Correct Journal Entry for Reconciling Item
What is the correct journal entry for a reconciling item involving a recording error in a check issued for $588?
Choose the most appropriate option:
a. a debit to cash for $100
b. a credit to Accounts Payable for $588
c. a debit to cash for $588
d. a debit to accounts Payable for $100
Answer:
The correct journal entry for this reconciling item would be option C: a debit to cash for $588.
Let's break down the scenario step-by-step:
1. The check was issued for $588, but it was recorded incorrectly in the firm's records as $688. This means there was an overstatement of $100 in the firm's records.
2. On the bank statement, the cancelled check was properly listed at $5588. This means the bank recorded the correct amount.
3. To reconcile the discrepancy between the firm's records and the bank statement, we need to adjust the firm's records to match the correct amount of $588.
4. Since the firm's records overstated the payment by $100, we need to decrease the recorded amount by debiting the cash account for $100.
5. This adjustment will bring the recorded amount from $688 down to the correct amount of $588.
In conclusion, the correct journal entry for this reconciling item would be a debit to cash for $588 (option C).
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