Question

The following reconciling items are applicable to the bank reconciliation for Forde Co. Indicate how each item should be shown on a bank reconciliation. (a) Outstanding checks. Added to cash balance per books (b) Bank debit memorandum for service charge. Deducted from cash balance per bank (c) Added to cash balance per bank Bank credit memorandum for collecting from customer an electronic funds transfer. Deposit in transit. (d) Deducted from cash balance per books

Answer 1

Outstanding checks should be added to the cash balance per books, a bank debit memorandum for service charge should be deducted from the cash balance per bank, a bank credit memorandum for collecting from a customer via electronic funds transfer should be added to the cash balance per bank, and deposit in transit should be deducted from the cash balance per books.

Step-by-step explanation:

(a) Outstanding checks should be added to the cash balance per books. This is because outstanding checks represent checks that have been issued by the company but have not yet cleared the bank. Therefore, the company's cash balance per books should be increased to reflect the checks that are still outstanding.

1. (b) A bank debit memorandum for service charge should be deducted from the cash balance per bank. This is because the bank has charged the company for a service, resulting in a decrease in the company's cash balance.
2. (c) A bank credit memorandum for collecting from a customer via electronic funds transfer should be added to the cash balance per bank. This is because the bank has collected funds on behalf of the company and increased the company's cash balance.
3. (d) Deposit in transit should be deducted from the cash balance per books. This is because a deposit in transit represents a deposit made by the company that has not yet been recorded by the bank. Therefore, the company's cash balance per books should be decreased to reflect the deposit in transit.

Answer 2

Each item should be shown on a bank reconciliation as follows:

(a) Outstanding checks: Add outstanding checks to the cash balance per book.

(b) Bank debit memorandum for service charge: Deduct the bank debit memorandum for the service charge from the cash balance per bank.

(c) Added to cash balance per bank Bank credit memorandum for collecting from customer an electronic funds transfer: Add the bank credit memorandum for the electronic funds transfer to the cash balance per bank.

(d) Deposit in transit: Deduct the deposit in transit from the cash balance per book.

How to show the items on a bank reconciliation

Outstanding checks are issued by Forde Co. and they have been recorded in their books although they have not cleared the bank yet. Therefore, they increase the book balance compared to the bank balance. As such, they should be added to the cash balance per book.

The bank debit memorandum for service charge is a fee charged by the bank to Forde Co., which reduces their bank balance but has not been recorded in their books yet. So, it is a decrease in the bank balance compared to the books. A deduction is necessary in this case.