Financial Accounting Help

Question

1) What would happen if the company deposited a check received from a customer (for A/R) but failed to prepare the journal entry for the cash receipt but the check cleared and showed up on the bank account? Is an adjusting entry necessary? Where would this item appear on a reconciliation?

Answer 1

Say a check for $100 was received December 3rd. Upon receipt, the company should have recorded an increase in cash and decrease in accounts receivable:

Cash 100

AR 100

Because the company neglected to make the entry above, their cash account is now understated by $100, and their AR account is now overstated by $100.

At year-end, the company reconciles its cash accounts. They compare their December 31 bank statement with their general ledger. Even after accounting for outstanding checks and deposits in transit, their bank and book balances don't match; book is short $100. They realize their mistake, so they make the entry above as a correcting entry. Their bank and book balances should now reconcile.