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Chapter. 9. Skyline College. Journal Flow Chart. Does the transaction involve cash?. YES. NO. Was cash RECEIVED?. Was inventory PURCHASED?. NO. NO. YES. YES. Record the transaction in the CASH RECEIPTS (CRs) Journal. Record the transaction in the CASH DISBURSEMENTS

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Chapter

9

Skyline College


Journal Flow Chart

Does the transaction involve cash?

YES

NO

Was cash RECEIVED?

Was inventory PURCHASED?

NO

NO

YES

YES

Record the

transaction in

the CASH

RECEIPTS

(CRs) Journal

Record the

transaction in

the CASH

DISBURSEMENTS

(CDs) Journal

Record the

purchase in

the

PURCHASES

Journal (PJ)

Was it a credit SALE?

YES

NO

Use the CRs and CDs Journals to prepare

the monthly Bank Reconcilation

Record the

Transaction

in the

SALES

Journal (SJ)

Record the

Transaction

In the

GENERAL

Journal (GJ)


A cash receipts journal is a special journal used to record and post transactions involving the receipt of cash.

The Cash Receipts Journal


Cash Sales and Sales Taxes and post transactions involving the receipt of cash.

Consider the cash sales entries for January 8 in the cash receipts journal for The Style Shop.


CASH RECEIPTS JOURNAL PAGE 1

360.00

4,500.00

8

Cash Sales

4,860.00


Cash Short Over

Occasionally errors occur when making change.

When errors happen, the cash in the cash register is either more or less than the cash listed on the audit tape.

  • When cash in the register is more than the audit tape, cash is over.

  • When the cash in the register is less than the audit tape, cash is short.


15

Cash Sales

384.00

4,800.00

Cash Short/Over

18.00

5,166.00

Cash sales with cash short.

CASH RECEIPTS JOURNAL PAGE 1

$384 + $4,800 = $5,184

Debits are not the normal balance of the Other Accounts Credit column, so the debit entry is circled.


Cash discounts on sales
Cash Discounts on Sales

  • The Style Shop does not offer cash discounts.

  • However, many wholesale businesses offer cash discounts to customers who pay within a certain time period. These are sales discounts.

  • Businesses with many sales discounts add a Sales Discounts Debit column to the cash receipts journal.


12

Investment

Amos, Capital

15,000.00

15,000.00

Additional Investment by the Owner

CASH RECEIPTS JOURNAL PAGE 1

The account name and amount are entered in the Other Accounts Credit section and the debit is entered in the Cash Debit column.


Cash Refund

Supplies

75.00

75.00

Receipt of a Cash Refund

CASH RECEIPTS JOURNAL PAGE 1

The name and amount are entered in the Other Accounts Credit section. The debit is entered in the Cash Debit column.


A promissory note is a written promise to pay a specified amount of money on a certain date.

Promissory Note

Sometimes promissory notes are used to replace an accounts receivable balance when the account is overdue.


$800 amount of money on a certain date.July 31, 20--

Six monthsAFTER DATE I PROMISE TO PAY

TO THE ORDER OFThe Style Shop

Eight hundred and no/100 - - - - - - - - - - - - - - - - - - - - - - - - - - DOLLARS

-PAYABLE AT First Texas Bank

VALUE RECEIVED with interest at 9%

NO. 30 DUE January 31, 20--Stacee Fairley

On July 31 The Style Shop accepted a six-month promissory note from Stacee Fairley, who owed $800 on account.


GENERAL JOURNAL Page 16

DATE DESCRIPTION POST. DEBIT CREDIT

REF.

20--

July 31 Notes Receivable 800

Accounts Rec./Stacee Fairley 800

Received a 6-month, 9% note

from Stacee Fairley to replace

open account

On July 31 The Style Shop recorded a general journal entry to increase notes receivable and to decrease accounts receivable for $800.

The asset account, Notes Receivable, was debited. The Accounts Receivable account was credited.


