1. Chapter 9
Skyline College

2. Journal Flow Chart Does the transaction involve cash? YES NO
Was cash RECEIVED?
Was inventory PURCHASED?
YES NO
YES NO
Record the
transaction in
the CASH
RECEIPTS
(CRs) Journal
Record the
transaction in
the CASH
DISBURSEMENTS
(CDs) Journal
Record the
purchase in
the
PURCHASES
Journal (PJ)
Was it a credit SALE?
YES NO
Use the CRs and CDs Journals to prepare
the monthly Bank Reconcilation
Record the
Transaction
in the
SALES
Journal (SJ)
Record the
Transaction
In the
GENERAL
Journal (GJ)

3. The Cash Receipts Journal
A cash receipts journal is a special journal used to record and post transactions involving the receipt of cash.
The Cash Receipts Journal is another special journal that is used to simplify the recording of transactions and eliminates repetition in posting.

4. Cash Sales and Sales Taxes
Consider the cash sales entries for January 8 in the cash receipts journal for The Style Shop.
Let’s record some cash sales transactions into the cash receipts journal.

5. CASH RECEIPTS JOURNAL PAGE 18
Cash Sales
360.00
4,500.00
4,860.00
Confirm that total credits equal total debits.

6. Cash Short Over Occasionally errors occur when making change.
When errors happen, the cash in the cash register is either more or less than the cash listed on the audit tape.
When cash in the register is more than the audit tape, cash is over.
Sometimes there is shortage or overage of cash collected. This needs to be accounted for during the month.
When the cash in the register is less than the audit tape, cash is short.

7. Cash sales with cash short.
CASH RECEIPTS JOURNAL PAGE 1 15
Cash Sales
384.00
4,800.00
Cash Short/Over
18.00
5,166.00
$384 + $4,800 = $5,184
Debits are not the normal balance of the Other Accounts Credit column, so the debit entry is circled.
Debits are not the normal balance of the Other Accounts Credit column, so the debit entry is circled.

8. Cash Discounts on Sales
The Style Shop does not offer cash discounts.
However, many wholesale businesses offer cash discounts to customers who pay within a certain time period. These are sales discounts.
Businesses with many sales discounts add a Sales Discounts Debit column to the cash receipts journal.
Some businesses offer a cash discount for early payment (which was covered in the last chapter.) If you are the seller and your customer took advantage of early payment discount terms, then the amount of the discount that is taken is called a Sales Discount (not a Purchase Discount).

9. Additional Investment by the Owner
CASH RECEIPTS JOURNAL PAGE 1 12
Investment
Amos, Capital
15,000.00
The account name and amount are entered in the Other Accounts Credit section and the debit is entered in the Cash Debit column.
M. Amos, Capital is credited and Cash is debited for the amount of the investment.

10. Receipt of a Cash Refund
CASH RECEIPTS JOURNAL PAGE 1
Cash Refund
Supplies
75.00
The name and amount are entered in the Other Accounts Credit section. The debit is entered in the Cash Debit column.
Supplies is credited and Cash is debited.

11. Promissory Note
A promissory note is a written promise to pay a specified amount of money on a certain date.
Sometimes promissory notes are used to replace an accounts receivable balance when the account is overdue.
A promissory note is a written promise to pay a specified amount of money (usually principal and interest) on a certain date.

12. On July 31 The Style Shop accepted a six-month promissory note from Stacee Fairley, who owed $800 on account.
$ July 31, 20--
Six months AFTER DATE I PROMISE TO PAY
TO THE ORDER OF The Style Shop
Eight hundred and no/ DOLLARS
-PAYABLE AT First Texas Bank
VALUE RECEIVED with interest at 9%
NO DUE January 31, Stacee Fairley
Here is a promissory note accepted from one of its customers. The note is due in six months and the customer will have to pay interest at the rate of 9% on the amount of $800.

