Go, Leo

Go, Yunnan
BSA 1F

Problem 6
Alpha Company provided the following information for the
month of December :

Cash Balance per ledger 5,000,000

Cash Balance per Bank Statement 5,500,000
Proceeds of bank loan discounted on
December 1 for one year at 14%. 516,000
Undeposited Collections on December 31 300,000
Check of Omega Company had been
incorrectly deducted by bank from
Alpha Company account 50,000
Check of Alpha Company in payment of
an account payable had been recorded
by the depositor as P20,000. The correct
amount is 200,000
The ledger account for cash was the only
cash account kept by the entity.
It included a petty cash account
comprised of the following items:
Currency and Coins 4,000
Supplies 2,000
Transportation 3,000
Postage 1,000 10,000
Deposit of Omega Company credited by
bank to the account of Alpha Company 130,000
Deposit of December 27 omitted from bank statement 150,000
Outstanding checks 544,000
 Requirements
A. Prepare a Bank Reconciliation on
December 31
B. Prepare one journal entry only
necessary to adjust the cash
account
Step 1 -Determine the per book and balance
per bank

Balance per Book 5,000,000

Balance per Bank 5,500,000

The unadjusted balance per book is 5,000,000, while the unadjusted balance
per bank is 5,500,000.
Step 2 - Trace the cash receipts to bank statement to
ascertain that there are no deposit not yet
acknowledged by the bank

Checking on the given information, there is an undeposited collection on Dec

31 worth 300,000 and a deposit worth 150,000 that wasn't reflected in the
bank statement. Therefore, we add 450,000 to the bank balance since these
are bank reconciling item under Deposits in Transit
Step 3 - Trace the checks issued to bank to ascertain
whether there are checks not yet presented for
payment

Since there is an outstanding checks worth 544,000, we deduct it from the

unadjusted bank balance since outstanding checks is a bank reconciling item
Step 4 - The bank statement should be examined to
determine whether there are bank credits or bank
debits not yet recorded by the depositor

Based on the information provided, there was a bank credit of 516,000 for
proceeds of bank loan discounted on December 1 for one year at 14%. This is
a credit memo therefore, this is to be added to the unadjusted book balance
since it is book reconciling item
Step 5 - Watch out for Error

A book error in the recording of disbursement as 20,000 instead of 200,000.

This causes the Cash in Bank to be overstated by 180,000. Plus, the inclusion
of a Petty Cash Fund (a cash-on-hand account) in cash in bank further
overstates the Cash in Bank Balance by 10,000. Thus 190,000 is deducted in
the unadjusted book balance
Step 5 - Watch out for Error

The bank incorrectly debited an Omega Co. check in Alpha company's

account, making its bank balance understated by 50,000. Hence, it is added
to the unadjusted bank balance. While the incorrect crediting of 150,000 of
Omega Company's deposit makes the bank balance overstated by 130,000;
thus, it is deducted.
Step 6 - Compute the adjusted balances

After adding and subtracting what is necessary to each unadjusted balance,

we are able to end up with the same adjusted balances. Therefore, the cash in
bank is reconciled.
A. Formal Bank
Reconciliation
Statement
B. Adjusting Entry

To calculate the original Note: Petty Cash adjustment

loan amount: must be recorded since Dec. 31
Principal/Rate=Base is assumed to be the end of
516,000/.86=600,000 the reporting period
Thank you for
listening!