Interest rate = 9% per year

Time = six months

Interest amount $800 x 9% x 6/12 = $36

P x i x t

Total amount with interest = $836

($800 + $36)

Amount owed (principle) = $800


31

Collection of

Notes Receivable

800.00

note/S. Fairley

Interest Income

36.00

836.00

Collection of a Promissory Note and Interest

CASH RECEIPTS JOURNAL PAGE 1

The note and the interest are recorded in the Other Accounts Credit section.


Posting the column totals

Posting the Cash Receipts Journal

Posting the Column Totals

At the end of the month, the cash receipts journal is totaled and the equality of debits and credits is proved.


The column totals are posted to the general ledger.

CASH RECEIPTS JOURNAL PAGE 1

2,133 + 1,800 + 22,500+ 15,909 = 42,342


The amounts in the Other Accounts Credit section are posted.

CASH RECEIPTS JOURNAL PAGE 1

The (X) indicates that the individual amounts are posted, and not the total.


Posting to the accounts receivable ledger
Posting to the Accounts Receivable Ledger

Post entries from the Accounts Receivable Credit column to the customers’ accounts in the accounts receivable subsidiary ledger daily.

On January 7, $432 was posted to Roy Anderson’s account in the accounts receivable subsidiary ledger.


CASH RECEIPTS JOURNAL PAGE 1

SALES

DATE DESCRIPTION POST. ACCOUNTS TAX SALES OTHER ACCOUNTS CREDIT CASH

REF. RECEIVABLE PAYABLE CREDIT ACCOUNT TITLE POST. AMT. DEBIT

CREDIT CREDIT REF.

20--

Jan. 7 R. Anderson  432 .00 432.00

The “CR1” indicates that the transaction appears on page 1 of the cash receipts journal.

Name Roy Anderson Terms n/30

Address 8913 S. Hampton Rd, Dallas, Texas 75232-6002

DATE DESCRIPTION POST. DEBIT CREDIT BALANCE

REF.

20--

Jan. 1 Balance  432.00

3 Sales Slip 1101 S1 432.00 864.00

7 CR1 432.00 432.00

31 Sales Slip 1110 S1 267.50 699.50


Advantages of the Cash Receipts Journal

The cash receipts journal:

  • Saves time and effort when recording and posting cash receipts

  • Allows for the division of work among the accounting staff

  • Strengthens the audit trail by recording all cash receipts transactions in one place


A cash payments journal is a special journal used to record transactions involving the payment of cash.

The Cash Payments Journal


Journal Flow Chart transactions involving the payment of cash.

Does the transaction involve cash?

YES

NO

Was cash RECEIVED?

Was inventory PURCHASED?

NO

NO

YES

YES

Record the

transaction in

the CASH

RECEIPTS

(CRs) Journal

Record the

transaction in

the CASH

DISBURSEMENTS

(CDs) Journal

Record the

purchase in

the

PURCHASES

Journal (PJ)

Was it a credit SALE?

YES

NO

Use the CRs and CDs Journals to prepare

the monthly Bank Reconcilation

Record the

Transaction

in the

SALES

Journal (SJ)

Record the

Transaction

In the

GENERAL

Journal (GJ)


Payments for Expenses transactions involving the payment of cash.

Businesses write checks for a variety of expenses each month.

In January The Style Shop issued checks for rent, electricity, telephone service, advertising, and salaries.

Consider the January 3 entry for rent expense.


20-- transactions involving the payment of cash.

Jan. 3

111

January rent

Rent Expense

1500

1500

The account name and amount are entered in the Other Accounts Debit section.

The credit is entered in the Cash Credit column.


Payments on Account transactions involving the payment of cash.

Merchandising businesses usually make numerous payments on account for goods that were purchased on credit.

Consider the January 27 entry for International Apparel Mart.


27 transactions involving the payment of cash.

122

International Apparel Mart

2400.00

2400.00

If there is no cash discount, the entry in the cash payments journal is a debit to Accounts Payable and a credit to Cash.


