Question: On April 31st, 2022, Hats LLC has a Cash balance of $800. Over the course of the month, they wrote $10,000 in checks, but $200 of those checks haven’t been processed by CashForDays bank. In addition, $170 out of their $20,000 in cash receipts still needs to be deposited in CashForDays Bank.
However, on their bank statement, it shows a Cash Balance of $850 and includes the following items not yet recorded by the company: a note receivable collected by the bank for $200, interest earned on that note of $20, and a bank service fee of $50. In addition, the bank accidentally charged Hats LLC $50 for a service fee that was meant to be on another customer’s account. Lastly, one of Hats LLC customer’s checks for $100 returned back with non-sufficient funds.
Prepare the bank reconciliation to correct the ending Cash Balance on April 31st, 2022.
This is dealing with interest earned by the company that the bank has recognized, but not yet alerted the company about. Therefore, it must go on the Company's Cash Balance side.
Does this add or subtract from the company's or bank's side of bank reconciliation?
Company's Cash Balance Items
|Reconciling Item||Description||Add or Subtract to Cash Balance?|
|Note collected||Bank collects a note on behalf of the company.||Add|
|Interest earned||Bank collects interest on behalf of the company.||Add|
|Service fees||Bank charges company a service fee for bank services.||Subtract|
|NSF check||Company receives a check, but the account doesn't have sufficient funds to pay the check amount.||Subtract|
|Electronic Funds Transfers (EFTs)||Automatic withdrawals from the company's bank account (ex: rent).||Subtract|
|Company error||Company incorrectly records a transaction amount.||Add / Subtract (it depends)|
It adds to the Company's Cash Balance! Therefore, we'll place those $20 of interest earned here in the bank reconciliation:
Bank's Cash Balance
|Per Bank Statement||$850|
|Bank Balance per Reconciliation||???|
Company's Cash Balance
|Per General Ledger||$800|
|Company Balance per Reconciliation||???|