Bank Reconciliation Discrepancy
You are the bookkeeper for a small retail business. The bank statement for March shows an ending balance of $12,450. The Cash at Bank ledger account shows a balance of $13,200. You notice the following: outstanding cheques total $1,200; a deposit of $800 made on March 31 does not appear on the bank statement; the bank charged a $50 service fee; a customer's cheque for $300 was returned dishonoured (NSF); and the bank collected a $500 note receivable on your behalf, plus $20 interest. You also find that a cheque for $250 was incorrectly recorded in the ledger as $520.
1. Prepare a bank reconciliation statement starting with the bank statement balance to arrive at the adjusted bank balance, and starting with the ledger balance to arrive at the adjusted book balance. Show all adjustments.
Read the worked answer
Bank Statement Balance: $12,450
Add: Deposit in transit $800 Less: Outstanding cheques $1,200 Adjusted bank balance = $12,450 + $800 - $1,200 = $12,050
Ledger Balance: $13,200
Add: Note receivable collected $500, Interest $20 Less: Bank service charge $50, NSF cheque $300, Cheque recording error ($520 - $250) = $270 overstatement (deduct $270) Adjusted book balance = $13,200 + $500 + $20 - $50 - $300 - $270 = $13,100
Wait, the adjusted balances do not match. Let's recalculate carefully.
Bank side: 12,450 + 800 - 1,200 = 12,050. Book side: 13,200 + 500 + 20 - 50 - 300 - 270 = 13,100.
Difference = $1,050. This indicates an error or missing item. However, the problem states the facts; we must reconcile. Possibly the outstanding cheques total is wrong? Or there is an unrecorded item? The task asks to prepare the reconciliation, so we present the calculation and note the discrepancy.
But in a proper reconciliation, adjusted balances should equal. Let's recheck: The cheque error: recorded as $520 but should be $250, so ledger is overstated by $270. To correct, deduct $270 from ledger. That is correct.
Maybe the bank statement balance is $12,450 and ledger $13,200, difference $750. Adjustments: bank side adds $800, subtracts $1,200 => net -$400, so adjusted bank = $12,050. Book side: add $520, subtract $620 => net -$100, so adjusted book = $13,100. Difference $1,050. So there is an additional error of $1,050. Perhaps the outstanding cheques are $150? No.
Given the task, we should present the reconciliation and if it doesn't balance, investigate further. But the model answer should show the reasoning. Possibly the deposit in transit is $800 and outstanding cheques $1,200, but the ledger balance includes a deposit of $1,050 that is not on the bank statement? Not stated.
Maybe the bank statement balance is $12,450 and the ledger balance is $13,200, but there is also an unrecorded bank collection of $500 and interest $20, and bank charges $50, NSF $300, and cheque error $270. That gives adjusted book $13,100. To match $12,050, we need $1,050 more deductions on book side or additions on bank side. Could the outstanding cheques be $150? Then bank adjusted = 12,450+800-150=13,100. That matches. So likely the outstanding cheques total is $150, not $1,200. But the setup says $1,200. So there is an inconsistency. In a real exam, the numbers would balance. Since this is a generated case, I'll adjust the model answer to show the process and note the discrepancy, but the prompt expects a reconciliation. Perhaps I should correct the setup numbers to make it balance. Let me recalc: To balance, adjusted bank = adjusted book. Let outstanding cheques = X. Then 12,450 + 800 - X = 13,100 => 13,250 - X = 13,100 => X = 150. So if outstanding cheques were $150, it balances. But the setup says $1,200. So there is an error in the setup. Alternatively, maybe the ledger balance is $12,150? Then adjusted book = 12,150+520-620=12,050, matching bank. So ledger balance should be $12,150. The setup says $13,200. So either way, the numbers don't match. Since the task is to prepare the reconciliation, I will present the reconciliation with the given numbers and state that the adjusted balances do not agree, indicating an error that must be investigated. That is a valid bookkeeping judgement: if reconciliation doesn't balance, you look for errors. So the model answer will show the reconciliation and conclude that there is an unexplained difference of $1,050, which requires further investigation (e.g., check for transposition errors, unrecorded items). That demonstrates judgement.
2. What adjusting journal entries are required in the ledger based on the reconciliation? Provide the entries with debits and credits.
Read the worked answer
Based on the items affecting the ledger:
To record note receivable collection and interest: Debit Cash at Bank $520 Credit Notes Receivable $500 Credit Interest Income $20
To record bank service charge: Debit Bank Charges Expense $50 Credit Cash at Bank $50
To record NSF cheque: Debit Accounts Receivable (customer) $300 Credit Cash at Bank $300
To correct cheque recording error: The cheque was recorded as $520 but should be $250, so Cash at Bank was credited too much by $270. To correct: Debit Cash at Bank $270 Credit Accounts Payable (or appropriate expense) $270
These entries adjust the ledger balance to $13,100 (as calculated). However, since the reconciliation does not balance, additional entries may be needed after investigation.