(Proof of cash) The following information was obtained in an audit of the cash account of Tuck Company as of December 31, 20X0. Assume that the CPA is satisfied as to the validity of the cash book, the bank statements, and the returned checks, except as noted.
1. The bookkeeper’s bank reconciliation at November 30, 20X0.
Balance per bank statement $19,400
Add deposit in transit 1,100
Less: Outstanding checks
1505 30 $ 2,300
Balance per books $ 18,200
2. A summary of the bank statement for December 20X0.
Balance brought forward $ 19,400
Balance, December 31, 20X0 $ 35,600
3. A summary of the cash book for December 20X0, before adjustments.
Balance forward $ 18,200
Balance, December 31, 20X0 $ 43,005
4. Included with the canceled checks returned with the December bank statement were the following:
Number Date of Check Amount of Check Comment
1501 November 28, 20X0 $75.00 This check was in payment of an invoice for $750 and was recorded in the cash book as $750.
1503 November 28, 20X0 $580 This check was in payment of an invoice for $580 and was recorded in the cash book as $580.
1523 December 5, 20X0 $150 Examination of this check revealed that it was unsigned. A discussion with the client disclosed that it had been mailed inadvertently before it was signed.
The check was endorsed and deposited by the payee and processed by the bank even though it was a legal nullity. The check was recorded in the cash disbursements.
1528 December 12, 20X0 $800 This check replaced 1504 that was returned by the payee because it was mutilated. Check 1504 was not canceled on the books.
- December 19, 20X0 $200 This was a counter check drawn at the bank by the president of the company as a cash advance for travel expense. The president overlooked informing the bookkeeper about the check.
- December 20, 20X0 $300 The drawer of this check was the Tucker Company.
1535 December 20, 20X0 $350 This check had been labeled NSF and returned to the payee because the bank had erroneously believed that the check was drawn by the Tuck Company. Subsequently, the payee was advised to redeposit the check.
1575 January 5, 20X1 $10,000 This check was given to the payee on December 30, 19X0, as a postdated check with the understanding that it would not be deposited until January 5. The check was not recorded on the books in December.
5. The Tuck Company discounted its own 60-day note for $9,000 with the bank on December 20X0. The discount rate was 6%. The bookkeeper recorded the proceeds as a cash receipt at the face value of the note.
6. The bookkeeper records customers’ dishonored checks as a reduction of cash receipts. When the dishonored checks are redeposited, they are recorded as a regular cash receipt. Two NSF checks for $180 and $220 were returned by the bank during December. The $180 check was redeposited, but the $220 check was still on hand at December 31. Cancellations of Tuck Company checks are recorded by a reduction of cash disbursements.
7. December bank charges were $20. In addition, a $10 service charge was made in December for the collection of a foreign draft in November. These charges were not recorded on the books.
8. Check 2540 listed in the November outstanding checks was drawn three years ago. Because the payee cannot be located, the president of Tuck Company agreed to the CPA’s suggestion that the check be written back into the accounts by a journal entry.
9. Outstanding checks at December 31, 20X0 totaled $4,000 excluding checks 2540 and 1504.
10. The bank had recorded a deposit of $2,400 on January 2, 20X1. The bookkeeper had recorded this deposit on the books on December 31, 20X0, and then mailed the deposit to the bank.
Required: Prepare a four-column reconciliation (“proof of cash”) of the cash receipts and cash disbursements recorded on the bank statement and on the company’s books for the month of December 20X0.
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