ACC 101 - Wagers Chapter 7 Cash Practice Problems PDF

ACC 101 - WAGERS ANSWERS TO EXTRA PRACTICE PROBLEMS – CHAPTER 7 - CASH PRACTICE PROBLEM: BANK RECONCILIATION  Balance per Bank Statement on 12/31/2018 $9,605  Balance per Books on 12/31/2018...

ACC 101 - WAGERS ANSWERS TO EXTRA PRACTICE PROBLEMS – CHAPTER 7 - CASH PRACTICE PROBLEM: BANK RECONCILIATION  Balance per Bank Statement on 12/31/2018 $9,605  Balance per Books on 12/31/2018 6,026  Note ($3,000) plus interest ($60) collected by bank for us 3,060  Deposits not credited by bank (made 12/31/2018) 900  Bank service charges 50  Interest earned on the checking account 20  Customer's check (from John Doe) returned non-sufficient funds 550  A $245 check (written to pay a vendor on account) was recorded on our books for $445.  Checks we wrote that have not yet cleared the bank 1,455  A $340 check (written to purchase supplies) was recorded on our books as $34.  Deposit credited to us in error by the bank 650 ACC 101 – Wagers Answers to Extra Practice Problems for Chapter 7 Page 2 of 8 Requirement 1: Prepare, in good form, a bank reconciliation. PER THE BANK Balance per Bank, 12/31/2018 $9,605 Add: Deposits in Transit 900 Subtract: Outstanding Checks $(1,455) Deposit Credited Us in Error (650) (2,105) Adjusted Balance, 12/31/2018 $8,400 PER THE BOOKS Balance per Books, 12/31/2018 $6,026 Add: Note and Interest Collected $3,060 Interest Earned 20 Error in Check for Accounts Payable (see A) 200 3,280 Subtract: Service Charge $(50) NSF Check (550) Error in Check for Supplies (see B) (306) (906) Adjusted Balance, 12/31/2018 $8,400 ACC 101 – Wagers Answers to Extra Practice Problems for Chapter 7 Page 3 of 8 A) Error in Check for Accounts Payable: Entry we did make: Accounts Payable 445 Cash 445 Entry we should have made: Accounts Payable 245 Cash 245 Analysis: we credited Cash for $445, and we should have credited Cash for $245. Crediting Cash makes it go down, so we made cash go DOWN by $200 too MUCH; since we made cash go down by too much, to fix it, we need to make cash go up (add) B) Error in Check for Supplies: Entry we did make: Supplies 34 Cash 34 Entry we should have made: Supplies 340 Cash 340 Analysis: we credited Cash for $34, and we should have credited Cash for $340. Crediting Cash makes it go down, so we made cash go DOWN by $306 too LITTLE; since we made cash go down by too little, to fix it, we need to make cash go down (subtract) ACC 101 – Wagers Answers to Extra Practice Problems for Chapter 7 Page 4 of 8 Requirement 2: Prepare the journal entries required as a result of the bank reconciliation. If you want to make two big entries for these adjustments: Cash 3,280 Note Receivable 3,000 Interest Income (60 + 20) 80 Accounts Payable 200 Service Charge Expense 50 Accounts Receivable, J. Doe 550 Supplies 306 Cash 906 If you want to make a separate entry for each adjustment instead: Cash 3,060 Note Receivable 3,000 Interest Income 60 Cash 20 Interest Income 20 Cash 200 Accounts Payable 200 Service Charge Expense 50 Cash 50 Accounts Receivable, J. Doe 550 Cash 550 Supplies 306 Cash 306 ACC 101 – Wagers Answers to Extra Practice Problems for Chapter 7 Page 5 of 8 PRACTICE PROBLEM: BANK AND BOOK ERRORS FOUND DURING BANK RECONCILIATION (please note that there is not a separate problem on the test about bank/book errors, it is just part of the bank reconciliation problem. However, some students struggle with this part of the reconciliation, so extra practice is given here.) Requirement 1: A check written by the company for $100 was erroneously recorded on the company’s books as being for $1,000. The check was issued in payment of an accounts payable.  How do we show this on the bank reconciliation? $900 added to the balance per the books  Why is it an adjustment to the books? The books are wrong, and the bank is right, so it is an adjustment to the books  Why is it added? The (wrong) journal entry that we did make: Accounts Payable 1,000 Cash 1,000 The (correct) journal entry we should have made: Accounts Payable 100 Cash 100  We credited cash for $1,000 and we should have credited it only for $100. Crediting cash makes it go down, so we made cash go down by too much, therefore we must add back the $900 difference to the books.  