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Deposits in Transit, Outstanding Checks & Bank Reconciliation

Lowe Inc.'s bank statement from Western Bank at August 31, 2010, gives the following information.

Balance, August 1

Bank debit memorandum:

August deposits

Safety deposit box fee
$ 25
Checks cleared in August

Service charge
Bank credit memorandum:

Balance, August 31
Interest earned

A summary of the Cash account in the ledger for August shows the following: balance, August 1, $17,100, receipts $81,000; disbursements $73,570; and balance, August 31, $24,530. Analysis reveals that the only reconciling items on the July 31 bank reconciliation were a deposit in transit for $5,000 and outstanding checks of $4,500. In addition, you determine that there was an error involving a company check drawn in August: A check for $400 to a creditor on account that cleared the bank in August was journalized and posted for $40 in the general ledger. The bank amount of $400 was correct.

(a) Determine deposits in transit. (Assume the July 31 deposit in transit cleared the bank in August)
(b) Determine outstanding checks. (You are calculating the total amount of outstanding checks)
(c) Prepare a bank reconciliation at August 31.

Solution Preview

Dear student,
Solution is provided in a separate excel file attached. It contains following parts.

Requirement (a)
Deposits in bank $73,000
Less: Deposits not cleared in July ...

Solution Summary

This solution provides steps necessary to deposit in transit, outstanding checks and prepares a bank reconciliation.