The president of Kostas Fashions Ltd., Joan Kostas, has just received the monthly bank statement for June, which shows a balance of $ 10,517. She remembers seeing a different balance for cash at June 30 when the company accountant, Peter Wong, presented to her the monthly statement of financial position. She checks the statement of financial position and finds a cash balance of $ 6,518. She is not sure which amount is correct. She calls Peter and asks him why the two amounts are different. Peter takes the bank statement and related documents and promises to provide her with an explanation within a few hours. He then proceeds to prepare a bank reconciliation report for the month of June. A review of the documents that accompanied the bank statement shows the following:
a. A credit memorandum for the collection of a note for $ 2,080, including $ 80 of interest on the note. The bank charged the company a collection fee of $ 25.
b. A debit memorandum for an NSF cheque for $ 286 from customer Rami Cossette.
c. Total service charges for June amounting to $ 39. When comparing the bank statement with the company’s records, Peter discovered the following discrepancies:
d. A deposit of $ 1,145 was not recorded on the bank statement.
e. Three cheques had not been presented to the bank for payment yet. The amounts of these cheques are $ 1,573, $ 679, and $ 1,252.
f. A deposit of $ 2,340 was recorded incorrectly in the books at $ 2,430.
Required:
1. Explain to Joan why the two balances for cash are not equal, and why it is important to prepare a bank reconciliation statement.
2. Prepare a bank reconciliation statement at June 30 and the related journal entries.