Question

The following information is available to reconcile Clark Company’s book balance of cash with its bank statement cash balance as of July 31, 2011.
On July 31, the company’s Cash account has a $26,193 debit balance, but its July bank statement shows a $28,020 cash balance.
Check No. 3031 for $1,380 and Check No. 3040 for $552 were outstanding on the June 30 bank reconciliation. Check No. 3040 is listed with the July canceled checks, but Check No. 3031 is not. Also, Check No. 3065 for $336 and Check No. 3069 for $2,148, both written in July, are not among the canceled checks on the July 31 statement.
In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that Check No. 3056 for July rent was correctly written and drawn for $1,250 but was erroneously entered in the accounting records as $1,230.
A credit memorandum enclosed with the July bank statement indicates the bank collected $9,000 cash on a non-interest-bearing note for Clark, deducted a $45 collection fee, and credited the remainder to its account. Clark had not recorded this event before receiving the statement.
A debit memorandum for $805 lists a $795 NSF check plus a $10 NSF charge. The check had been received from a customer, Jim Shaw. Clark has not yet recorded this check as NSF.
Enclosed with the July statement is a $15 debit memorandum for bank services. It has not yet been recorded because no previous notification had been received.
Clark’s July 31 daily cash receipts of $10,152 were placed in the bank’s night depository on that date, but do not appear on the July 31 bank statement.
Required
1. Prepare the bank reconciliation for this company as of July 31, 2011.
2. Prepare the journal entries necessary to bring the company’s book balance of cash into conformity with the reconciled cash balance as of July 31, 2011.

Pepco Co. establishes a petty cash fund for payments of small amounts. The following transactions involving the petty cash fund occurred in January (the last month of the company’s fiscal year).
Jan. 3 A company check for $150 is written and made payable to the petty cashier to establish the petty cash fund.
14 A company check is written to replenish the fund for the following expenditures made since
January 3.
a. Purchased office supplies for $16.29 that are immediately used up.
b. Paid $17.60 COD shipping charges on merchandise purchased for resale, terms FOB shipping
point. Pepco uses the perpetual system to account for inventory.
c. Paid $36.57 to All-Tech for minor repairs to a computer.
d. Paid $14.82 for items classified as miscellaneous expenses.
e. Counted $62.28 remaining in the petty cash box.
15 Prepared a company check for $25 to increase the fund to $175.
31 The petty cashier reports that $17.35 remains in the fund. A company check is written to replenish the fund for the following expenditures made since January 14.
f. Paid $40 to The Smart Shopper for an advertisement in January’s newsletter.
g. Paid $38.19 for postage expenses.
h. Paid $58 to Take-You-There for delivery of merchandise, terms FOB destination.
31 The company decides that the January 15 increase in the fund was too little. It increases the fund by another $75, leaving a total of $250.
Required
1. Prepare journal entries to establish the fund on January 3, to replenish it on January 14 and January 31, and to reflect any increase or decrease in the fund balance on January 15 and 31.

Answer 1

Below are the bank reconciliation and journal entries for Clark Company, followed by the petty-cash journal entries for Pepco Co.

1) Clark Company — Bank Reconciliation as of July 31, 2011

Bank balance, July 31 (per bank statement) ........................................ $28,020
Add: Deposit in transit (July 31 receipts placed in night depository) ..... 10,152
Less: Outstanding checks
- Check No. 3031 .......................................................... 1,380
- Check No. 3065 .......................................................... 336
- Check No. 3069 .......................................................... 2,148
Total outstanding checks .............................................. 3,864
Adjusted bank balance ........................................................ $34,308

Book balance (Cash), July 31 .................................................... $26,193
Add: Collections by bank (credit memorandum):
- Note collected by bank, net of collection fee (9,000 - 45) ............ 8,955
Less: Items not yet recorded in books:
- NSF check and NSF charge (bank debit memo) .......................... 805
(includes $795 principal + $10 NSF charge)
- Bank service charges (debit memorandum) ................................ 15
- Error in company books (Check No. 3056 recorded as $1,230 instead
of $1,250; books overstated cash) .................................... 20
Adjusted book balance ........................................................ $34,308

(Reconciled cash balance — both sides) ....................................... $34,308

Notes:
- Check No. 3040 cleared (was outstanding at 6/30 but appears on July statement).
- Check No. 3031 remains outstanding (was outstanding at 6/30 and not on July statement).
- Check No. 3056 cleared but was recorded incorrectly in the books ($1,230 instead of $1,250).