Purchases Discounts transactions involving the payment of cash.

Purchases Discounts is a contra cost of goods sold account.

For an example of a payment with a discount, refer to the January 13 entry for Fashion Designs.


Debit Accounts Payable for the invoice amount, $2865 transactions involving the payment of cash.

Credit Purchases Discounts for the amount of the discount, $57.30.

Credit Cash for the amount of cash paid, $2807.70.


Cash Purchases of Equipment and Supplies transactions involving the payment of cash.

Businesses use cash to purchase equipment and other assets.

On January 10 The Style Shop issued a check for store fixtures.


10 transactions involving the payment of cash.

112

Store fixtures

Store Equip.

2400.00

2400.00

The account name and amount appear in the Other Accounts Debit section.

The credit is recorded in the Cash Credit column.


Payment of Taxes transactions involving the payment of cash.

Retail businesses collect sales tax from their customers. Periodically the sales tax is remitted to the taxing authority.

Consider the entry on January 11.


The Style Shop issued a check for $749 to pay the December sales tax.

11

113

Tax remittance

Sales Tax Pay.

756.00

756.00

Notice that the account name and amount appear in the Other Accounts Debit section.

The credit is entered in the Cash Credit column.


Cash Purchases of Merchandise sales tax.

Although most merchandising businesses buy their goods on credit, occasionally purchases are made for cash.

Consider the January 31 entry for the purchase of goods.


Purchase of goods sales tax.

31

126

Purchases

3200.00

3200.00

Cash purchases are recorded in the cash payments journal.


Freight In sales tax.

175.00

175.00

Payment of “freight-in” and amount appear in the Other Accounts Debit section.

The credit is in the Cash Credit column.


Cash Payments sales tax.Journal

The Style Shop issued a check for $172.80 to a customer who returned a defective item.

31

128

Cash refund

Sales Ret. & Allow.

160.00

12.80

Sales Tax Payable

172.80


Payment of a Promissory Note and Interest sales tax.

A promissory note can be issued to settle an overdue account or to obtain goods, equipment, or other property.


GENERAL JOURNAL Page 16

DATE DESCRIPTION POST. DEBIT CREDIT

REF.

20--

Aug. 2 Store Equipment 131 6,000

Notes Payable 201 6,000

Issued a 6-month, 10% note

to Metroplex Equipment Company

for purchase of new store fixtures

On August 2, The Style Shop issued a six-month promissory note for $6,000 to purchase store fixtures from Metroplex Equipment Company.

The note had an interest rate of 10 percent.


On January 31 The Style Shop issued a check for $6,300 in payment of the note ($6,000) and the interest ($300).

P x i x t = interest

$6,000 x 10% x 6/12 = $300


Cash Payments Journal payment of the note ($6,000) and the interest ($300).

Debit Notes Payable for $6,000

Debit Interest Expense for $300

Sales Ret. & Allow.

160.00

31

128

Cash refund

Sales Tax Payable

12.80

172.80

31

129

Note paid to Metroplex

Notes Payable

6000.00

Equipment Company

Interest Exp.

6300.00

300.00

Credit Cash for $6,300


Posting from the Cash Payments Journal payment of the note ($6,000) and the interest ($300).

During the month, the amounts recorded in the Accounts Payable Debit column are posted to the individual accounts in the accounts payable subsidiary ledger.

The amounts in the Other Accounts Debit column are also posted individually to the general ledger accounts during the month.

Consider the January 3 entry in the cash payments journal that was posted to Rent Expense account.


CASH PAYMENTS JOURNAL PAGE 1

ACCOUNTS PURCH.

DATE CK. EXPLANATION POST. PAYABLE OTHER ACCOUNTS DEBIT DISCOUNT CASH

NO. REF. DEBIT ACCOUNT TITLE POST. AMOUNT CREDIT CREDIT

REF.

