Chapter 5

Cash

The bank statement for Kefee company for June 30,2006 indicates a balance of $9,143.11. all
cash receipts are deposited each evening in a night depository, after banking hours. The
accounting records indicate the following summary data for cash receipts and payments for June:

Cash balance as of June 1: -------------------------------------- $ 3,943.50

Total cash receipt for June ------------------------------------- $ 28,971.60
Total amount of checks issued in June ------------------- $ (28,388.85)
Comparing the bank statements and the accompanying cancelled checks and memorandums with
the record reveals the following reconciling items:

a. The bank had collected for Kefee company $ 1,030 on a note left for collection. The face
of the note was $1,000.00
b. A deposit of $ 1,852.21, representing receipt of June 30, had been made too late to appear
on the bank statement.
c. Checks outstanding totaled $ 5,265.27
d. A check drawn for $139 had been incorrectly charged by the bank as $ 157.
e. A check for $30 returned with the statement had been recorded in the depositor’s record
as $240. The check was for the payment of obligation to SEDE equipment company for
the purchase office supplies on account.
f. Bank service charges for June amounted to $ 18.20

Instruction

1. Prepare bank reconciliation for June.

2. Journalize the entries that should be made by Kefee company.
Answers:

Kefee Company
Bank Reconciliation
June 30, 2006
Cash balance according to bank statement $9,143.11

Add: Deposit on transit $1,852.21

Bank error in charging checks as $157 instead of $139 18.00 1,870.21

Deduct: Outstanding checks $5,265.27

Adjusted Balance $5,748.05

Cash balance according to depositor’s record $4,526.25

Add: Proceeds of note collected by bank, including

$30 interest $1030

Error in recording checks $210

Deduct: bank service charge $18.20

Adjusted Balance $5,748.05

Journalizing the transaction

Cash ------------------------- $ 1,030
Notes receivable ---------------- 1000
Interest revenue ----------------- 30
Account payable --------------- 210
Miscellaneous and Administrative expense ------------- 18.20
Cash -------------------------------------------------------- 18.20
 Chapter 6
Accounting for Receivables
Hibir Co. completes the following selected transactions during the year 2005.
July 14. Write off a 750 Birr account receivable arising from a sale to Molla Co. that dates to 10
Months ago.
July 30. Hibir Co. receives a 1,000 Br. 90-day note in exchange for merchandise sold to Semere
Co. the merchandise costs Br. 600.
Aug. 15. Receives 2,000 Br. Cash plus a 10, 000 Br note from keti co. in a exchange for
Merchandise that sells for 12,000 Br. (its cost is 8,000 Br). The note is dated August 15,
Bears 12% interest and matures in 120 days.
Nov. 1 Completed a 200 Br credit card sale with 4 % fee (the cost of sale is 150 Br). The cash is
Received immediately from the credit card Co.
Nov. 3 Semere Co. refuse to pay the note that was due to Hibir on Oct. 28 prepare a journal
Entry to charge the dishonored note plus accrued interest to Semere Co.’s account
Receivables.
Nov. 5 Completed a 500 Br. Credit card sale with a 5% fee (the cost a sale is 300 Br). The
Payment from the credit card co is received on Nov. 9.
Nov. 15 Received the full amount of 750 Br from Molla co. that was previously written off on
July 14. Record the bad debts recovery.

Dec. 13 Received payment of principal plus interest from Keti co. for the August 15 note.
Required:
1. Prepare journal entries to record these transactions on Hibir Co.’s book.
2. Prepare an adjusting journal entry as of Dec. 31, 2005 assuming the following:
a. Bad debt expense is estimated to be 20,400 Br by aging accounts receivables. The
unadjusted balance of the Allowance for Doubtful Accounts is 1,000 Br debit.
b. Alternatively, assume that bad debts expense is estimated doubtful Accounts had a
1,000 Br debit balance before adjusting and the Co. estimated bad debts to be 1% of
its credit sales of 2,000,000 Birr.
 Answer:
1.
July 14 Allowance for Doubtful Accounts 750
Accounts Receivable 750
Wrote off on uncollectable accounts
July 30 Notes Receivable –Semere co. 1,000
Sales 1,000
Sold merchandise for a 90-day 10% note
July 30 cost of goods 600
Merchandise inventory 600
To record the cost of July 30 sale
Aug. 15 Cash 2,000
Notes receivable-Keti co. 10,000
Sales 12,000
Sold merchandise to costumer for 2,000 Br cash and 10,000 Br. Note
Aug. 15 Cost of Goods Sold 8,000
Merchandise Inventory 8,000
To record the cost of August 15 sale
Nov. 1 Cash 192
Credit card expense 8
Sales 200
To record credit card sale less a 4% credit card expense
Nov. 1 Cost of Goods Sold 150
Merchandise Inventory 150
To record the cost of Nov. 1 sale
Nov. 3 Accounts Receivable – Semere Co. 1,025
Interest revenue 25
Notes Receivable 1,000
To charge accounts of Semere Co. for a 1,000 Br
Dishonored note and interest of 1,000*10%*90/360
Nov. 5 Accounts Receivables 475
Credit card expense 25
Sales 500
To record credit card sale less 5% card expense
Nov. 5 Cost of Goods Sold 300
Merchandise inventory 300
To record Nov. 5 sale
Nov. 9 Cash 475
Accounts receivables- credit card Co. 475
To record cash receipt from Nov. 5 sale
Nov. 15 Accounts Receivables – Molla Co. 750
Allowance for Doubtful Accounts 750
To reinstate the Account of Molla Co. Previously written off.
Nov. 15 Cash 750
Accounts Receivable 750
Cash received in full payment of account
Dec. 13 Cash 10,400
Interest Revenue 400
Note Receivable –Keti Co. 10,000
Collect note with interest of 10,000*12%*120/360
2a. Aging of Accounts receivable method:
Dec. 31 Bad Debts Expense 21,400
Allowance for Doubtful accounts 21,400
To adjust allowance account from a 1,000
debit balances to a 20, 400 credit balance.
2b. Percent of sales method
Dec. 31 Bad Debts Expense 20,000
Allowance for Doubtful Account 20,000
To provide for bad debts as 1%*2,000,000 in credit sale