A firm wrote a check for $114 to pay utilities expense and recorded a journal entry in which this amount was added to its cash balance. On a bank reconciliation statement this error would be shown as:
Question
A firm wrote a check for $114 to pay utilities expense and recorded a journal entry in which this amount was added to its cash balance. On a bank reconciliation statement this error would be shown as:
Solution
The error made by the firm is that they added the amount of the check to their cash balance instead of subtracting it. This is because when a check is written, it reduces the firm's cash balance, not increases it.
On a bank reconciliation statement, this error would be corrected by subtracting $114 from the firm's book balance. This is done to align the firm's internal records with the bank's records.
Here are the steps:
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Identify the error: The firm added $114 to its cash balance instead of subtracting it when they wrote a check to pay for utilities expense.
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Determine the correction: The correction is to subtract $114 from the firm's book balance.
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Apply the correction on the bank reconciliation statement: Subtract $114 from the firm's book balance on the bank reconciliation statement.
So, the error would be shown as a $114 deduction from the book balance on the bank reconciliation statement.
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