20--

Jan. 3 111 January rent Rent Expense 634 1500 1500

ACCOUNTRent Expense ACCOUNT NO. 634

DATE DESCRIPTION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20--

Jan. 3 CP1 1500 1500

The “CP1” indicates that the entry is recorded on page 1 of the cash payments journal.


Posting to the Accounts Payable Ledger

Post entries from the Accounts Payable Debit column of the cash payments journal to the vendor accounts in the accounts payable subsidiary ledger daily.

On January 13, $2,865 was posted to Fashion Designs account in the subsidiary ledger.


Name Fashion DesignsTerms2/10, n/30

Address 2313 Belt Lane, Dallas, Texas, 75267-6205

DATE DESCRIPTION POST. DEBIT CREDIT BALANCE

REF.

20--

Jan. 1 Balance  2,200

3 Invoice 5819,12/29/-- P1 2865 5,065

13 CP1 2,865 2,200

30 CP1 1,135 1,065

Page

303

The amount of $2,865 was posted to Fashion Designs account in the subsidiary ledger.


Advantages of the cash payments journal
Advantages of the Cash Payments Journal

The cash payments journal:

  • Saves time and effort when recording and posting cash payments

  • Allows for a division of labor among the accounting staff

  • Improves the audit trail because all cash payments are recorded in one place and listed by check number


The Petty Cash Fund

Most businesses use a petty cash fund to pay for small expenditures

The amount of the petty cash fund depends on the needs of the business.

Usually the office manager, cashier, or assistant is in charge of the petty cash fund.


Establishing the Fund

The Style Shop’s cashier is responsible for petty cash. The Style Shop wrote a $175 check to the cashier, who cashed the check and put the currency in a locked cash box.


Debit Petty Cash Fund in the other Accounts Debit section and enter the credit in the Cash Credit column.


A petty cash voucher is a form used to record the payments made from a petty cash fund.

Petty Cash Voucher

The person receiving the funds signs the voucher.

The person who controls the petty cash fund initials the voucher.


PETTY CASH VOUCHER 1 made from a petty cash fund.

NOTE: This form must be computer processed or filled out in black ink.

DESCRIPTION OF EXPENDITURE ACCOUNT TO BE CHARGED AMOUNT

Office Supplies Supplies 129 16 25

Total 16 25

RECEIVED

THE SUM OF Sixteen DOLLARS AND 25/100 CENTS

SIGNEDL.T. Green DATE2/3/-- APPROVED BY M.A. DATE2/3/--

Metroplex Office Supply Co.

A petty cash voucher shows:


Replenishing the Fund made from a petty cash fund.

The total vouchers plus the cash on hand should always equal the amount of the fund–$175 for The Style Shop.

Replenish the petty cash fund at the end of each month or sooner if the fund is low.

The fund MUST be replenished at the end of the period.


The following internal control procedures apply to petty cash
The following internal control procedures apply to petty cash:

Use the petty cash fund only for small payments that cannot conveniently be made by check.

Limit the amount set aside for petty cash to the approximate amount needed to cover one month's payments from the fund.

Write petty cash fund checks to the person in charge of the fund, not to the order of "Cash."


The following internal control procedures apply to petty cash1
The following internal control procedures apply to petty cash:

  • Assign one person to control the petty cash fund. This person has sole control of the money and is the only one authorized to make payments from the fund.

5. Keep petty cash in a safe, a locked cash box, or a locked drawer.

6. Obtain a petty cash voucher for each payment. The voucher should be signed by the person who receives the money and should show the payment details. This provides an audit trail for the fund.


Internal Control over Cash cash:

The internal control over cash should be tailored to the needs of a business.

Accountants play a vital role in designing, establishing, and monitoring the cash control system.


Essential Cash Receipt Controls cash:

  • Have only designated employees receive and handle cash. In some businesses employees handling cash are bonded.

    Bondingis the process by which will insure the business against losses through employee theft or mishandling of funds.


Essential cash receipt controls
Essential Cash Receipt Controls cash:

  • Keep cash receipts in a cash register, a locked cash drawer, or a safe while they are on the premises.

