Practice Exam 2 – ACC 221

A) $360 addition to the Company's Cash Balance
B) $360 subtraction to the Company's Cash Balance
C) $360 addition to the Bank's Cash Balance
D) $360 subtraction to the Bank's Cash Balance

In this situation, we're dealing with a Company error. We can see this because the company wrongly recorded an amount in their General Ledger.

Question #1: In March, Steez Inc. receives a $400 payment from a customer for merch. Steez Inc. then accidentally records it as a $40 deposit in the Cash account on the General Ledger, despite depositing $400 in their CashForDays Bank account. CashForDays Bank correctly recorded the $400 deposit for Steez Inc. This error would result in which reconciling item on Steez Inc.’s March bank reconciliation?

In our table...

...we can determine that Company errors impact the Company's Cash Balance (eliminating C and D).

A) $360 addition to the Company's Cash Balance
B) $360 subtraction to the Company's Cash Balance
C) $360 addition to the Bank's Cash Balance
D) $360 subtraction to the Bank's Cash Balance

Now... will it cause an addition or subtraction?

Well, let's first determine whether or not we're dealing with a deposit or payment.

Question #1: In March, Steez Inc. receives a $400 payment from a customer for merch. Steez Inc. then accidentally records it as a $40 deposit in the Cash account on the General Ledger, despite depositing $400 in their CashForDays Bank account. CashForDays Bank correctly recorded the $400 deposit for Steez Inc. This error would result in which reconciling item on Steez Inc.’s March bank reconciliation?

In this case, we're dealing with a deposit.

Next, is the amount that the Company wrote in their General Ledger more or less than the actual amount it should've been?

The Company wrote $40 in their General Ledger...

Question #1: In March, Steez Inc. receives a $400 payment from a customer for merch. Steez Inc. then accidentally records it as a $40 deposit in the Cash account on the General Ledger, despite depositing $400 in their CashForDays Bank account. CashForDays Bank correctly recorded the $400 deposit for Steez Inc. This error would result in which reconciling item on Steez Inc.’s March bank reconciliation?

...when they should've wrote $400.

Question #1: In March, Steez Inc. receives a $400 payment from a customer for merch. Steez Inc. then accidentally records it as a $40 deposit in the Cash account on the General Ledger, despite depositing $400 in their CashForDays Bank account. CashForDays Bank correctly recorded the $400 deposit for Steez Inc. This error would result in which reconciling item on Steez Inc.’s March bank reconciliation?

$40 (General Ledger amount) is less than $400 (actual amount).

In summary, Steez Inc.'s deposit was recorded as less than it actually should've been. This means they have more money in their Cash account than they recorded... resulting in us needing to add $360 during reconciliation! This aligns with answer choice A!

A) $360 addition to the Company's Cash Balance
B) $360 subtraction to the Company's Cash Balance
C) $360 addition to the Bank's Cash Balance
D) $360 subtraction to the Bank's Cash Balance

It can be tough to remember which account NSF checks correspond to, since there's not an "NSF checks" account.

Answer: Cash & Accounts Receivable

Let's walk through why it's Cash & Accounts Receivable with a quick example.

Imagine that your company collects a check from a customer for a purchase they made at your store. The check is worth $100. We'd record that transaction like so:

However, upon bank reconciliation, we figure out that the check the customer gave us bounced when the bank tried to enter it. It had non-sufficient funds.

This results in the following row in our Bank Reconciliation for Company's Cash Balance:

COMPANY'S CASH BALANCE

So, how should we record this adjustment to the company's cash balance?

Well, for starters, we know we're no longer receiving that $100 in cash from the customer. This'll result in us crediting Cash by $100 to essentially undo that part of the initial transaction...

...however, we're still going to receive $100 from the customer at a later date. Whenever a customer promises to pay us at a later date, we use the Accounts Receivable account!

In essence, we're moving this $100 out of Cash and into Accounts Receivable because the customer still owes us the money, it's just that they're going to pay us at a later date, since their initial check had non-sufficient funds! This is why our answer contains Cash and Accounts Receivable!

Answer: Cash & Accounts Receivable

A) $20 addition to the Company's Cash Balance
B) $20 subtraction to the Company's Cash Balance
C) $20 addition to the Bank's Cash Balance
D) $20 subtraction to the Bank's Cash Balance

First, let's determine what type of reconciliation we're dealing with here. In this situation, we're working with a Company error. I can tell this because Steez Inc. has incorrectly recorded an amount in their General Ledger...

Question: Steez Inc. pays one of its vendors with a check for $775 but accidentally records it in their General Ledger as $755. What should they do?

...that is different from the actual amount.

Question: Steez Inc. pays one of its vendors with a check for $775 but accidentally records it in their General Ledger as $755. What should they do?

Based on our table...

...we can find that Company errors deal with the Company's Cash Balance (eliminating C and D).

A) $20 addition to the Company's Cash Balance
B) $20 subtraction to the Company's Cash Balance
C) $20 addition to the Bank's Cash Balance
D) $20 subtraction to the Bank's Cash Balance

Next, how can we determine if we'll be adding or subtracting from the Company's Cash Balance?

Well, let's first determine whether or not we're dealing with a deposit or payment. 

Question: Steez Inc. pays one of its vendors with a check for $775 but accidentally records it in their General Ledger as $755. What should they do?

We're dealing with a payment here.

Next, is the amount the Company wrote in their General Ledger more or less than the actual amount it should've been?

The actual amount it should've been was $775...

Question: Steez Inc. pays one of its vendors with a check for $775 but accidentally records it in their General Ledger as $755. What should they do?

...but the amount the Company wrote in their General Ledger was $755.

Question: Steez Inc. pays one of its vendors with a check for $775 but accidentally records it in their General Ledger as $755. What should they do?

$755 (General Ledger amount) is less than $775 (actual amount).

In summary, Steez Inc.'s payment was recorded as less than it should've been. This means that they have less money in their Cash amount than they currently have recorded... resulting in us needing to subtract $20 during reconciliation! This aligns with answer choice B!

A) $20 addition to the Company's Cash Balance
B) $20 subtraction to the Company's Cash Balance
C) $20 addition to the Bank's Cash Balance
D) $20 subtraction to the Bank's Cash Balance