Multiple Choice
Which of the following items typically appear on the bank side of a bank reconciliation?
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6. Internal Controls and Reporting Cash
Bank Reconciliation
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In a bank reconciliation, a non-sufficient funds (NSF) check should appear in which section?
A
Added to the bank balance
B
Deducted from the book balance
C
Added to the book balance
D
Deducted from the bank balance
Verified step by step guidance1
Understand the concept of a non-sufficient funds (NSF) check: An NSF check is a check that was deposited by the company but later returned by the bank because the issuer's account did not have enough funds to cover the check.
Identify the impact of an NSF check on the company's books: Since the check was initially recorded as a deposit, it increased the book balance. However, when the bank returns the check, the company must reduce its book balance to reflect the fact that the funds are not available.
Determine where the NSF check should appear in the bank reconciliation: The NSF check does not affect the bank's records directly, as it is already accounted for in the bank's statement. Instead, it requires an adjustment to the company's book balance.
Classify the adjustment: Since the NSF check reduces the company's book balance, it should be deducted from the book balance in the reconciliation process.
Conclude the correct section: The NSF check should appear in the 'Deducted from the book balance' section of the bank reconciliation.
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