Chapter 7: Fraud, Internal Control, and Cash
Bank Reconciliation
Deposit in transit: One the company receive cash from client, and its recorded in the company
books, but still not deposited in the bank account.
Outstanding checks: Once you issued a check for supplier and the supplier did not cleared the
check amount from the bank, so the check amount is deducted from the books, but did not
affected the bank balance.
Collection: an amount deposited in our bank account and still not recorded in our books.
NSF (Non-Sufficient fund): Once receive a check from client, and its recorded in our books, but
the check returned by the bank because the client has no sufficient fund.
Service charges: The bank deducted amount from our bank balance, due to a service performed
to us.
Question 1:
Hamid Co. has the following financial information generated from the bank statement and the
company’s books as of December 31, 2011.
Cash balance per book 20,415
NSF checks 2,500
Deposits in transit 7,800
Cash balance per bank statement 17,500
Outstanding checks 1,500
Bank services charges 115
Collection of notes receivable by bank 6,000
Instruction: Prepare bank reconciliation at December 31.
Bank Books
Balance 17,500 Balance 20,415
Deposits in transit 7,800 NSF checks (2500)
Outstanding checks (1500) Bank services charges (115)
Collection 6000
Ending Balance 23,800 23,800
Question 2:
Sigma Company’s bank statement shows a balance per bank $ 14,280 may 31,
2012. The balance of the cash in Sigma company books in the same date is $
13,319. The following reconciling items are determined:
1. Deposit in transit at May, 31 total $ 1,752 (received by the bank on June).
2. Outstanding checks at May 31 total $ 2,410
3. Error: a check was correctly paid by the bank for $ 352, dated May 10, cleared
by the bank on May 25 but was recorded by Sigma for $ 325.
4. Bank memoranda
a. NSF Checks from Copple Co. $ 175
b. Printing checks and other service charges were $ 50.
c. Collection of notes receivables $ 550 with $ 15 earned interests. The
bank charged $ 10 as collection fees.
Instructions:
Prepare bank reconciliation for Sigma Company at May 31.
Bank Books
Balance 14,280 Balance 13,319
+ Deposit in transit 1,752 - Error (27)
- Outstanding checks (2410) - NSF (175)
- service charges (50)
+ Collection 555
Balance 13,622 13,622
Question3
XYZ Company is closing its books and must prepare a bank reconciliation for
the following items:
Bank statement contains an ending balance of $300,000 on February 28,
2018, whereas the company’s ledger shows an ending balance of
$260,900
Bank statement contains a $100 service charge for operating the
account
Bank statement contains interest income of $20
XYZ issued checks of $50,000 that have not yet been cleared by the
bank
XYZ deposited $20,000 but this did not appear on the bank statement
A check for the amount of $470 issued to the office supplier was
misreported in the cash payments journal as $370.
A note receivable of $9,800 was collected by the bank.
A check of $520 deposited by the company has been charged back as
NSF.
Bank Books
300,0 260,9
Balance 00 Balance 00
Outstandin -
g checks 50000 Service charges -100
Deposit in
tran. 20000 interest income 20
Error -100
EFT (note
receivable)
collection 9800
NSF -520
270,0 270,0
Balance 00 Balance 00
Revision question:
Ogleby Boat Company's bank statement for the month of September showed a balance per bank
of $7,000. The company's Cash account in the general ledger had a balance of $5,459 at
September 30. Other information is as follows:
(1) Cash receipts for September 30 recorded on the company's books were $5,700 but this
amount does not appear on the bank statement.
(2) The bank statement shows a debit memorandum for $40 for check printing charges.
(3) Check No. 119 payable to Lann Company was recorded in the cash payments journal and
cleared the bank for $248. A review of the accounts payable subsidiary ledger shows a $36
credit balance in the account of Lann Company and that the payment to them should have
been for $284.
(4) The total amount of checks still outstanding at September 30 amounted to $6,000.
(5) Check No. 138 was correctly written and paid by the bank for $409. The cash payment
journal reflects an entry for Check No. 138 as a debit to Accounts Payable and a credit to
Cash in Bank for $490.
(6) The bank returned an NSF check from a customer for $360.
(7) The bank included a credit memorandum for $1,560 which represents collection of a
customer's note by the bank for the company; principal amount of the note was $1,500 and
interest was $60. Interest has not been accrued.
Instructions
(a) Prepare a bank reconciliation for Ogleby Boat Company at September 30.
Bank Books
Balance 7,000 Balance 5,459
1) Deposit in transit 5,700 2) Service charges (40)
3) NO ACTION XXX 5) Error 81
4) Outstanding checks (6,000) 6) NSF (360)
7) Bank collection 1560
Balance 6,700 Balance 6,700
Question:
ABC International is closing its books for the month ended April 30, which shows a cash balance
265,820. ABC's controller must prepare a bank reconciliation based on the following issues:
1. The bank statement contains an ending bank balance of $320,000.
2. The bank statement contains a $200 check printing charge for new checks that the company ordered.
3. The bank statement contains a $150 service charge for operating the bank account.
4. The bank statement rejects a deposit of $500 due to not sufficient funds.
5. The bank statement contains interest income of $30.
6. ABC issued $80,000 of checks that have not yet cleared the bank.
7. ABC deposited $25,000 of checks at month-end that were not deposited in time to appear on the bank
statement.
Bank Books
Balance (1) 320,000 Balance 265,820
(-) Outstanding checks (6) 80,000 (-) Service charges (2) 200
(+) Deposit in transit (7) 25000 (-) Service charges (3) 150
(-) NSF (4) 500
(+) Interest income (5) 30
Balance 265000 265000
