Multiple Choice
If a payment is directly deducted from your bank account but not yet recorded in your company's books, how should this be treated during the bank reconciliation process?
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6. Internal Controls and Reporting Cash
Bank Reconciliation
Multiple Choice
Which of the following is NOT a true statement about reconciling a bank statement?
A
Deposits in transit are added to the book balance during reconciliation.
B
Bank service charges are deducted from the book balance during reconciliation.
C
Outstanding checks are subtracted from the bank statement balance during reconciliation.
D
Errors made by the bank are corrected on the company's books during reconciliation.
Verified step by step guidance1
Understand the concept of bank reconciliation: Bank reconciliation is the process of comparing the company's book balance (cash account) with the bank statement balance to identify and resolve discrepancies.
Review the treatment of deposits in transit: Deposits in transit are amounts that have been recorded in the company's books but have not yet been processed by the bank. These are added to the bank statement balance during reconciliation, not the book balance.
Examine the treatment of bank service charges: Bank service charges are fees deducted by the bank from the company's account. These charges are subtracted from the book balance during reconciliation to reflect the reduced cash balance.
Analyze the treatment of outstanding checks: Outstanding checks are payments issued by the company that have not yet cleared the bank. These are subtracted from the bank statement balance during reconciliation to account for the pending reduction in cash.
Clarify the treatment of bank errors: Errors made by the bank are corrected on the bank's records, not on the company's books. The company adjusts its books only for errors it has made, not for errors made by the bank.
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