    3. Make a record of all cash receipts as the funds come into the business.

    4. Check the funds to be deposited against the record made when the cash was received. The employee who checks the deposit is someone other than the one who receives or records the cash.


Essential cash receipt controls1
Essential Cash Receipt Controls cash:

  • Deposit cash receipts in the bank promptly. Deposit the funds intact. The person who makes the bank deposit is someone other than the one who receives and records the funds.

Enter cash receipt transactions in the accounting records promptly. The person who records cash receipts is not the one who receives or deposits the funds.

Have the monthly bank statement sent to and reconciled by someone other than the employees who handle, record, and deposit the funds.


Essential cash payment controls
Essential Cash Payment Controls cash:

  • Make all payments by check except for payments from special purpose cash funds such as a petty cash fund.

  • Issue checks only with an approved bill, invoice, or other document that describes the reason for the payment.

  • Have only designated personnel approve bills and invoices.

  • Have checks prepared and recorded in the checkbook or check register by someone other than the person who approves the payments.


Essential cash payment controls1
Essential Cash Payment Controls cash:

  • Have still another person sign and mail the checks to creditors.

Use prenumbered check forms.

During the bank reconciliation process, compare the canceled checks to the checkbook or check register. The person responsible for this should be someone other than the person who prepares or records the checks.

Enter promptly in the accounting records all cash payment transactions. The person who records cash payments should not be the one who approves payments or the one who writes the checks.


First Texas National Bank cash:

The Style Shop

Dallas, TX 75268

12,025.50

Bank Statement


A cash:bank reconciliation statementis a statement that accounts for all differences between the balance on the bank statement and the book balance of cash.

Bank Reconciliation Statement


A credit memorandum is a form that explains any addition, other than a deposit, to a checking account.

A debit memorandum is a form that explains any deduction, other than a check, from a checking account.


A dishonored check other than a deposit, to a checking account.is a check returned to the depositor unpaid because of insufficient funds in the drawer’s account. It is also called an NSF check.

A service charge is a fee charged by a bank to cover the costs of maintaining accounts and providing services.


The Bank Reconciliation Process: other than a deposit, to a checking account.

An Illustration

When the bank statement is received, it is reconciled with the financial records of the business.

The ending bank balance on January 31 was $21,838.50.

On January 31 the Cash account, called the

book balance of cash, is $14,390.70.


Bank Statement other than a deposit, to a checking account.

First Dallas National Bank

The Style Shop

Dallas, TX 75268

38-19-98867

12,025.50

The ending cash balance according to the bank is $21,838.50.

21,838.50


Sometimes the difference between the bank balance and the book balance is due to errors.

Arithmetic errors

Arithmetic errors

Giving credit to the wrong depositor

Not recording a check or deposit

Recording a check or deposit for the wrong amount

Charging a check against the wrong account

Many banks require that errors in the bank statement be reported within a short period of time, usually 10 days.


Other than errors, there are four reasons why the book balance of cash may not agree with the balance on the bank statement.

1.Outstanding checks.

2. Deposit in transit.

3. Service charges and other deductions not recorded in the business records.

4. Deposits, such as the collection of promissory notes, not recorded in the business records.


Outstanding checks balance of cash may not agree with the balance on the bank statement.are checks that have been recorded in the cash payments journal but have not yet been paid by the bank.

A deposit in transitis a deposit that is recorded in the cash receipts journal but that reaches the bank too late to be shown on the monthly bank statement.


First Section balance of cash may not agree with the balance on the bank statement.

Second Section

=

Adjusted bank balance

Adjusted book balance

Format of a bank reconciliation statement

Bank statement balance

Book balance

+ deposits in transit

+ deposits not recorded

– outstanding checks

– deductions

+ or – bank errors

+ or – errors in books

=


Steps to reconcile bank balance
Steps to reconcile bank balance: balance of cash may not agree with the balance on the bank statement.