What is the journal entry required as a result of this error? Cash (because we credited it for too much originally) 900 Accounts Payable (because we debited it for too much originally) 900 ACC 101 – Wagers Answers to Extra Practice Problems for Chapter 7 Page 6 of 8 Requirement 2: Another company makes an $80 deposit, and the bank accidently records this deposit in our account.  How do we show this on the bank reconciliation? $80 subtracted from the balance per the bank  Why is it an adjustment to the bank? The bank is wrong, and the books are right, so it is an adjustment to the bank  Why is it subtracted? The bank incorrectly put money into our account. We will call them (being the honest people that we are!) and they will deduct the money from our account.  What is the journal entry required as a result of this error? NONE! We don’t work at the bank!! The error will take care of itself once the bank makes the needed corrections. We don’t need to make any entry on our books. Requirement 3: A $270 deposit made by the company was erroneously recorded on the company’s books as being for $720. The deposit was for collections from customers on account.  How do we show this on the bank reconciliation? $450 subtracted from the balance per the books  Why is it an adjustment to the books? The books are wrong, and the bank is right, so it is an adjustment to the books  Why is it subtracted? The (wrong) journal entry that we did make: Cash 720 Accounts Receivable 720 The (correct) journal entry we should have made: Cash 270 Accounts Receivable 270  We debited cash for $720 and we should have debited it for only $270. Debiting cash makes it go up, so we made cash go up by too much, therefore we must subtract the $450 difference from the books.  What is the journal entry required as a result of this error? Accounts Receivable (because we credited it for too much originally) 450 Cash (because we debited it for too much originally) 450 ACC 101 – Wagers Answers to Extra Practice Problems for Chapter 7 Page 7 of 8 Requirement 4: A check written by the company for $900 was erroneously recorded on the company’s books as being for $90. The check was issued to purchase supplies.  How do we show this on the bank reconciliation? $810 subtracted from the balance per the books  Why is it an adjustment to the books? The books are wrong, and the bank is right, so it is an adjustment to the books  Why is it subtracted? The (wrong) journal entry that we did make: Supplies 90 Cash 90 The (correct) journal entry we should have made: Supplies 900 Cash 900  We credited cash for $90 and we should have credited it for $900. Crediting cash makes it go down, so we made cash go down by too little, therefore we must subtract the $810 difference from the books.  What is the journal entry required as a result of this error? Supplies (because we didn’t debit it for enough originally) 810 Cash (because we didn’t credit it for enough originally) 810 Requirement 5: Another company writes a $500 check, and the bank accidently charges this check to our account.  How do we show this on the bank reconciliation? $500 added to the balance per the bank  Why is it an adjustment to the bank? The bank is wrong, and the books are right, so it is an adjustment to the bank  Why is it added? The bank incorrectly took money out of our account. We will call them and they will add the money back into our account.  What is the journal entry required as a result of this error? NONE! We don’t work at the bank!! The error will take care of itself once the bank makes the needed corrections. We don’t need to make any entry on our books. ACC 101 – Wagers Answers to Extra Practice Problems for Chapter 7 Page 8 of 8 Requirement 6: A $1,400 deposit made by the company was erroneously recorded on the company’s books as being for $400. The deposit was for daily cash sales.  How do we show this on the bank reconciliation? $1,000 added to the balance per the books  Why is it an adjustment to the books? The books are wrong, and the bank is right, so it is an adjustment to the books  Why is it added? The (wrong) journal entry that we did make: Cash 400 Sales 400 The (correct) journal entry we should have made: Cash 1,400 Sales 1,400  We debited cash for $400 and we should have debited it for $1,400. Debiting cash makes it go up, so we made cash go up by too little, therefore we must add the $1,000 difference to the books.  What is the journal entry required as a result of this error? Cash (because we didn’t debit it for enough originally) 1,000 Sales (because we didn’t credit it for enough originally) 1,000