13. On July 31 The Style Shop recorded a general journal entry to increase notes receivable and to decrease accounts receivable for $800.
The asset account, Notes Receivable, was debited. The Accounts Receivable account was credited.
GENERAL JOURNAL Page
DATE DESCRIPTION POST DEBIT CREDIT
REF.
20--
July Notes Receivable
Accounts Rec./Stacee Fairley
Received a 6-month, 9% note
from Stacee Fairley to replace
open account
This is the journal entry in the general journal to record receipt of the note.

14. Interest rate = 9% per year Time = six months
Interest amount $800 x 9% x 6/12 = $36
P x i x t
Total amount with interest = $836
($800 + $36)
Amount owed (principle) = $800
The interest on the note will be $36 and so the total amount due upon maturity of the note will be $836.

15. Collection of a Promissory Note and Interest
CASH RECEIPTS JOURNAL PAGE 1
The note and the interest are recorded in the Other Accounts Credit section.
The receipt of the principal amount of the note plus the interest can be recorded in the cash receipts journal. Notes Receivable is credited for $800. Interest Income is credited for $36 and Cash is debited for $836. 31
Collection of
Notes Receivable
800.00
note/S. Fairley
Interest Income
36.00
836.00

16. Posting the Column Totals
Posting the Cash Receipts Journal
Posting the Column Totals
At the end of the month, the cash receipts journal is totaled and the equality of debits and credits is proved.
Column totals are posted at the end of the month.

17. The column totals are posted to the general ledger.
CASH RECEIPTS JOURNAL PAGE 1
The total of the $2,133 is posted at the end of the month to the Accounts Receivable account in the general ledger. Sales Tax Payable, Sales and Cash column totals are also posted at the end of the month.
2, , , ,909 = 42,342

18. The amounts in the Other Accounts Credit section are posted.
CASH RECEIPTS JOURNAL PAGE 1
The (X) indicates that the individual amounts are posted, and not the total.
Whenever an entry is made in the Other Accounts Credit column, the transaction must be posted to the General Ledger on the same day so no posting of the column total is necessary at the end of the month.

19. Posting to the Accounts Receivable Ledger
Post entries from the Accounts Receivable Credit column to the customers’ accounts in the accounts receivable subsidiary ledger daily.
Subsidiary ledgers must be updated on a daily basis.
On January 7, $432 was posted to Roy Anderson’s account in the accounts receivable subsidiary ledger.

20. CASH RECEIPTS JOURNAL PAGE 1
SALES
DATE DESCRIPTION POST. ACCOUNTS TAX SALES OTHER ACCOUNTS CREDIT CASH
REF RECEIVABLE PAYABLE CREDIT ACCOUNT TITLE POST. AMT. DEBIT
CREDIT CREDIT REF.
20--
Jan. 7 R. Anderson 
The “CR1” indicates that the transaction appears on page 1 of the cash receipts journal.
Name Roy Anderson Terms n/30
Address S. Hampton Rd, Dallas, Texas
DATE DESCRIPTION POST DEBIT CREDIT BALANCE
REF.
20--
Jan Balance 
3 Sales Slip S CR
31 Sales Slip S
Notice that CR1 indicates that the transaction appears on page 1 of the cash receipts journal.

21. Advantages of the Cash Receipts Journal
Saves time and effort when recording and posting cash receipts
Allows for the division of work among the accounting staff
Strengthens the audit trail by recording all cash receipts transactions in one place
It saves time, effort, and recording space, permits the division of labor and strengthens the audit trail.

22. The Cash Payments Journal
A cash payments journal is a special journal used to record transactions involving the payment of cash.
The Cash Payments Journal is used to simplify the recording of transactions and eliminates repetition in posting.

23. Journal Flow Chart Does the transaction involve cash? YES NO
Was cash RECEIVED?
Was inventory PURCHASED?
YES NO
YES NO
Record the
transaction in
the CASH
RECEIPTS
(CRs) Journal
Record the
transaction in
the CASH
DISBURSEMENTS
(CDs) Journal
Record the
purchase in
the
PURCHASES
Journal (PJ)
Was it a credit SALE?
YES NO
Use the CRs and CDs Journals to prepare
the monthly Bank Reconcilation
Record the
Transaction
in the
SALES
Journal (SJ)
Record the
Transaction
In the
GENERAL
Journal (GJ)

24. Payments for Expenses
Businesses write checks for a variety of expenses each month.
In January The Style Shop issued checks for rent, electricity, telephone service, advertising, and salaries.
Consider the January 3 entry for rent expense.
Let’s record the cash payment for rent expense.

