Exercise 6-7B Treatment of NSF Check

Internal Control and Accounting for Cash

Exercise 6-7B Treatment of NSF Check

The bank statement of Hibbert Supplies included a $300 NSF check that one of Hibbert’s customers had written to pay for services that were provided by Hibbert.

Required
a. Show the effects of recognizing the NSF check on the financial statements by recording the appropriate amounts in a horizontal statements model like the following one:
Assets = Liab. + Equity Rev. − Exp. = Net Inc. Cash Flow
Cash + Accts. Rec.

b. Is the recognition of the NSF check on Hibbert’s books an asset source, use, or exchange transaction?

c. Suppose the customer redeems the check by giving Hibbert $325 cash in exchange for the bad check. The additional $25 paid a service fee charged by Hibbert. Show the effects on the financial statements in the horizontal statements model in Requirement a.

d. Is the receipt of cash referred to in Requirement c an asset source, use, or exchange transaction?

e. Record in general journal form the adjusting entry for the NSF check and the subsequent entry for redemption of the check by the customer.

Exercise 6-8B Adjustments to the Balance per Books

Required
Identify which of the following items are added to or subtracted from the unadjusted book balance to arrive at the true cash balance. Distinguish the additions from the subtractions by placing a + beside the items that are added to the unadjusted book balance and a − beside those subtracted from it. The first item is recorded as an example.

Exercise 6-9B Adjustments to the Balance per Bank

Required
Identify which of the following items are added to or subtracted from the unadjusted bank balance to arrive at the true cash balance. Distinguish the additions from the subtractions by placing a + beside the items that are added to the unadjusted bank balance and a − beside those subtracted from it. The first item is recorded as an example.

Exercise 6-10B Adjusting the Cash Account

As of May 31, Year 1, the bank statement showed an ending balance of $26,100. The unadjusted Cash account balance was $27,350. The following information is available:

1. Deposit in transit: $6,981.
2. Credit memo in bank statement for interest earned in May: $36.
3. Outstanding check: $5,720.
4. Debit memo for service charge: $25.

Required
a. Determine the true cash balance by preparing a bank reconciliation as of May 31, Year 1, using the preceding information.

b. Record in general journal format the adjusting entries necessary to correct the unadjusted book balance.

Exercise 6-11B Determining the True Cash Balance, Starting with the Unadjusted Bank Balance

The following information is available for Jenkins Company for the month of August:

1. The unadjusted balance per the bank statement on August 31 was $35,200.
2. Deposits in transit on August 31 were $3,750.
3. A debit memo was included with the bank statement for a service charge of $35.
4. A $2,120 check written in August had not been paid by the bank.
5. The bank statement included a $1,550 credit memo for the collection of a note. The principal of the note was $1,500, and the interest collected was $50.

Required
Determine the true cash balance as of August 31. (Hint: It is not necessary to use all of the preceding items to determine the true balance.)