2) Clark Company — Journal entries to adjust book cash to reconciled balance (July 31, 2011)

a) Record bank collection of note (bank collected $9,000, charged $45 fee)
Debit Cash ..................................................... 8,955
Debit Bank Service Charges (or Collection Fee Expense) ..... 45
Credit Notes Receivable .................................. 9,000
(To record bank collection of note less bank collection fee)

b) Record NSF customer check (Jim Shaw) and NSF charge
Debit Accounts Receivable — Jim Shaw ........................ 795
Debit Bank Service Charges .................................. 10
Credit Cash .............................................. 805
(To record NSF check returned and NSF charge)

c) Record bank service charge from debit memorandum ($15)
Debit Bank Service Charges .................................. 15
Credit Cash .............................................. 15
(To record bank service charge)

d) Correct error in recording Check No. 3056 (rent recorded $1,230; actual $1,250)
Debit Rent Expense .......................................... 20
Credit Cash .............................................. 20
(To record the additional $20 of rent previously omitted)

These entries bring the book Cash balance from $26,193 to the reconciled cash balance of $34,308.

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Pepco Co. — Petty Cash Fund journal entries (January)

1. Jan. 3 — Establish petty cash fund ($150)
Debit Petty Cash ............................................ 150.00
Credit Cash (Bank) ...................................... 150.00
(To establish petty cash fund)

2. Jan. 14 — Replenish petty cash (calculate amounts)
Expenditures since Jan. 3:
a. Office supplies (used up) .................................. 16.29 (Office Supplies Expense)
b. COD shipping on purchases (perpetual → inventory) ......... 17.60 (Inventory)
c. Minor computer repairs .................................... 36.57 (Repairs/Maintenance Expense)
d. Miscellaneous expense ..................................... 14.82 (Miscellaneous Expense)
Cash counted on hand .......................................... 62.28
Amount to replenish = 150.00 - 62.28 = 87.72
Shortage (unaccounted difference) = 87.72 - (16.29+17.60+36.57+14.82=85.28) = 2.44

Journal entry to replenish:
Debit Office Supplies Expense ................................. 16.29
Debit Inventory (Freight-in) .................................. 17.60
Debit Repairs & Maintenance Expense .......................... 36.57
Debit Miscellaneous Expense .................................. 14.82
Debit Cash Over and Short ..................................... 2.44
Credit Cash (Bank) ........................................ 87.72
(To replenish petty cash and record a $2.44 cash shortage)

3. Jan. 15 — Increase petty cash fund from $150 to $175 (add $25)
Debit Petty Cash ............................................. 25.00
Credit Cash (Bank) ...................................... 25.00
(To increase petty cash fund to $175)

4. Jan. 31 — Replenish petty cash (after Jan. 14 increase)
Fund balance after Jan. 15 = $175
Petty cashier reports $17.35 on hand.
Expenditures since Jan. 14:
f. Advertising .............................................. 40.00 (Advertising Expense)
g. Postage .................................................. 38.19 (Postage Expense)
h. Delivery on purchases (FOB destination → seller's expense) 58.00 (Delivery/Freight-out Expense)
Total expenditures = 40.00 + 38.19 + 58.00 = 136.19
Amount to replenish = 175.00 - 17.35 = 157.65
Shortage = 157.65 - 136.19 = 21.46

Journal entry to replenish:
Debit Advertising Expense .................................... 40.00
Debit Postage Expense ....................................... 38.19
Debit Delivery/Freight-out Expense .......................... 58.00
Debit Cash Over and Short ................................... 21.46
Credit Cash (Bank) ...................................... 157.65
(To replenish petty cash and record a $21.46 cash shortage)

5. Jan. 31 — Increase petty cash fund from $175 to $250 (add $75)
Debit Petty Cash ............................................ 75.00
Credit Cash (Bank) ...................................... 75.00
(To increase petty cash fund to $250)

Notes:
- Freight treatment: COD shipping on merchandise (FOB shipping point) is part of inventory (perpetual system → debit Inventory). Delivery charge when FOB destination is a selling/delivery expense (Freight-out).
- Cash Over and Short is debited for shortages (expense); if there were an overage it would be credited.

If you want, I can format the reconciliation and journal entries into formal journal-entry lines with reference numbers for posting.