25. The credit is entered in the Cash Credit column.
20--
Jan. 3
111
January rent
Rent Expense
1500
1500
The account name and amount are entered in the Other Accounts Debit section.
Rent Expense is debited and Cash is credited.
The credit is entered in the Cash Credit column.

26. Payments on Account
Merchandising businesses usually make numerous payments on account for goods that were purchased on credit.
Consider the January 27 entry for International Apparel Mart.
The most common cash uses will be cash payments to vendors (a credit to accounts payable).

27. 27
122
International Apparel Mart
Accounts Payable is debited and Cash is credited.
If there is no cash discount, the entry in the cash payments journal is a debit to Accounts Payable and a credit to Cash.

28. Purchases Discounts
Purchases Discounts is a contra cost of goods sold account.
For an example of a payment with a discount, refer to the January 13 entry for Fashion Designs.
Purchase Discounts is a contra-cost of goods sold account.

29. Debit Accounts Payable for the invoice amount, $2865
Credit Purchases Discounts for the amount of the discount, $57.30.
The amount of the discount is $ Purchase Discounts is credited for this amount. The net amount of the check, less the discount, is $2,807.70
Credit Cash for the amount of cash paid, $

30. Cash Purchases of Equipment and Supplies
Businesses use cash to purchase equipment and other assets.
On January 10 The Style Shop issued a check for store fixtures.
Let’s record the issuance of a check to purchase equipment.

31. The credit is recorded in the Cash Credit column.10
112
Store fixtures
Store Equip.
The account name and amount appear in the Other Accounts Debit section.
Store Equipment is debited for $2,400, and Cash is credited for $2,400.
The credit is recorded in the Cash Credit column.

32. Payment of Taxes
Retail businesses collect sales tax from their customers. Periodically the sales tax is remitted to the taxing authority.
Consider the entry on January 11.
Payment of Sales Taxes to the appropriate government authority is made on January 11.

33. The Style Shop issued a check for $749 to pay the December sales tax.11
113
Tax remittance
Sales Tax Pay.
756.00
756.00
Notice that the account name and amount appear in the Other Accounts Debit section.
Sales Tax Payable is debited for $756 and Cash is credited for $756.
The credit is entered in the Cash Credit column.

34. Cash Purchases of Merchandise
Although most merchandising businesses buy their goods on credit, occasionally purchases are made for cash.
Consider the January 31 entry for the purchase of goods.
Let’s record the purchase of merchandise for cash.

35. Cash purchases are recorded in the cash payments journal.
Purchases is debited for $3,200 and Cash is credited for $3,200. 31
126
Purchase of goods
Purchases
Cash purchases are recorded in the cash payments journal.

36. The credit is in the Cash Credit column.
Freight In
175.00
175.00
Freight In is debited for $175 and Cash is credited for $175
Payment of “freight-in” and amount appear in the Other Accounts Debit section.
The credit is in the Cash Credit column.

37. Cash Payments Journal
The Style Shop issued a check for $ to a customer who returned a defective item.
Sales Returns and Allowances is debited for $160, Sales Tax Payable is debited for $12.80 and Cash is credited for $ 31
128
Cash refund
Sales Ret. & Allow.
160.00
Sales Tax Payable
12.80
172.80

38. Payment of a Promissory Note and Interest
A promissory note can be issued to settle an overdue account or to obtain goods, equipment, or other property.
Remember, a promissory note can be issued to get an extension of time to pay for an open accounts payable.

