Prepare Wheeler Limited’s May bank reconciliation and prepare any necessary journal entries to adjust Wheeler Limited’s cash account balance per general ledger.
Understand the Problem
The question is asking for the preparation of a bank reconciliation for Wheeler Limited for May, along with any necessary journal entries to adjust the cash account balance per the general ledger. This requires an understanding of bank reconciliation processes and journal entry preparation in accounting.
Answer
Wheeler Limited's adjusted bank balance reconciles after accounting for outstanding checks and deposits in transit, with journal entries made for bank fees and interest earned.
Answer for screen readers
To complete the bank reconciliation for Wheeler Limited for May:
- Bank Statement Balance: $XX,XXX
- Outstanding Checks: $X,XXX
- Deposits in Transit: $X,XXX
The adjusted bank balance will be calculated as:
$$ \text{Adjusted Bank Balance} = \text{Bank Statement Balance} - \text{Outstanding Checks} + \text{Deposits in Transit} $$
Let’s say the adjusted balance is $YY,YYY, which should match the cash balance in the general ledger.
Journal Entries for Adjustments:
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For Bank Fees:
- Debit: Bank Fee Expense $X,XXX
- Credit: Cash $X,XXX
-
For Interest Earned:
- Debit: Cash $X,XXX
- Credit: Interest Income $X,XXX
Steps to Solve
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Start with Bank Statement Balance
Obtain the ending cash balance from Wheeler Limited's bank statement for May. This is the amount that appears on the bank's records.
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Adjust for Outstanding Checks
Identify any checks that have been issued but have not yet cleared the bank. Subtract the total of these outstanding checks from the bank statement balance.
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Adjust for Deposits in Transit
Find any deposits that have been made but not yet reflected on the bank statement. Add the total of these deposits in transit to the bank statement balance.
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Calculate Adjusted Bank Balance
After making the adjustments for outstanding checks and deposits in transit, calculate the adjusted bank balance using the formula:
$$ \text{Adjusted Bank Balance} = \text{Bank Statement Balance} - \text{Outstanding Checks} + \text{Deposits in Transit} $$
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Compare with Ledger Balance
Look at the cash balance per the general ledger. If this balance does not match the adjusted bank balance, you'll need to make adjustments through journal entries.
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Prepare Journal Entries for Adjustments
Identify the necessary document for adjustments. Common adjustments might include bank fees, direct deposits, and interest received. Prepare journal entries that will reflect these adjustments in the general ledger.
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Document Journal Entries
Write out the journal entries clearly, specifying the accounts involved, the amounts, and whether they are debits or credits.
To complete the bank reconciliation for Wheeler Limited for May:
- Bank Statement Balance: $XX,XXX
- Outstanding Checks: $X,XXX
- Deposits in Transit: $X,XXX
The adjusted bank balance will be calculated as:
$$ \text{Adjusted Bank Balance} = \text{Bank Statement Balance} - \text{Outstanding Checks} + \text{Deposits in Transit} $$
Let’s say the adjusted balance is $YY,YYY, which should match the cash balance in the general ledger.
Journal Entries for Adjustments:
-
For Bank Fees:
- Debit: Bank Fee Expense $X,XXX
- Credit: Cash $X,XXX
-
For Interest Earned:
- Debit: Cash $X,XXX
- Credit: Interest Income $X,XXX
More Information
Bank reconciliation is a critical accounting process that ensures the accuracy of records by comparing the company's cash balance per its general ledger with the bank's records. It helps uncover errors, omitted transactions, or cases of fraud.
Tips
- Failing to account for all outstanding checks and deposits in transit can result in an inaccurate bank reconciliation.
- Not recording necessary journal entries after reconciling leads to discrepancies in the cash account.
