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Chapter 7: Question P7-12 (page 374)

(Petty Cash, Bank Reconciliation) Bill Jovi is reviewing the cash accounting for Nottleman, Inc., a local mailing service. Jovi鈥檚 review will focus on the petty cash account and the bank reconciliation for the month ended May 31, 2017. He has collected the following information from Nottleman鈥檚 bookkeeper for this task.

Petty Cash

1. The petty cash fund was established on May 10, 2017, in the amount of \(250.

2. Expenditures from the fund by the custodian as of May 31, 2017, were evidenced by approved receipts for the following.

Postage expenses

\)33.00

Mailing Labels and Other Supplies

65.00

I.O.U from employees

30.00

Shipping charges

57.45

Newspaper advertising

22.80

Miscellaneous expenses

15.35

On May 31, 2017, the petty cash fund was replenished and increased to \(300; currency and coin in the fund at that time totaled \)26.40.

Bank Reconciliation

THIRD NATIONAL BANK

BANK STATEMENT

Disbursements

Receipts

Balance

Balance 1 May, 2017

\(8,769

Deposits

\)28,000

Note payment direct from customer (\(30)

930

Check clearing during May

\)31,150

Bank service charges

27

Balance 31 May, 2017

6,522

Nottleman鈥檚 Cash Account

Balance 1 May 2017

\(8,850

Deposit during May 2017

31,000

Checks written during May 2017

(31,835)

Deposits in transit are determined to be \)3,000, and checks outstanding at May 31 total \(850. Cash on hand (besides petty cash) at May 31, 2017, is \)246.

Instructions

(a) Prepare the journal entries to record the transactions related to the petty cash fund for May.

(b) Prepare a bank reconciliation dated May 31, 2017, proceeding to a correct cash balance, and prepare the journal entries necessary to make the books correct and complete.

(c) What amount of cash should be reported in the May 31, 2017, balance sheet?

Short Answer

Expert verified

$9,218 will be reported as cash in the company鈥檚 balance sheet.

Step by step solution

01

Definition of Petty Cash

A separate account maintained by a business entity for funding daily expenses of the business with small amounts such as refreshment, postage, and stationery is known as petty cash.

02

Journal entries relating to petty cash

Date

Accounts and Explanation

Debit $

Credit $

10 May 2017

Petty Cash

$250

Cash

$250

31 May 2017

Postage expenses

$33.00

Mailing Labels and Other Supplies

$65.00

I.O.U from employees

$30.00

Shipping charges

$57.45

Newspaper advertising

$22.80

Miscellaneous expenses

$15.35

Cash

$223.60

31 May 2017

Petty Cash

$50

Cash

$50

03

Bank Reconciliation Statement

Particular

Amount $

Amount $

Balance as per bank

$6,522

Add:

Cash in hand

$246

Deposit in transit

3,000

3,246

Less: Outstanding checks

(850)

$8,918

Balance as per books$8,850+$31,000-$31,835

8,015

Add: Note receivable

930

Less: Bank charges

(27)

Correct cash balance

$8918

Journal entries:

Date

Accounts and Explanation

Debit $

Credit $

31 May 2017

Cash

$930

Note Receivable

$900

Interest revenue

$30

31 May 2017

Bank charges

$27

Cash

$27

04

Cash to be Reported on the Balance Sheet

Particular

Amount $

Correct cash balance

$8,918

Add: petty cash

300

Cash balance reported on the balance sheet

$9,218

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Most popular questions from this chapter

(Bank Reconciliation and Adjusting Entries) Presented below is information related to Haselhof Inc. Balance per books at October 31, \(41,847.85; receipts \)173,523.91; disbursements \(164,893.54. Balance per bank statement November 30, \)56,274.20.

The following checks were outstanding at November 30.

1224

\(1,635.29

1230

2,468.30

1232

2,125.15

1233

482.17

Included with the November bank statement and not recorded by the company were a bank debit memo for \)27.40 covering bank charges for the month, a debit memo for \(372.13 for a customer鈥檚 check returned and marked NSF, and a credit memo for \)1,400 representing bond interest collected by the bank in the name of Haselhof Inc. Cash on hand at November 30 recorded and awaiting deposit amounted to $1,915.40.

Instructions

(a) Prepare a bank reconciliation (to the correct balance) at November 30, for Haselhof Inc. from the information above.

(b) Prepare any journal entries required to adjust the cash account at November 30.

On June 3, Arnold Company sold to Chester Company merchandise having a sale price of \(3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling \)90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company

Instructions

(a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases.

(1) Sales and receivables are entered at gross selling price.

(2) Sales and receivables are entered at net of cash discounts.

(b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.

(Analysis of Receivables) Presented below is information for Jones Company.

1. Beginning-of-the-year Accounts Receivable balance was \(15,000.

2. Net sales (all on account) for the year were \)100,000. Jones does not offer cash discounts.

3. Collections on accounts receivable during the year were $70,000.

Instructions

(a) Prepare (summary) journal entries to record the items noted above.

(b) Compute Jones鈥檚 accounts receivable turnover and days to collect receivables for the year. The company does not believe it will have any bad debts.

(c) Use the turnover ratio computed in (b) to analyze Jones鈥檚 liquidity. The turnover ratio last year was 6.0

Roeher Company sold \(9,000 of its specialty shelving to Elkins Office Supply Co. on account. Prepare the entries when (a) Roeher makes the sale, (b) Roeher grants an allowance of \)700 when some of the shelving does not meet exact specifications but still could be sold by Elkins, and (c) at year-end; Roeher estimates that an additional $200 in allowances will be granted to Elkins.

On July 1, 2017, Moresan Company sold special-order merchandise on credit and received in return an interest-bearing note receivable from the customer. Moresan will receive interest at the prevailing rate for a note of this type. Both the principal and interest are due in one lump sum on June 30, 2018.

On September 1, 2017, Moresan sold special-order merchandise on credit and received in return a zero-interest-bearing note receivable from the customer. The prevailing rate of interest for a note of this type is determinable. The note receivable is due in one lump sum on August 31, 2019.

Moresan also has significant amounts of trade accounts receivable as a result of credit sales to its customers. On October 1, 2017, some trade accounts receivable were assigned to Indigo Finance Company on a non-notification (Moresan handles collections) basis for an advance of 75% of their amount at an interest charge of 8% on the balance outstanding.

On November 1, 2017, other trade accounts receivable were sold without recourse. The factor withheld 5% of the trade accounts receivable factored as protection against sales returns and allowances and charged a finance charge of 3%.

Instructions

(b) How should Moresan report the interest-bearing note receivable and the zero-interest-bearing note receivable on its balance sheet at December 31, 2017?

See all solutions

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