Answer to Question #279481 in Accounting for Another you

Question

1. Company X wrote a check for 9,500.00 payable to Andrew Reyes and it cleared with the bank for the same amount. The accounting book of the company however shows that the same check issued to Mr. Reyes was recorded as 5,900.00. What is the effect of this entry to the bank or book balance? What will you do to reconcile the book and bank balances?

Answer 1

Solution:

This error is known as a transposition error which would create an imbalance between the book and bank balances. This is because it will display an undercharge in the books of account.

Undercharge in the books = 9,500 – 5,900 = 3,600

The initial journal entry in the books were as follows:

Dr. Accounts payable (Andrew Reyes) A/c      5,900

                Cr. Bank A/c                                                                 5,900

 

In order to reconcile the book and bank balances, a journal entry for the undercharge will be created to balance the books as follows:

Dr. Accounts payable (Andrew Reyes) A/c      3,600

                Cr. Bank A/c                                                                 3,600

(To correct payment to Reyes undercharge)

Once this journal entry is made, the accounts will balance.