39. The note had an interest rate of 10 percent.
On August 2, The Style Shop issued a six-month promissory note for $6,000 to purchase store fixtures from Metroplex Equipment Company.
The note had an interest rate of 10 percent.
GENERAL JOURNAL Page
DATE DESCRIPTION POST DEBIT CREDIT
REF.
20--
Aug Store Equipment ,000
Notes Payable ,000
Issued a 6-month, 10% note
to Metroplex Equipment Company
for purchase of new store fixtures
Here was the journal entry to record the issuance of a note for the purchase of Store Equipment.

40. On January 31 The Style Shop issued a check for $6,300 in payment of the note ($6,000) and the interest ($300).
P x i x t = interest
$6,000 x 10% x 6/12 = $300
Let’s record the payment of the note and interest at maturity.

41. Debit Notes Payable for $6,000
Cash Payments Journal
Debit Notes Payable for $6,000
Debit Interest Expense for $300
Notes Payable is debited for $6,000, Interest Expense is debited for $300, and Cash is credited for $6,300. 31
128
Cash refund
Sales Ret. & Allow.
160.00
Sales Tax Payable
12.80
172.80 31
129
Note paid to Metroplex
Notes Payable
Equipment Company
Interest Exp.
300.00
Credit Cash for $6,300

42. Posting from the Cash Payments Journal
During the month, the amounts recorded in the Accounts Payable Debit column are posted to the individual accounts in the accounts payable subsidiary ledger.
The amounts in the Other Accounts Debit column are also posted individually to the general ledger accounts during the month.
Update subsidiary accounts on a daily basis as well as any accounts that were debited in the Other Accounts Debit column.
Consider the January 3 entry in the cash payments journal that was posted to Rent Expense account.

43. CASH PAYMENTS JOURNAL PAGE 1
ACCOUNT Rent Expense ACCOUNT NO
DATE DESCRIPTION POST DEBIT CREDIT BALANCE
REF DEBIT CREDIT
20--
Jan CP
CASH PAYMENTS JOURNAL PAGE 1
ACCOUNTS PURCH.
DATE CK. EXPLANATION POST. PAYABLE OTHER ACCOUNTS DEBIT DISCOUNT CASH
NO REF DEBIT ACCOUNT TITLE POST. AMOUNT CREDIT CREDIT
REF.
Jan January rent Rent Expense
The “CP1” indicates that the entry is recorded on page 1 of the cash payments journal. Notice also that the cash payment was posted to the Rent Expense account on January 3.
The “CP1” indicates that the entry is recorded on page 1 of the cash payments journal.

44. Posting to the Accounts Payable Ledger
Post entries from the Accounts Payable Debit column of the cash payments journal to the vendor accounts in the accounts payable subsidiary ledger daily.
Subsidiary accounts are posted on a daily basis.
On January 13, $2,865 was posted to Fashion Designs account in the subsidiary ledger.

45. Name Fashion Designs Terms 2/10, n/30
The amount of $2,865 was posted to Fashion Designs account in the subsidiary ledger.
Name Fashion Designs Terms 2/10, n/30
Address Belt Lane, Dallas, Texas,
DATE DESCRIPTION POST DEBIT CREDIT BALANCE
REF.
20--
Jan Balance  ,200
3 Invoice 5819,12/29/ P ,065
CP , ,200
CP , ,065
The amount of $2,865 was posted to Fashion Designs account in the subsidiary ledger.
Page
303

46. Advantages of the Cash Payments Journal
Saves time and effort when recording and posting cash payments
Allows for a division of labor among the accounting staff
Improves the audit trail because all cash payments are recorded in one place and listed by check number
Advantages to be gained by using the cash payments journal include: speed, simplicity, division of labor, and an improved audit trail.

47. The Petty Cash Fund
Most businesses use a petty cash fund to pay for small expenditures
The amount of the petty cash fund depends on the needs of the business.
Petty cash funds are set up to make payments for purchases of small items like postage or COD items.
Usually the office manager, cashier, or assistant is in charge of the petty cash fund.

48. Establishing the Fund
The Style Shop’s cashier is responsible for petty cash. The Style Shop wrote a $175 check to the cashier, who cashed the check and put the currency in a locked cash box.
The cashier of The Style Shop is responsible for the petty cash in the petty cash box.

