These are the reconciliation items that increase Cash:
Bank's Cash Balance
Per Bank Statement
$850
Checks outstanding
($200)
Deposits outstanding
$170
Bank error
$50
Bank Balance per Reconciliation
$870
Company's Cash Balance
Per General Ledger
$800
Note receivable
$200
Interest earned
$20
Service fees
($50)
NSF checks
($100)
Company Balance per Reconciliation
$870
Let's start with "Note receivable" here:
Bank's Cash Balance
Per Bank Statement
$850
Checks outstanding
($200)
Deposits outstanding
$170
Bank error
$50
Bank Balance per Reconciliation
$870
Company's Cash Balance
Per General Ledger
$800
Note receivable
$200
Interest earned
$20
Service fees
($50)
NSF checks
($100)
Company Balance per Reconciliation
$870
This reconciliation item is where a customer is paying the bank in cash for a note receivable they made with Hats LLC. Therefore, if the customer is paying off their note receivable balance, that means they're subtracting from the Notes Receivable account, which means we'll credit that account (since it's an asset and has a normal debit balance).
Transaction
Debit
Credit
???
???
Note Receivable
$200
???
???
Next, "Interest earned"!
Bank's Cash Balance
Per Bank Statement
$850
Checks outstanding
($200)
Deposits outstanding
$170
Bank error
$50
Bank Balance per Reconciliation
$870
Company's Cash Balance
Per General Ledger
$800
Note receivable
$200
Interest earned
$20
Service fees
($50)
NSF checks
($100)
Company Balance per Reconciliation
$870
This means that over the course of the month, we made $20 in interest revenue, which will be added to the Interest Revenue account. Being a revenue account, that means it has a normal credit balance. Therefore, to add to Interest Revenue, we'll credit it!
Transaction
Debit
Credit
???
???
Note Receivable
$200
Interest Revenue
$20
This is it for our reconciliation items that increase the Cash account balance, therefore we can wrap up this adjusting journal entry by debiting Cash by $220 (because $200 + $20 = $220)!
Transaction
Debit
Credit
Cash
$220
Note Receivable
$200
Interest Revenue
$20
Transaction
Debit
Credit
Cash
$220
Note Receivable
$200
Interest Revenue
$20
...and the following adjusting entry (representing decreases to Cash):
These are the reconciliation items that decrease Cash:
Bank's Cash Balance
Per Bank Statement
$850
Checks outstanding
($200)
Deposits outstanding
$170
Bank error
$50
Bank Balance per Reconciliation
$870
Company's Cash Balance
Per General Ledger
$800
Note receivable
$200
Interest earned
$20
Service fees
($50)
NSF checks
($100)
Company Balance per Reconciliation
$870
We'll start with "Service fees" here...
Bank's Cash Balance
Per Bank Statement
$850
Checks outstanding
($200)
Deposits outstanding
$170
Bank error
$50
Bank Balance per Reconciliation
$870
Company's Cash Balance
Per General Ledger
$800
Note receivable
$200
Interest earned
$20
Service fees
($50)
NSF checks
($100)
Company Balance per Reconciliation
$870
...which will be filed under the Service Fee Expense account.
Considering that we're increasing our Service Fee Expense here, we'll debit the account, since expenses have a normal debit balance.
Transaction
Debit
Credit
Service Fee Expense
$50
???
???
???
???
Next, "NSF checks"!
Bank's Cash Balance
Per Bank Statement
$850
Checks outstanding
($200)
Deposits outstanding
$170
Bank error
$50
Bank Balance per Reconciliation
$870
Company's Cash Balance
Per General Ledger
$800
Note receivable
$200
Interest earned
$20
Service fees
($50)
NSF checks
($100)
Company Balance per Reconciliation
$870
With this reconciliation item, Hats LLC is losing out on $100 cash from customer checks that ended up having non-sufficient funds.
We'll still be paid by the customer in the future, it's just that for now, we must take their $100 out of the Cash account.
To represent that we'll be paid in the future, we're going to place their $100 in the Accounts Receivable account (think about it: we'll be "receiving" that $100 sometime in the future once the customer figures out their non-sufficient funds!)
Transaction
Debit
Credit
Service Fee Expense
$50
Accounts Receivable
$100
???
???
This is it for our reconciliation items that decrease the Cash account balance, therefore we can wrap up this adjusting journal entry by crediting Cash by $150 (because $100 + $50 = $150)!