  • Enter the bank balance on the bank statement.

  • Compare the deposits in the checkbook with the deposits on the bank statement.

  • List the outstanding checks.

  • List any bank errors.

  • Compute the adjusted bank balance.

First Section


The Style Shop balance of cash may not agree with the balance on the bank statement.

Bank statement balance

21,838.50

Step 1: Enter the balance on the bank statement, $21,838.50


The Style Shop balance of cash may not agree with the balance on the bank statement.

Bank statement balance

21,838.50

Additions:

Deposit of January 31 in transit

5,940

Step 2: Compare the deposits in the checkbook with the deposits on the bank statement.

On January 31 receipts of $5,940 were placed in the bank's night deposit box.

The bank recorded the deposit on February 1. The deposit will appear on the February bank statement.


Deductions for outstanding checks: balance of cash may not agree with the balance on the bank statement.

Check 124 of January 31

565

Check 125 of January 31

4,950

Check 126 of January 31

3,200

Check 127 of January 31

175

Check 128 of January 31

172.80

Check 129 of January 31

6,300

Check 130 of January 31

175

Total outstanding checks

The Style Shop

Bank statement balance

21,838.50

Additions:

Deposit of January 31 in transit

5,940

15,537.80

Step 3: List the outstanding checks. The Style Shop has seven outstanding checks totaling $15,537.80.


Deductions for outstanding checks: balance of cash may not agree with the balance on the bank statement.

Check 124 of January 31

565

Check 125 of January 31

4,950

Check 126 of January 31

3,200

Check 127 of January 31

175

Check 128 of January 31

172.80

Check 129 of January 31

6,300

Check 130 of January 31

175

Total outstanding checks

The Style Shop

Bank statement balance

21,838.50

Additions:

Deposit of January 31 in transit

5,940

Check incorrectly charged to account

1,600

7,540

29,378.50

Step 4: List any bank errors.

15,537.80

A $1,600 check was incorrectly deducted from The Style Shop’s account.


Deductions for outstanding checks: balance of cash may not agree with the balance on the bank statement.

Check 124 of January 31

565

Check 125 of January 31

4,950

Check 126 of January 31

3,200

Check 127 of January 31

175

Check 128 of January 31

172.80

Check 129 of January 31

6,300

Check 130 of January 31

175

Total outstanding checks

The Style Shop

Bank statement balance

21,838.50

Additions:

Deposit of January 31 in transit

5,940

Check incorrectly charged to account

1,600

7,540

29,378.50

15,537.80

Adjusted bank balance

13,840.70

Step 5: Compute the adjusted bank balance.


Steps to reconcile book balance
Steps to reconcile book balance: balance of cash may not agree with the balance on the bank statement.

  • Enter the balance in books from the Cash account.

  • Record any deposits made by the bank that have not been recorded in the accounting records.

  • Record deductions made by the bank.

  • Record any errors in the accounting records that were discovered during the reconciliation process.

  • Compute the adjusted book balance.

Second Section


Deductions for outstanding checks: balance of cash may not agree with the balance on the bank statement.

Check 124 of January 31

565

Check 125 of January 31

4,950

Check 126 of January 31

3,200

Check 127 of January 31

175

Check 128 of January 31

172.80

Check 129 of January 31

6,300

Check 130 of January 31

175

Total outstanding checks

The Style Shop

Bank statement balance

21,838.50

Additions:

Deposit of January 31 in transit

5,940

Check incorrectly charged to account

1,600

7,540

29,378.50

Step 1: Enter the balance in books from the Cash account, $14,390.70.

15,537.80

Adjusted bank balance

13,840.70

14,390.70

Book balance


Deductions for outstanding checks: balance of cash may not agree with the balance on the bank statement.