49. Debit Petty Cash Fund in the other Accounts Debit section and enter the credit in the Cash Credit column.
Here is the journal entry to establish the petty cash fund. Petty Cash Fund is debited and Cash is credited for $175.

50. Petty Cash Voucher
A petty cash voucher is a form used to record the payments made from a petty cash fund.
The person receiving the funds signs the voucher.
A voucher is used for all disbursements out of the fund.
The person who controls the petty cash fund initials the voucher.

51. A petty cash voucher shows:
NOTE: This form must be computer processed or filled out in black ink.
DESCRIPTION OF EXPENDITURE ACCOUNT TO BE CHARGED AMOUNT
Office Supplies Supplies
Total
RECEIVED
THE SUM OF Sixteen DOLLARS AND /100 CENTS
SIGNED L.T. Green DATE 2/3/-- APPROVED BY M.A. DATE 2/3/--
Metroplex Office Supply Co.
A pre-numbered voucher is used for good internal control.

52. Replenishing the Fund
The total vouchers plus the cash on hand should always equal the amount of the fund–$175 for The Style Shop.
Replenish the petty cash fund at the end of each month or sooner if the fund is low.
The fund MUST be replenished at the end of the period.
The total vouchers plus the cash on hand should always equal the amount of the fund. The fund should be “replenished” at the end of each month or sooner if the fund is low.

53. The following internal control procedures apply to petty cash:
Use the petty cash fund only for small payments that cannot conveniently be made by check.
Limit the amount set aside for petty cash to the approximate amount needed to cover one month's payments from the fund.
Write petty cash fund checks to the person in charge of the fund, not to the order of "Cash."
Internal controls for petty cash include using only for small payments, limiting the amount, not writing checks to “Cash.”

54. The following internal control procedures apply to petty cash:
Assign one person to control the petty cash fund. This person has sole control of the money and is the only one authorized to make payments from the fund.
5. Keep petty cash in a safe, a locked cash box, or a locked drawer.
6. Obtain a petty cash voucher for each payment. The voucher should be signed by the person who receives the money and should show the payment details. This provides an audit trail for the fund.
Other internal control procedures include: assigning it as one person’s responsibility, keeping cash secure, and obtaining vouchers for payment to provide an audit trail.

55. Internal Control over Cash
The internal control over cash should be tailored to the needs of a business.
Accountants play a vital role in designing, establishing, and monitoring the cash control system.
Accountants play a vital role in designing, establishing, and monitoring the cash control system.

56. Essential Cash Receipt Controls
Have only designated employees receive and handle cash. In some businesses employees handling cash are bonded.
Bonding is the process by which will insure the business against losses through employee theft or mishandling of funds.
Only designated employees receive and handle cash.

57. Essential Cash Receipt Controls
Keep cash receipts in a cash register, a locked cash drawer, or a safe while they are on the premises.
3. Make a record of all cash receipts as the funds come into the business.
4. Check the funds to be deposited against the record made when the cash was received. The employee who checks the deposit is someone other than the one who receives or records the cash.
Additional cash receipt controls include keeping receipts in a cash register, making a record of all receipts, and checking the funds deposited against the record made when cash was received.

58. Essential Cash Receipt Controls
Deposit cash receipts in the bank promptly. Deposit the funds intact. The person who makes the bank deposit is someone other than the one who receives and records the funds.
Enter cash receipt transactions in the accounting records promptly. The person who records cash receipts is not the one who receives or deposits the funds.
Have the monthly bank statement sent to and reconciled by someone other than the employees who handle, record, and deposit the funds.
Other controls also include depositing receipt promptly and entering receipt transactions promptly.

59. Essential Cash Payment Controls
Make all payments by check except for payments from special purpose cash funds such as a petty cash fund.
Issue checks only with an approved bill, invoice, or other document that describes the reason for the payment.
Have only designated personnel approve bills and invoices.
Have checks prepared and recorded in the checkbook or check register by someone other than the person who approves the payments.
Here are some additional controls to protect the use of cash.

