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Chapter 7: Question P7-12 (page 374)

(Petty Cash, Bank Reconciliation) Bill Jovi is reviewing the cash accounting for Nottleman, Inc., a local mailing service. Jovi鈥檚 review will focus on the petty cash account and the bank reconciliation for the month ended May 31, 2017. He has collected the following information from Nottleman鈥檚 bookkeeper for this task.

Petty Cash

1. The petty cash fund was established on May 10, 2017, in the amount of \(250.

2. Expenditures from the fund by the custodian as of May 31, 2017, were evidenced by approved receipts for the following.

Postage expenses

\)33.00

Mailing Labels and Other Supplies

65.00

I.O.U from employees

30.00

Shipping charges

57.45

Newspaper advertising

22.80

Miscellaneous expenses

15.35

On May 31, 2017, the petty cash fund was replenished and increased to \(300; currency and coin in the fund at that time totaled \)26.40.

Bank Reconciliation

THIRD NATIONAL BANK

BANK STATEMENT

Disbursements

Receipts

Balance

Balance 1 May, 2017

\(8,769

Deposits

\)28,000

Note payment direct from customer (\(30)

930

Check clearing during May

\)31,150

Bank service charges

27

Balance 31 May, 2017

6,522

Nottleman鈥檚 Cash Account

Balance 1 May 2017

\(8,850

Deposit during May 2017

31,000

Checks written during May 2017

(31,835)

Deposits in transit are determined to be \)3,000, and checks outstanding at May 31 total \(850. Cash on hand (besides petty cash) at May 31, 2017, is \)246.

Instructions

(a) Prepare the journal entries to record the transactions related to the petty cash fund for May.

(b) Prepare a bank reconciliation dated May 31, 2017, proceeding to a correct cash balance, and prepare the journal entries necessary to make the books correct and complete.

(c) What amount of cash should be reported in the May 31, 2017, balance sheet?

Short Answer

Expert verified

$9,218 will be reported as cash in the company鈥檚 balance sheet.

Step by step solution

01

Definition of Petty Cash

A separate account maintained by a business entity for funding daily expenses of the business with small amounts such as refreshment, postage, and stationery is known as petty cash.

02

Journal entries relating to petty cash

Date

Accounts and Explanation

Debit $

Credit $

10 May 2017

Petty Cash

$250

Cash

$250

31 May 2017

Postage expenses

$33.00

Mailing Labels and Other Supplies

$65.00

I.O.U from employees

$30.00

Shipping charges

$57.45

Newspaper advertising

$22.80

Miscellaneous expenses

$15.35

Cash

$223.60

31 May 2017

Petty Cash

$50

Cash

$50

03

Bank Reconciliation Statement

Particular

Amount $

Amount $

Balance as per bank

$6,522

Add:

Cash in hand

$246

Deposit in transit

3,000

3,246

Less: Outstanding checks

(850)

$8,918

Balance as per books$8,850+$31,000-$31,835

8,015

Add: Note receivable

930

Less: Bank charges

(27)

Correct cash balance

$8918

Journal entries:

Date

Accounts and Explanation

Debit $

Credit $

31 May 2017

Cash

$930

Note Receivable

$900

Interest revenue

$30

31 May 2017

Bank charges

$27

Cash

$27

04

Cash to be Reported on the Balance Sheet

Particular

Amount $

Correct cash balance

$8,918

Add: petty cash

300

Cash balance reported on the balance sheet

$9,218

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Most popular questions from this chapter

Horton Corporation is preparing a bank reconciliation and has identified the following potential reconciling items. For each item, indicate if it is (1) added to balance per bank statement, (2) deducted from balance per bank statement, (3) added to balance per books, or (4) deducted from balance per books.

(a) Deposit in transit \(5,500.

(d) Outstanding checks \)7,422.

(b) Bank service charges \(25.

(e) NSF check returned \)377.

(c) Interest credited to Horton鈥檚 account $31.

Your accounts receivable clerk, Mitra Adams, to whom you pay a salary of \(1,500 per month, has just purchased a new Acura. You decide to test the accuracy of the accounts receivable balance of \)82,000 as shown in the ledger.

The following information is available for your first year in business.

(1) Collection from customer $198,000.

(2) Merchandise purchased 320,000.

(3) Ending merchandise inventory by 90,000.

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Compute an estimate of the ending balance of accounts receivable from customers that should appear in the ledger and any apparent shortages. Assume that all sales are made on the account.

(Bank Reconciliation and Adjusting Entries) The cash account of Aguilar Co. showed a ledger balance of \(3,969.85 on June 30, 2017. The bank statement as of that date showed a balance of \)4,150. Upon comparing the statement with the cash records, the following facts were determined.

1. There were bank service charges for June of \(25.

2. A bank memo stated that Bao Dai鈥檚 note for \)1,200 and interest of \(36 had been collected on June 29, and the bank had made a charge of \)5.50 on the collection. (No entry had been made on Aguilar鈥檚 books when Bao Dai鈥檚 note was sent to the bank for collection.)

3. Receipts for June 30 for \(3,390 were not deposited until July 2.

4. Checks outstanding on June 30 totaled \)2,136.05.

5. The bank had charged the Aguilar Co.鈥檚 account for a customer鈥檚 uncollectible check amounting to \(253.20 on June 29.

6. A customer鈥檚 check for \)90 (as payment on the customer鈥檚 Accounts Receivable) had been entered as \(60 in the cash receipts journal by Aguilar on June 15.

7. Check no. 742 in the amount of \)491 had been entered in the cash journal as \(419, and check no. 747 in the amount of \)58.20 had been entered as $582. Both checks had been issued to pay for purchases and were payments on Aguilar鈥檚 Accounts Payable.

Instructions

(a) Prepare a bank reconciliation dated June 30, 2017, proceeding to a correct cash balance.

(b) Prepare any entries necessary to make the books correct and complete.

(Analysis of Receivables) Presented below is information for Jones Company.

1. Beginning-of-the-year Accounts Receivable balance was \(15,000.

2. Net sales (all on account) for the year were \)100,000. Jones does not offer cash discounts.

3. Collections on accounts receivable during the year were $70,000.

Instructions

(a) Prepare (summary) journal entries to record the items noted above.

(b) Compute Jones鈥檚 accounts receivable turnover and days to collect receivables for the year. The company does not believe it will have any bad debts.

(c) Use the turnover ratio computed in (b) to analyze Jones鈥檚 liquidity. The turnover ratio last year was 6.0

Computing Bad Debts and Preparing Journal Entries) The trial balance before adjustment of Taylor Swift Inc. shows the following balances.

Debit

Credit

Accounts Receivable

\(90,000

Allowance for Doubtful Accounts

1,750

Sales revenue (all on credit)

\)680,000

Instructions

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