Check 124 of January 31

565

Check 125 of January 31

4,950

Check 126 of January 31

3,200

Check 127 of January 31

175

Check 128 of January 31

172.80

Check 129 of January 31

6,300

Check 130 of January 31

175

Total outstanding checks

The Style Shop

Bank statement balance

21,838.50

Additions:

Deposit of January 31 in transit

5,940

Check incorrectly charged to account

1,600

7,540

29,378.50

Step 2: Record any deposits made by the bank that have not been recorded in the accounting records.

The Style Shop did not have any.

15,537.80

Adjusted bank balance

13,840.70

14,390.70

Book balance


Deductions for outstanding checks: balance of cash may not agree with the balance on the bank statement.

Check 124 of January 31

565

Check 125 of January 31

4,950

Check 126 of January 31

3,200

Check 127 of January 31

175

Check 128 of January 31

172.80

Check 129 of January 31

6,300

Check 130 of January 31

175

Total outstanding checks

14,390.70

Book balance

Deductions:

NSF Check

525

Bank service charge

25

550

The Style Shop

Bank statement balance

21,838.50

Additions:

Deposit of January 31 in transit

5,940

Check incorrectly charged to account

1,600

7,540

29,378.50

  • Step 3: Record deductions made by the bank. There are two items:

  • The NSF check for $525

  • The bank service charge for $25

15,537.80

Adjusted bank balance

13,840.70


Deductions for outstanding checks: balance of cash may not agree with the balance on the bank statement.

Check 124 of January 31

565

Check 125 of January 31

4,950

Check 126 of January 31

3,200

Check 127 of January 31

175

Check 128 of January 31

172.80

Check 129 of January 31

6,300

Check 130 of January 31

175

Total outstanding checks

14,390.70

Book balance

Deductions:

NSF Check

525

Bank service charge

25

550

The Style Shop

Bank statement balance

21,838.50

Additions:

Deposit of January 31 in transit

5,940

Check incorrectly charged to account

1,600

7,540

29,378.50

Step 4: Record any errors in the accounting records that were discovered during the reconciliation process.

The Style Shop did not have any errors in January.

15,537.80

Adjusted bank balance

13,840.70


Deductions for outstanding checks: balance of cash may not agree with the balance on the bank statement.

Check 124 of January 31

565

Check 125 of January 31

4,950

Check 126 of January 31

3,200

Check 127 of January 31

175

Check 128 of January 31

172.80

Check 129 of January 31

6,300

Check 130 of January 31

175

Total outstanding checks

14,390.70

Book balance

Deductions:

NSF Check

525

Bank service charge

25

550

The Style Shop

Bank statement balance

21,838.50

Additions:

Deposit of January 31 in transit

5,940

Check incorrectly charged to account

1,600

7,540

29,378.50

Step 5: Compute the adjusted book balance.

15,537.80

Adjusted bank balance

13,840.70

13,840.70

Adjusted book balance


Deductions for outstanding checks: balance of cash may not agree with the balance on the bank statement.

Check 124 of January 31

565

Check 125 of January 31

4,950

Check 126 of January 31

3,200

Check 127 of January 31

175

Check 128 of January 31

172.80

Check 129 of January 31

6,300

Check 130 of January 31

175

Total outstanding checks

14,390.70

Book balance

Deductions:

NSF Check

525

Bank service charge

25

550

The Style Shop

Bank statement balance

21,838.50

Additions:

Deposit of January 31 in transit

5,940

Check incorrectly charged to account

1,600

7,540

29,378.50

Notice that the adjusted bank balance and the adjusted book balance agree.

15,537.80

Adjusted bank balance

13,840.70

13,840.70

Adjusted book balance


For The Style Shop, two entries must be made. balance of cash may not agree with the balance on the bank statement.

GENERAL JOURNAL PAGE 16

DATE DESCRIPTION POST. DEBIT CREDIT

REF.

Jan 31 Accts. Rec./David Newhouse 525

Bank Fees Expense 25

Cash 550

To record NSF check and service charge

  • The first entry is for the NSF check from David Newhouse, a credit customer.

  • The second entry is for the bank service charge.

The effect of the two items is a decrease in the Cash account balance.


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