Solution

Chapter 7 — Demonstration Problem 1

A
WHITE COMPANY
Bank Reconciliation
November 30, 2010

Cash balance per bank statement November 30 $98,008

Add: Deposits in transit 18,600

Bank error (Brown Inc. cheque
erroneously charged to White) 2,200
118,808
Less: Outstanding cheques
#1044 $5,100
#1110 15,000
#1168 9,200
#1198 800
30,100
Adjusted cash balance per bank $88,708

Cash balance per books, November 30 $91,178

Add: EFT collections from customers 925
Interest revenue 17
Error in recording cheque #457 63 1,005
92,183
Less: NSF cheque 3,420
Bank service charge 55 3,475
Adjusted balance per books $88,708

B
Nov 30 Accounts Receivable—Light Networks Limited...................................... 3,420
Cash......................................................................................... 3,420
To record NSF cheque from Light Networks

30 Cash.............................................................................................. …….. 1,005

Accounts Receivable................................................................. 925
Interest Revenue....................................................................... 17
Accounts Payable..................................................................... 63
To record EFT collections, interest revenue, and error in recording cheque #457

30 Bank Service Charges.................................................................... …….. 55

Cash………………..................................................................... 55
To record November bank service charges

C
The cash account on the balance sheet at November 30 will show the adjusted balance per books amount
of $88,708.
Demonstration Problem 1 – Chapter 7 (continued)

D
The accountant for White Company needs to notify the bank of the details of the bank error for the cheque
written by Brown Inc. that has been erroneously debited to White's account by the bank. The bank will need
to correct the entry on their books to reverse the erroneous $2,200 deduction from White’s account (restore
the funds to White’s bank account) and properly deduct them from Brown Inc.’s bank account. Until such
time as the bank corrects this error, the amount of $2,200 will remain a reconciling item on the bank side of
the bank reconciliation.

In addition, White Company needs to follow up on the deposits in transit and the outstanding cheques the
next time the bank reconciliation is done. If these same items are still outstanding then they will need to be
included again on the next reconciliation.