Chapter 6, Problem 4PSB

1.

To determine

To prepare: Bank reconciliation of S Company as at December 31, 2017.

Explanation of Solution

While bank reconciliation required adjustments should be made to match the balances.
Bank reconciliation of S Company as follows:

S Company
Bank Reconciliation
December 31, 2017
Particulars	Amount ($)	Particulars	Amount ($)
Balance as per bank statement	46,822.40	Balance as per book of account	32,878.30
Add:		Add:
Deposit made on Dec 31	9,583.10	Collection of note receivable	18,980
Less:		Error underlying check No.1267	9
Outstanding check No.1242	410	Less:
Outstanding check No.1273	4,589.30	Service charges levied by bank	99
Outstanding check No.1282	400	NSF check	762.50
Adjusted balance of bank	51,005.80	Adjusted balance of book	51,005.80

2.

To determine

To prepare: Journal entries to bring the company’s book balance of cash into conformity with the reconciled cash balance as of December 31, 2017.

Explanation of Solution

Journal entry related to note receivable

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Dec.31,2017	Cash		18,980
	Expenses for collection		20
	Notes receivable			19000
	(To record note receivable collection)

• Here, note receivable is of $19,000 and collection fee of note receivable accounts for $20. Thus cash received against this is $18,980 ($19,000-$20)
• Cash has come into the business which shows increment in cash and when cash increases it gets debited because cash is an asset.
• On the other hand note receivable is also a form of asset which decreases and gets credited. Thus note receivable account gets credited.

Service charges levied by the bank for NSF check.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Dec.31,2017	Accounts Receivable		762.50
	Cash			762.50
	(To record charges levied by the bank for NSF check in addition to fees )

• In such case, service charges $762.50 deducted by the bank which pertains to NSF check.
• Since Cash and Accounts Receivable are asset account, which get debited when increases and credited when decreases. Cash has paid, so it gets credited and accounts receivable has increased so it gets debited.

Bank charged for check printing.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Dec 31,2017	Miscellaneous Expenses		99
	Cash			99
	(To record charges levied by the bank to print checks)

• All expenses are debited when it increases. Thus check printing is also an expense and debited under Miscellaneous Expenses account.
• Whereas cash has paid out of the business and same has been decreased. Thus Cash account gets credited.

Entry related to office supplies.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Dec.31,2017	Cash		9
	Expense for office supplies			9
	(To record correction of error in entry related to check no.1267)

• All expenses are credited when it decreases. Thus, expense for office supplies is required to be reduced since it has been recorded in excess. Hence, same is decreased and credited.
• Whereas cash was understated by mistake and need to be increased. Thus, Cash account gets debited.

3.

To determine

To explain: Nature of communications conveyed by the bank when bank sends the depositor (a) a debit memorandum and (b) a credit memorandum.

Explanation of Solution

(a)

Bank sends a debit memorandum to the depositor to indicate that the depositor’s account has been debited by the bank. Since depositor’s account is considered as liability of the bank and his/her bank account has decreased.

(b)

On the other hand bank sends credit memorandum to the depositor to indicate that depositor’ account has been credited by the bank and due to this account balance of depositor has also increased.

Thus, debit memorandum and credit memorandum are ways of communication between the bank and its customers.