Hazelton Manufacturing prepares a bank reconciliation at the end of every month.

At the end of May, the general ledger checking account showed a balance of $1,430 and the bank statement showed a bank balance of $1,375.

Outstanding checks totaled $385 and deposits in transit were $185.

The bank statement listed service charges of $65 and NSF checks totaling $190.

The corrected cash balance is:

a. $920.

b. $985.

c. $1,175.

d. $1,375.

The corrected balance is $1175. So option C is the correct answer.

Explanation:

The corrected cash balance can be calculated by using the unadjusted balance from the checking account and adjusting for entries and transactions that do not appear on the checking account.

Corrected Cash balance = 1430 - 65 - 190 = 1175

$65 of service charges are directly deducted by the bank and are not adjusted for in the checking account so we will deduct this amount from the checking account in general ledger.

$190 of NSF are the checks from accounts receivable that have been recorded and added to the checking account and deposited in the bank. However, due to NSF they are not added in the bank account and thus need to be deducted from the checking account in general ledger.