Service fees

Scenario: On April 31st, 2022, your lemonade stand has a Cash balance of $800. Over the course of the month, they wrote $10,000 in checks, but $200 of those checks haven’t been processed by your local bank. In addition, $170 out of their $20,000 in cash receipts still needs to be deposited in the local bank.

However, on their bank statement, it shows a Cash Balance of $850 and includes the following items not yet recorded by the company: a note receivable collected by the bank for $200, interest earned on that note of $20, and a bank service fee of $50. In addition, the bank accidentally charged your lemonade stand $50 for a service fee that was meant to be on another customer’s account. Lastly, one of your lemonade stand's customer’s checks for $100 returned back with non-sufficient funds.

Prepare the bank reconciliation to correct the ending Cash Balance on April 31st, 2022.

The blue underlined text signals...

  • The fact that a bank service fee has not yet [been] recorded by the company... ➡️ These need to be recognized from the company's POV (Company's Cash Balance) as Service fees.

Service fees = $50

Company's Cash Balance Items

Reconciling ItemDescriptionAdd or Subtract to Cash Balance?
Note collectedBank collects a note on behalf of the company.Add
Interest earnedBank collects interest on behalf of the company.Add
Service feesBank charges company a service fee for bank services.Subtract
NSF checkCompany receives a check, but the account doesn't have sufficient funds to pay the check amount.Subtract
Electronic Funds Transfers (EFTs)Automatic withdrawals from the company's bank account (ex: rent).Subtract
Company errorCompany incorrectly records a transaction amount.Add / Subtract (it depends)

Bank's Cash Balance

Per Bank Statement$850
Deposits outstanding$170
Checks outstanding($200)
Bank error$50
Bank Balance per Reconciliation???

Company's Cash Balance

Per General Ledger$800
Note collected$200
Interest earned$20
Service fees($50)
Company Balance per Reconciliation???
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