Answer:
a. Outstanding checks: Subtract $670 from the bank balance.
b. Deposits in transit: Add $1,500 to the bank balance.
c. NSF check: Deduct $175 from the book balance.
d. Bank collection of note receivable: and interest: Â Add $880 to the book balance.
e. Interest earned on bank balance: Add $20 to the book balance.
f. Service charge: Deduct $10 from the book balance.
g. Errors in cash account: Add $1,800 to the cash account.
h. Errors in bank account: Add $350 to the bank balance.
Explanation:
To get the true cash balance, one needs to do two things:
1) Adjust the bank balance for items that are already recorded in the company's cash book but are currently not reflecting in the bank statement, and
2) adjust the company' cash book balance for items that are on the bank statement but are currently not recorded in the company's books.
After doing these two adjustments, the balance after adjusting for 1) and 2) should be the same - and this is the true cash balance that the company should use as its value for cash that the company has as at a particular date.
The rule of thumb is: "adjust it where it isn't reflecting".
For example- outstanding checks are checks that were written by the company and have already been debited in the company's books as payments made. But these checks haven't been presented at the bank for processing, and therefore the bank balance is not yet reflecting this payment. Therefore the adjusting entry would be to "adjust where it isn't reflecting" by deducting the bank balance as shown above.
