Multiple Choice
Which document is primarily used to validate the bank and credit card account balances reported on a company's balance sheet?
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6. Internal Controls and Reporting Cash
Bank Reconciliation
Multiple Choice
After preparing a bank reconciliation, what should be the balance in the cash account on the company's books after all necessary reconciliation entries have been recorded?
A
It should equal the original cash balance per the company's books before reconciliation.
B
It should equal the total of outstanding checks.
C
It should equal the unadjusted balance per the bank statement.
D
It should equal the adjusted cash balance per the bank statement.
Verified step by step guidance1
Understand the purpose of a bank reconciliation: It is a process to ensure that the company's cash account balance matches the adjusted balance per the bank statement after accounting for timing differences and errors.
Identify the components of the reconciliation: These include the unadjusted balance per the bank statement, outstanding checks, deposits in transit, and any errors or adjustments needed for both the bank statement and the company's books.
Calculate the adjusted cash balance per the bank statement: Add deposits in transit to the unadjusted bank statement balance and subtract outstanding checks. Adjust for any bank errors if applicable.
Record necessary journal entries in the company's books: Adjust the cash account for items such as bank fees, NSF checks, or errors identified during reconciliation.
Verify the final cash account balance: After recording all reconciliation entries, the cash account balance in the company's books should equal the adjusted cash balance per the bank statement.
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