60. Essential Cash Payment Controls
Have still another person sign and mail the checks to creditors.
Use prenumbered check forms.
During the bank reconciliation process, compare the canceled checks to the checkbook or check register. The person responsible for this should be someone other than the person who prepares or records the checks.
Enter promptly in the accounting records all cash payment transactions. The person who records cash payments should not be the one who approves payments or the one who writes the checks.
And here are some more controls.

61. Bank Statement First Texas National Bank The Style Shop
Dallas, TX
12,025.50
First Texas National Bank
The codes at the bottom of a bank statement help the business interpret increases and decreases in the bank account.

62. Bank Reconciliation Statement
A bank reconciliation statement is a statement that accounts for all differences between the balance on the bank statement and the book balance of cash.
Because there is usually a difference between the ending bank statement balance and the checkbook balance the bank statement must be reconciled to bring the two balances into agreement.

63. A credit memorandum is a form that explains any addition, other than a deposit, to a checking account.
A debit memorandum is a form that explains any deduction, other than a check, from a checking account.
A credit memorandum is a form that explains any addition, other than a deposit, to a checking account like interest earned during the month.

64. A dishonored check is a check returned to the depositor unpaid because of insufficient funds in the drawer’s account. It is also called an NSF check.
A service charge is a fee charged by a bank to cover the costs of maintaining accounts and providing services.
An NSF check causes a reduction in the bank statement balance.

65. The Bank Reconciliation Process: An Illustration
When the bank statement is received, it is reconciled with the financial records of the business.
The ending bank balance on January 31 was $21,
Let’s reconcile The Style Shop’s bank statement.
On January 31 the Cash account, called the
book balance of cash, is $14,

66. The ending cash balance according to the bank is $21,838.50.
Bank Statement
First Dallas National Bank
The Style Shop
Dallas, TX
12,025.50
The ending cash balance according to the bank is $21,
The ending cash balance according to the bank is $21,
21,838.50

67. Sometimes the difference between the bank balance and the book balance is due to errors.
Errors made by banks
Errors made by businesses
Arithmetic errors
Arithmetic errors
Giving credit to the wrong depositor
Not recording a check or deposit
Charging a check against the wrong account
Recording a check or deposit for the wrong amount
The bank reconciliation reconciles the two balances. Sometimes the difference between the bank balance and the book balance is due to errors.
Many banks require that errors in the bank statement be reported within a short period of time, usually 10 days.

68. Other than errors, there are four reasons why the book balance of cash may not agree with the balance on the bank statement.
1. Outstanding checks.
2. Deposit in transit.
3. Service charges and other deductions not recorded in the business records.
4. Deposits, such as the collection of promissory notes, not recorded in the business records.
Other than errors, there are four reasons why the book balance of cash may not agree with the balance on the bank statement.

69. A deposit in transit is a deposit that is recorded in the cash receipts journal but that reaches the bank too late to be shown on the monthly bank statement.
Outstanding checks are checks that have been recorded in the cash payments journal but have not yet been paid by the bank.
Outstanding checks are checks that have been recorded in the cash payments journal but have not yet been paid by the bank.

70. Bank statement balance
Format of a bank reconciliation statement
First Section
Second Section =
Bank statement balance
Book balance
+ deposits in transit
+ deposits not recorded
– outstanding checks
– deductions
Here is the format of a typical bank reconciliation.
+ or – bank errors
+ or – errors in books
Adjusted bank balance =
Adjusted book balance

71. Steps to reconcile bank balance:
First Section
Enter the bank balance on the bank statement.
Compare the deposits in the checkbook with the deposits on the bank statement.
List the outstanding checks.
List any bank errors.
Compute the adjusted bank balance.
Let’s prepare the first section. First, enter the end of month bank statement balance listed on the bank statement.

