Response to the following problem:
The preparation of the bank reconciliation is an important internal control function of the accountant at Edison Life Ltd. Normally, five types of adjustments are used:
a. Additions to the reported general ledger cash balance
b. Deductions from the reported general ledger cash balance
c. Additions to the reported cash balance per the bank statement
d. Deductions from the reported cash balance per the bank statement
e. Information that has no effect on the current bank reconciliation.
1. Using the letters a to e from the list, indicate the appropriate adjustments for each of the following pieces of information derived from Edison Life Ltd.'s January 2017 bank statement.
A collection of a $2,000 note receivable was not previously reported to Edison Life. This included interest earned of $50.
A certified cheque amounting to $500 and dated January 15 was not returned with the January bank statement.
The January 31 deposit of $1,000 arrived too late at the bank to be included in the January bank statement.
A $225 cheque from Go-Slow Truckers was returned with the bank statement, marked NSF. This is the first knowledge Edison Life has of this.
A cheque received for $540 was recorded as $450 in the company records.
Service charges of $13 were deducted on the bank statement. These have not yet been recorded in the company records.
A $10,000 loan received from the bank was included in the bank statement but not in the company's general ledger.
A $150 December cheque had still not cleared the bank.
The bank credited Edison Life with a $2,000 deposit that should have been credited to Alva Life Insurance.
2. Prepare a bank reconciliation using the data given above. On January 31, the Cash account in the general ledger of Edison Life Ltd. showed a balance of $24,848. The bank statement showed a balance of $37,850.