Question

Ron of Swanson Woodworking is getting ready to prepare the October bank reconciliation. The cash balance on the books of Swanson Woodworking on October 31 is $3,546. Ron reviews the bank statement, and notes the cash balance at October 31 of $2,445. The bank statement also reveals that the bank collected a note receivable on behalf of Woodworking -- the principal was $1,500 and the interest was $15 One customer's check for $29 was returned by the bank for insufficient funds. Two additional items on the bank statement were the monthly EFT for the utilities, $250, and the bank service fee of $12. Lori notes that the cash deposit made on October 31 of $3,300 does not appear on the statement, and that three checks totaling $975 had not cleared the bank account when the bank statement was prepared.

Answer 1

To prepare the October bank reconciliation for Swanson Woodworking, we need to compare the cash balance on the company's books with the cash balance on the bank statement and reconcile the differences. Let's go through the steps one by one:

1. Start with the cash balance on the company's books: $3,546

2. Adjust for the items that appear on the bank statement but not in the company's records:

a. Bank collected note receivable:

Add the collected note receivable principal and interest to the company's cash balance.

$1,500 (principal) + $15 (interest) = $1,515

New adjusted cash balance: $3,546 + $1,515 = $5,061

b. NSF check returned by the bank:

Deduct the NSF check amount from the adjusted cash balance.

$29 (NSF check) - $5,061 = -$32

3. Adjust for the items that appear in the company's records but not on the bank statement:

a. Monthly EFT for utilities:

Deduct the EFT for utilities from the adjusted cash balance.

$250 (EFT) - $5,061 = -$5,311

b. Bank service fee:

Deduct the bank service fee from the adjusted cash balance.

$12 (bank service fee) - $5,311 = -$5,323

4. Adjust for outstanding deposits and checks:

a. Outstanding deposit on October 31: $3,300

Add the outstanding deposit to the adjusted cash balance.

$3,300 + (-$5,323) = -$2,023

b. Outstanding checks: $975

Deduct the total outstanding checks from the adjusted cash balance.

-$2,023 - $975 = -$2,998

After completing the bank reconciliation, we find that the adjusted cash balance on the company's books for October is -$2,998. This means that the cash balance in the company's records is overdrawn by $2,998 as of October 31.