NOTE: Although this problem is different from that found in the text, you may use the working papers designed for Problem 6-4B in solving this problem.

The following information is available to reconcile Steele Company's book balance of cash with its bank statement cash balance as of December 31, 2002:

1. After posting is complete, the December 31 cash balance according to the accounting records is $34,522.22, and the bank statement cash balance for that date is $49,163.52.

2. Check No. 1375 for $4,818.77 and Check No. 1295 for $420, both written and entered in the accounting records in December, are not among the canceled checks. Two checks, No. 1231 for $2,403.45 and No. 1245 for $430.92, were outstanding on the most recent November 30 reconciliation. Check No. 1231 is listed with the December canceled checks, but Check No. 1245 is not.

3. When the December checks are compared with entries in the accounting records, it is found that Check No. 1290 had been correctly drawn for $3,628.80 to pay for utilities expense but was erroneously entered in the accounting records as $3,826.80.

4. Two debit memoranda are enclosed with the statement and are unrecorded at the time of the reconciliation. One of the debit memoranda is for $800.00 and dealt with an NSF check for $782.50 that had been received from a customer, Johnson Enterprises, in payment of its account. The bank assessed a $17.50 fee for processing it. The second debit memorandum is a $104.00 charge for check printing. Steele did not record this transaction before receiving the statement.

5. A credit memorandum indicates that the bank collected $19,950 cash on a note receivable for the company, deducted a $20 collection fee, and credited the balance to the company's cash account. Steele did not record this transaction before receiving the statement.

6. Steele's December 31 daily cash receipts of $10,252.39 were placed in the bank's night depository on that date and do not appear on the December 31 bank statement.

Required:

1. Prepare the bank reconciliation for this company as of December 31, 2002.
2. Prepare the journal entries necessary to bring the company's book balance of cash into conformity with the reconciled cash balance as of December 31, 2002.

3. Explain the nature of the communications conveyed by a bank when the bank sends the depositor (a) a debit memorandum, and (b) a credit memorandum.