Jimmy Company's cash balance at the end of the month was $8,500. After comparing the company's records with the monthly bank statement, Carla's accountant identified the following reconciling items: outstanding checks, $800; deposits in transit, $700; bank service charge, $30; NSF check, $500. What is the adjusted cash balance?

A) $6,600

B) $6,370

C) $7,970

D) The adjusted cash balance cannot be determined from this information.

The answer is C) $7,970.

Explanation:

We have 04 reconciling items as below:

- Outstanding checks $800: this amount was already recorded in the Cash account of the company once the check was written; thus, the Cash ending balance has already reflected this amount.

- Deposits in transit $700: this amount was already recorded in the Cash or Cash-equivalent account of the company once the deposit was made; thus, the Cash ending balance has already reflected this amount.

- Bank service charge $30: fees paid to banking activities and are deducted without informing to the company. Thus, this deduction in cash is not reflected in the Cash account.

- NSF check $500: this was recorded as the increase in Cash account by the company once the check was written by the person/entity to the company. However, the writer's account balance was not sufficient to honor this check amount to the company; thus Cash Account at the end of the period should reduced by $500. Instead, this $500 may be recorded in Account Receivable account.

Thus, the adjusted cash balance = 8,500 - 30 - 500 = $7,970.