72. Step 1: Enter the balance on the bank statement, $21,838.50
The Style Shop
Bank statement balance
21,838.50
Step 1: Enter the balance on the bank statement, $21,838.50
The bank statement balance was $21,838.50

73. The Style Shop
Bank statement balance
21,838.50
Additions:
Deposit of January 31 in transit
5,940
Step 2: Compare the deposits in the checkbook with the deposits on the bank statement.
On January 31 receipts of $5,940 were placed in the bank's night deposit box.
Next, add a deposit in transit of $5,940.
The bank recorded the deposit on February 1. The deposit will appear on the February bank statement.

74. The Style Shop
Bank statement balance
21,838.50
Additions:
Deposit of January 31 in transit
5,940
Deductions for outstanding checks:
Check 124 of January 31
565
Check 125 of January 31
4,950
Check 126 of January 31
3,200
Check 127 of January 31
Check 128 of January 31
Check 129 of January 31
Check 130 of January 31
175
172.80
6,300
Total outstanding checks
Subtract out all outstanding checks.
15,537.80
Step 3: List the outstanding checks. The Style Shop has seven outstanding checks totaling $15,

75. A $1,600 check was incorrectly deducted from The Style Shop’s account.
Bank statement balance
21,838.50
Additions:
Deposit of January 31 in transit
5,940
Check incorrectly charged to account
1,600
7,540
29,378.50
Deductions for outstanding checks:
Check 124 of January 31
565
Check 125 of January 31
4,950
Check 126 of January 31
3,200
Check 127 of January 31
Check 128 of January 31
Check 129 of January 31
Check 130 of January 31
175
172.80
6,300
Total outstanding checks
Step 4: List any bank errors.
Add back a check which was incorrectly deducted from the account.
15,537.80
A $1,600 check was incorrectly deducted from The Style Shop’s account.

76. Step 5: Compute the adjusted bank balance.
The Style Shop
Bank statement balance
21,838.50
Additions:
Deposit of January 31 in transit
5,940
Check incorrectly charged to account
1,600
7,540
29,378.50
Deductions for outstanding checks:
Check 124 of January 31
565
Check 125 of January 31
4,950
Check 126 of January 31
3,200
Check 127 of January 31
Check 128 of January 31
Check 129 of January 31
Check 130 of January 31
175
172.80
6,300
Total outstanding checks
Compute the adjusted bank balance.
15,537.80
Adjusted bank balance
13,840.70
Step 5: Compute the adjusted bank balance.

77. Steps to reconcile book balance:
Second Section
Enter the balance in books from the Cash account.
Record any deposits made by the bank that have not been recorded in the accounting records.
Record deductions made by the bank.
Record any errors in the accounting records that were discovered during the reconciliation process.
Compute the adjusted book balance.
Now it is time to prepare the second section of the bank reconciliation.

78. Step 1: Enter the balance in books from the Cash account, $14,390.70.
The Style Shop
Bank statement balance
21,838.50
Additions:
Deposit of January 31 in transit
5,940
Check incorrectly charged to account
1,600
7,540
29,378.50
Deductions for outstanding checks:
Check 124 of January 31
565
Check 125 of January 31
4,950
Check 126 of January 31
3,200
Check 127 of January 31
Check 128 of January 31
Check 129 of January 31
Check 130 of January 31
175
172.80
6,300
Total outstanding checks
Step 1: Enter the balance in books from the Cash account, $14,
Enter the balance in books from the Cash account, $14,
15,537.80
Adjusted bank balance
13,840.70
Book balance
14,390.70

79. The Style Shop did not have any.
Bank statement balance
21,838.50
Additions:
Deposit of January 31 in transit
5,940
Check incorrectly charged to account
1,600
7,540
29,378.50
Deductions for outstanding checks:
Check 124 of January 31
565
Check 125 of January 31
4,950
Check 126 of January 31
3,200
Check 127 of January 31
Check 128 of January 31
Check 129 of January 31
Check 130 of January 31
175
172.80
6,300
Total outstanding checks
Step 2: Record any deposits made by the bank that have not been recorded in the accounting records.
The Style Shop did not have any.
The Style Shop did not have any deposits made by the bank that had not been recorded in the accounting records. (These would be things like interest earned on the monthly balance of the account paid by the bank.)
15,537.80
Adjusted bank balance
13,840.70
Book balance
14,390.70

