Question

P7.4 (LO 3), AP On July 31, 2022, Keeds Company had a cash balance per books of $6,140. The statement from Dakota State Bank on that date showed a balance of $7,690.80. A comparison of the bank statement with the Cash account revealed the following facts. 1. The bank service charge for July was $25. 2. The bank collected $1,520 for Keeds Company through electronic funds transfer. 3. The July 31 cash receipts of $1,193.30 were not included in the bank statement for July. These receipts were deposited by the company in a night deposit vault on July 31 . 4. Company check No. 2480 issued to L. Taylor, a creditor, for $384 that cleared the bank in July was incorrectly recorded as a cash payment on July 10 for $348. 5. Checks outstanding on July 31 totaled $1,860.10. 6. On July 31 , the bank statement showed an NSF charge of $575 for a check received by the company from W. Krueger, a customer, on account. Instructions a. Prepare the bank reconciliation as of July 31. b. Prepare the necessary adjusting entries at July 31 .

Expert Answer

Answer 1

a. The adjusted cash balance per books as of July 31 is $7,333.30, reconciled with the bank statement balance of $8,804.10. Discrepancies include a bank service charge of $25, an electronic funds transfer (EFT) collection of $1,520, and July 31 cash receipts of $1,193.30 not reflected in the bank statement.

b. Adjusting Entries at July 31:

1. Debit Bank Service Charge Expense $25; Credit Cash $25.

2. Debit Cash $1,520; Credit Accounts Receivable $1,520.

3. Debit Cash $1,193.30; Credit Undeposited Funds $1,193.30.

4. Debit Accounts Payable $36 ([$384 - $348] Check error); Credit Cash $36.

5. Debit Accounts Receivable $575; Credit Cash $575 (NSF Charge).

6. No entry for outstanding checks; they are already recorded when issued.

Step-by-step explanation:

In the bank reconciliation, we start with the bank statement balance and adjust for items that differ from the books. The service charge reduces the bank balance, while the EFT collection and deposits increase it. The NSF charge is subtracted as it represents a reduction in funds available. Adjustments are made for items not yet recorded, such as the July 31 deposits.

For adjusting entries:

1. The bank service charge is an expense, so we debit Bank Service Charge Expense and credit Cash.

2. The EFT collection is added to Cash and subtracted from Accounts Receivable.

3. The July 31 deposits were not in the bank statement, so we debit Cash and credit Undeposited Funds to reflect the actual cash balance.

4. Correct the check recording error by debiting Accounts Payable and crediting Cash for the correct amount.

5. The NSF charge is recorded by debiting Accounts Receivable and crediting Cash.

6. Outstanding checks don't require adjustment since they are already accounted for in the books when issued.

Answer 2

To prepare the bank reconciliation as of July 31, compare the cash balance per book with the bank statement balance and make necessary adjustments.

Step-by-step explanation:

To prepare the bank reconciliation as of July 31, we need to compare the cash balance per book with the balance shown on the bank statement. Here are the relevant facts:

1. The bank service charge for July was $25.

1. The bank collected $1,520 for Keeds Company through electronic funds transfer.
2. The July 31 cash receipts of $1,193.30 were not included in the bank statement for July. These receipts were deposited by the company in a night deposit vault on July 31.
3. Company check No. 2480 issued to L. Taylor, a creditor, for $384 that cleared the bank in July was incorrectly recorded as a cash payment on July 10 for $348.
4. Checks outstanding on July 31 totaled $1,860.10.
5. On July 31 , the bank statement showed an NSF charge of $575 for a check received by the company from W. Krueger, a customer, on account.

To prepare the bank reconciliation, we need to adjust the cash balance per book based on these facts.