On October 31, 2021, Damon Company’s general ledger shows a checking account balance of $8,415. The company’s cash receipts for the month total $74,440, of which $71,325 has been deposited in the bank. In addition, the company has written checks for $72,485, of which $71,090 has been processed by the bank. The bank statement reveals an ending balance of $12,165 and includes the following items not yet recorded by Damon: bank service fees of $210, note receivable collected by the bank of $5,600, and interest earned on the account balance plus from the note of $620. After closer inspection, Damon realizes that the bank incorrectly charged the company’s account $540 for an automatic withdrawal that should have been charged to another customer’s account. The bank agrees to the error. Required: 1. Prepare a bank reconciliation to calculate the correct ending balance of cash on October 31, 2021. (Amounts to be deducted should be indicated with a minus sign.)

The correct ending balance of cash on October 31, 2021 is $14,425.

Explanation:

A bank reconciliation refers to the process whereby the bank account balance in the books of account of a company or an entity is reconciled to the balance on the most recent bank statement obtained from bank of the entity.

Therefore, to prepare a bank reconciliation to calculate the correct ending balance of cash on October 31, 2021, all the amount which have already being included as either as additions or subtractions in the bank statement but has not been recorded by the entity will be added or subtracted from the bank balance as appropriate. Based on the information in the question, this can be done as follows:

Damon Company

Bank Reconciliation on October 31, 2021.

Details                                                                          $    

Balance as per checking account                          8,415

Note receivable collected by the bank                 5,600

Interest earned                                                          620

Bank service fees of                                                 (210)

Balance per reconciliation by the company      14,425

Therefore, the correct ending balance of cash on October 31, 2021 is $14,425.