You are auditing general cash for the Pittsburgh Supply Company for the fiscal year ended July 31, 2011. The client has not prepared the July 31 bank reconciliation. After a brief discussion with the owner, you agree to prepare the reconciliation, with assistance from one of Pittsburgh Supply's clerks. You obtain the following information:
General Ledger Bank Statement
Beginning balance 7/1/11 $6,400 $8,378
Deposits $25,474
Cash receipts journal $26,874
Checks cleared (25,307)
Cash disbursements journal (23,171)
July bank service charge (107)
Note paid directly (6,400)
NSF Check (516)
Ending balance 7/31/11 $10,103 $1,522
June 30 Bank Reconciliation
Information in General Ledger and Bank Statement
Balance per Bank $8,378
Deposits in transit $600
Outstanding checks $2,578
Balance per books $6,400
Additional information obtaind is as follows:
1. Checks clearing that were outstanding on June 30 totled $2,411.
2. Checks clearing that were recorded in the July disbursements journal totaled $21,120.
3. A check for $1,130 cleared the bank but had not been recorded in the cash disbursements journal. It was for an acquisition of inventory. Pittsburgh Supply uses the periodic-inventory method.
4. A check for $646 was charged to Pittsburgh Supply but had been written on a different company's bank account.
5. Deposits included $600 from June and $24,874 for July.
6. Thank bank charged Pittsburgh Supply's account for a nonsufficient check totaling $516. The credit manager concluded that the customer intentionally closed its account and he owner left the city. The check was turned over to a collection agency.
7. A note for $6,000, plus interest, was paid directly to the bank under an agreement signed 4 months ago. The note payable was recorded at $6,000 on Pittsburgh Supply's books.
a. Prepare a bank reconciliation that shows both the unadjusted and adjusted balance per books.
b. Prepare all adjusting entries.
c. What audit procedures would you use to verify each item in the bank reconciliation.
d. What is the cash balance that should appear on the July 31, 2011, financial statements.