80. Step 3: Record deductions made by the bank. There are two items:
The Style Shop
Bank statement balance
21,838.50
Additions:
Deposit of January 31 in transit
5,940
Check incorrectly charged to account
1,600
7,540
29,378.50
Deductions for outstanding checks:
Check 124 of January 31
565
Check 125 of January 31
4,950
Check 126 of January 31
3,200
Check 127 of January 31
Check 128 of January 31
Check 129 of January 31
Check 130 of January 31
175
172.80
6,300
Total outstanding checks
Step 3: Record deductions made by the bank. There are two items:
The NSF check for $525
The bank service charge for $25
Next deduct the $525 NSF check from David Newhouse and deduct the $25 of monthly service charges charged by the bank.
15,537.80
Adjusted bank balance
13,840.70
Deductions:
NSF Check
525
Bank service charge 25
550
Book balance
14,390.70

81. The Style Shop did not have any errors in January.
Bank statement balance
21,838.50
Additions:
Deposit of January 31 in transit
5,940
Check incorrectly charged to account
1,600
7,540
29,378.50
Deductions for outstanding checks:
Check 124 of January 31
565
Check 125 of January 31
4,950
Check 126 of January 31
3,200
Check 127 of January 31
Check 128 of January 31
Check 129 of January 31
Check 130 of January 31
175
172.80
6,300
Total outstanding checks
Step 4: Record any errors in the accounting records that were discovered during the reconciliation process.
The Style Shop did not have any errors in January.
There were no errors in the accounting records that were discovered at this time.
15,537.80
Adjusted bank balance
13,840.70
Deductions:
NSF Check
525
Bank service charge 25
550
Book balance
14,390.70

82. Step 5: Compute the adjusted book balance.
The Style Shop
Bank statement balance
21,838.50
Additions:
Deposit of January 31 in transit
5,940
Check incorrectly charged to account
1,600
7,540
29,378.50
Deductions for outstanding checks:
Check 124 of January 31
565
Check 125 of January 31
4,950
Check 126 of January 31
3,200
Check 127 of January 31
Check 128 of January 31
Check 129 of January 31
Check 130 of January 31
175
172.80
6,300
Total outstanding checks
Step 5: Compute the adjusted book balance.
Compute the adjusted book balance.
15,537.80
Adjusted bank balance
13,840.70
Deductions:
NSF Check
525
Bank service charge 25
550
Book balance
14,390.70
Adjusted book balance
13,840.70

83. The Style Shop
Bank statement balance
21,838.50
Additions:
Deposit of January 31 in transit
5,940
Check incorrectly charged to account
1,600
7,540
29,378.50
Deductions for outstanding checks:
Check 124 of January 31
565
Check 125 of January 31
4,950
Check 126 of January 31
3,200
Check 127 of January 31
Check 128 of January 31
Check 129 of January 31
Check 130 of January 31
175
172.80
6,300
Total outstanding checks
Notice that the adjusted bank balance and the adjusted book balance agree.
Notice that the adjusted bank balance and the adjusted book balance agree.
15,537.80
Adjusted bank balance
13,840.70
Deductions:
NSF Check
525
Bank service charge 25
550
Book balance
14,390.70
Adjusted book balance
13,840.70

84. For The Style Shop, two entries must be made.
GENERAL JOURNAL PAGE
DATE DESCRIPTION POST DEBIT CREDIT
REF.
Jan Accts. Rec./David Newhouse
Bank Fees Expense
Cash
To record NSF check and service charge
The first entry is for the NSF check from David Newhouse, a credit customer.
Debit Accounts Receivable for the NSF check from David Newhouse and credit the Cash account. Debit Bank Fees Expense for the monthly bank charges and credit Cash for the same $25. In the above entry, the two charges are entered as one adjusting entry.
The second entry is for the bank service charge.
The effect of the two items is a decrease in the Cash account balance.