Proof of Cash and extra bank reconciliation problems

Proof of Cash – expanded bank reconciliation includes proof of cash receipts and cash disbursements.

1. Data concerning the cash records of Arones Company for the months of November and December 20x1 are
shown below:

November 30 December 31

Book balance 11,200 ?

Book debits 63,800

Book credits 56,400

Bank balance 30,000 40,800

Bank debits ?

Bank credits 54,600

Notes collected by bank 4,500 6,000

Bank service charge 40 200

NSF checks 1,760 2,800

Overstatement of check in payment

of salaries 3,800 2,400

Deposit in transit 12,000 22,500

Outstanding checks 19,500 35,700

Deposit of 123 Corporation erroneously

credited to ABC Co.’s account 4,800 3,600

Requirement: Prepare the proof of cash.

Per books:

Nov. 30 Receipts Disbursements Dec. 31

Balance per books 11,200 63,800 56,400 18,600
Note collected by bank:
November 4,500 (4,500)
December 6,000 6,000
Bank service charges
November (40) (40)
December 200 (200)
NSF checks:
November (1,760) (1,760)
December 2,800 (2,800)
Book errors:
November 3,800 (3,800)
December (2,400) 2,400
Adjusted balances 17,700 61,500 55,200 24,000

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Proof of Cash and extra bank reconciliation problems

Per bank:
Nov. 30 Receipts Disbursements Dec. 31
Balance per bank 30,000 54,600 43,800 40,800
Deposits in transit
November 12,000 (12,000)
December 22,500 22,500
Outstanding checks
November (19,500) (19,500)
December 35,700 (35,700)
Bank errors:
November (4,800) (4,800)
December (3,600) (3,600)
Adjusted balances 17,700 61,500 55,200 24,000

Sample MULTIPLE CHOICE QUESTIONS FOR PROOF OF CASH

1. Lira Company prepared the following bank reconciliation dated June 30 of the current year.

Balance per bank 9,800,000

Deposits in transit 400,000

Outstanding checks (1,400,000)

Balance per book 8,800,000

There were total deposits of P6,500,000 and charges for disbursements of P9,000,000 for July per bank statement.
All reconciliation items on June 30 cleared the bank on July 31. Checks outstanding amounted to P1,000,000 and
deposits in transit totaled P1,200,000 on July 31.

. What is the amount of cash disbursements per book in July?

A. 7,600,000 C. 8,600,000

B. 8,400,000 D. 9,400,000

. 2. What is the adjusted cash in bank on July 31?

A. 6,300,000 C. 7,300,000

B. 6,500,000 D. 7,500,000

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Proof of Cash and extra bank reconciliation problems

Alternative solution :Discussion T-account

BASIC Formula in finding for Ending balances of DIT and OC

Book debits = are items which results to an increase in the cash book balance.

Book credits= are items or disbursements which result to a decrease in the cash book balance.

Bank credits= addition to the bank balance of the depositor.

Bank debits= disbursements/deduction to the balance of the depositor.

*Observe that book and bank has the opposite treatment. Book debits and bank credits are additions to cash
balance. Book credits and bank debits are deductions from the cash balance.

*Deposit in transit, Ending ?

Deposit in transit, beginning xx
Book debits -current month xx
Bank credits- current month (xx)
Deposit in transit, Ending xx

*Outstanding Checks, Ending ?

Outstanding check, beginning xx
Book credits -current month xx
Bank debits- current month (xx)
Outstanding check, Ending xx

Book Solution for No. 1

Answer is (C).

Trust and surrender.

Proof of Cash and extra bank reconciliation problems
Bank disbursements for July 9,000,000

Outstanding checks - June 30 (1,400,000)

Outstanding checks - July 31 1,000,000

Book disbursements for July 8,600,000

. Solution for No. 2

Answer is (D).

