtract NSF check: $500
• Subtract bank service charge: $5

After making these adjustments, the adjusted cash balance on the company books should be calculated as follows:

$2,785 (Unadjusted Ledger Balance) - $1,625 (Outstanding Checks) + $1,200 (Deposits in Transit) + $45 (Correction for Check #742) - $500 (NSF Check) - $5 (Bank Service Charge) = $1,900 (Adjusted Cash Balance).