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Chapter 7: Q13RQ (page 411)
What are two common methods used when accepting deposits for credit card and debit card transactions?
The net and gross methods are used to accept the deposits of credit card and debit card transactions.
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Preparing a bank reconciliation and journal entries
The December cash records of Davidson Insurance follow:
Davidson鈥檚 Cash account shows a balance of \(17,450 at December 31. On December
31, Davidson Insurance received the following bank statement:
Additional data for the bank reconciliation follow:
a. The EFT credit was a receipt of rent. The EFT debit was an insurance payment.
b. The NSF check was received from a customer.
c. The \)1,400 bank collection was for a note receivable.
d. The correct amount of check no. 1419, for rent expense, is \(1,930. Davidson鈥檚
controller mistakenly recorded the check for \)1,390.
Requirements
1. Prepare the bank reconciliation of Davidson Insurance at December 31, 2018.
2. Journalize any required entries from the bank reconciliation.
How do businesses control cash receipts by mail?
Classifying bank reconciliation items
The following items could appear on a bank reconciliation:
a. Outstanding checks, \(670.
b. Deposits in transit, \)1,500.
c. NSF check from customer, no. 548, for \(175.
d. Bank collection of note receivable of \)800, and interest of \(80.
e. Interest earned on bank balance, \)20.
f. Service charge, \(10.
g. The business credited Cash for \)200. The correct amount was \(2,000.
h. The bank incorrectly decreased the business鈥檚 account by \)350 for a check written
by another business.
Classify each item as (1) an addition to the book balance, (2) a subtraction from the
book balance, (3) an addition to the bank balance, or (4) a subtraction from the bank
balance.
Preparing a bank reconciliation
The Cash account of Guard Dog Security Systems reported a balance of \(2,540 at December 31, 2018. There were outstanding checks totaling \)400 and a December 31 deposit in transit of \(100. The bank statement, which came from Park Cities Bank, listed the December 31 balance of \)3,340. Included in the bank balance was a collection of \(510 on account from Brendan Ballou, a Guard Dog customer who pays the bank directly. The bank statement also shows a \)30 service charge and $20 of interest revenue that Guard Dog earned on its bank balance. Prepare Guard Dog鈥檚 bank reconciliation for December 31.
Question: For each of the following items, determine whether the item would be:
a. added to the bank balance
b. subtracted from the bank balance
c. added to the book balance
d. subtracted from the book balance
11. Interest revenue earned
12. NSF check
13. Deposit in transit
14. Service charge
15. Outstanding check
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