Adjusting Entries #2
Since you want to record all transactions you hadn't previously recorded, you need to look at the Balance Per Records section in the bank reconciliation statement to see what you have not yet recorded. It is easy to divide the adjusting entries from a bank reconciliation into two transactions: those that increased our cash, and those that decreased your cash. This section will deal with those items that decreased your cash. If we look through the Balance Per Records section below, we can highlight the two items that we have not recorded on our books:
Item #1 - Service Charge
The services charges the bank demands are an expense of doing business for MMM. Since this expense is increasing, we must debit the expense account (e.g., Service Charges Expense or Miscellaneous Expense) for $2.42. The corresponding credit is to cash in the same amount. The journal entry would look like the following:
| DR | Service Charges Expense | $2.42 | |||
| CR | Cash | $2.42 | |||
Item #2 - Debit Memo
This NSF Cheque means one of our customer's cheques has "bounced" (i.e., they do not have sufficient funds to cover the amount of the cheque at the time). We know that the credit entry for this adjustment is to cash for $36.55 because our cash has decreased as a result of this NSF cheque. When we recorded receipt of the cheque, we automatically increased our cash account. The customer now owes this amount again. He/she has become a debtor to us; therefore, his/her account becomes a receivable (i.e., something we are owed). Bearing this in mind, the corresponding debit should be to A/R because our accounts receivable has now increased again. The adjusting journal entry would look like the following:
| DR | Accounts Receivable | $36.55 | |||
| CR | Cash | $36.55 | |||
Recording Adjusting Entries in the T-Accounts
You can record each of the two items above separately or you can combine them into one larger entry because all of the credits are to Cash. Here is what your t-accounts should look like once you've recorded the second adjusting entry (or entries).
Final Cash Balance
The final cash balance that would appear on the August 31, 2005 would be $2,894.71. This is the adjusted cash balance from the bank reconciliation statement, and now that you have completed the adjusting entries, it is also the balance reflected in your own accounts.
Finished? Understand? Questions?
If you've completed up to this point, you've finished the lab. If you are still having difficulties, you can check the Lab 3 FAQ page to see if an instructor has posted a response to a similar question. If you don't see that question there, don't hesitate to contact your instructor by email.