Balance per bank - July 31 (9,800,000 + 6,500,000 - 9,000,000) 7,300,000

Deposits in transit - July 31 1,200,000

Outstanding checks - July 31 (1,000,000)

Adjusted cash in bank - July 31 7,500,000

2. Bayside Company provided the following information for October and November 2014:

Checks and charges recorded by bank in November, including

a November service charge of P4,000 and NSF check of P20,000 550,000

Service charge made by bank in October and

recorded by depositor in November 2,000

Total credits to cash in all journals during November 620,000

Customer NSF check returned in October and redeposited in November

(no entry made by depositor in either October or November) 40,000

Outstanding checks on October 31, 2014 that cleared in November 230,000

What is the amount of outstanding checks on November 30,2014?

A. 282,000 C. 302,000

B. 300,000 D. 322,000

Solution:

Answer is (D)

Checks and charges by bank in November 550,000

Service charge in November ( 4,000)

NSF check in November ( 20,000)

Checks paid by bank in November 526,000

Total credits to cash in all journals during November 620,000

Trust and surrender.

Proof of Cash and extra bank reconciliation problems
Service charge in October recorded in November ( 2,000)

Checks issued by depositor in November 618,000

Outstanding checks - October 31 230,000

Total checks to be paid by bank 848,000

Checks paid by bank in November (526,000)

Outstanding checks - November 30 322,000

The customer NSF check in October and redeposited in November is ignored in the computation because no
entry was made by depositor in either October or November.

Trust and surrender.

Proof of Cash and extra bank reconciliation problems

APPENDIX. Problem and solution

EXTRA KNOWLEDGE

Problem 1

1. Entity A is preparing its March 31, 20x1 bank reconciliation. The following information was determined:

a. The cash balance per books is ₱280,000 while the cash balance per bank statement is ₱320,000.
b. Credit memo – ₱20,000
c. Debit memo – ₱15,000
d. Deposits in transit – ₱75,000
e. Outstanding checks – ₱25,000
f. The disbursements per books are overstated by ₱45,000.
g. The bank debits are understated by ₱40,000.

Entity A

Bank Reconciliation Statement

March 31, 20x1

Bal. per books, end. 280,000 Bal. per bank, end. 320,000
Add: CM 20,000 Add: DIT 75,000
Less: DM (15,000) Less: OC (25,000)
Add/Less: Book errors: Add/Less: Bank errors:
Understatement 45,000 Overstatement (40,000)
Adjusted balance 330,000 Adjusted balance 330,000

Problem 2

Entity A is preparing its February 28, 20x1 bank reconciliation statement. The following information was
determined:
 Cash balance per accounting books, Feb. 28, 20x1 ₱260,000
 Cash balance per bank statement, Feb. 28, 20x1 ₱205,000

When investigating the difference, the accountant determined the following:

a. A customer deposited ₱30,000 to Entity A’s bank account as payment for an account receivable. This is not
yet recorded in the books of accounts.
b. A ₱102,500 check deposited by Entity A during the month is not yet credited to Entity A’s account.
c. A check drawn in the amount of ₱22,500 is not yet presented to the bank for payment.
d. The bank returned a check deposit amounting to ₱5,000 because of insufficiency in the funds of the drawer.
The check was received from a customer as payment for accounts receivable.

Requirements:
a. Prepare the bank reconciliation.
b. Prepare the adjusting (reconciling) entries.

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Proof of Cash and extra bank reconciliation problems

Requirement (a): Bank reconciliation

Bal. per books, end. ₱260,000 Bal. per bank, end. ₱205,000
Add: CM 30,000 Add: DIT 102,500
Less: DM (5,000) Less: OC (22,500)
Add/Less: Book errors Add/Less: Bank errors
Adjusted balance ₱285,000 Adjusted balance ₱285,000

Requirement (b): Adjusting (Reconciling) entries

AJE (c) Cash 30,000

Accounts receivable 30,000

to record the collection of accounts receivable

AJE (d) Accounts receivable 5,000

Cash 5,000

to revert the NSF check back to accounts receivable

-You did it! -

/MAP 

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