Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

6. Internal Controls and Reporting Cash

Bank Reconciliation

Financial Accounting

6. Internal Controls and Reporting Cash

Bank Reconciliation

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Multiple Choice

One of the most important internal controls for cash is the bank reconciliation. What is the primary purpose of preparing a bank reconciliation statement?

To calculate the interest earned on the company's bank account

To record all outstanding checks in the company's ledger

To determine the amount of cash available for investment

To identify and explain differences between the cash balance per books and the cash balance per bank statement

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Verified step by step guidance

Understand the concept of a bank reconciliation: A bank reconciliation is a process that compares the company's cash balance as per its accounting records (books) with the cash balance reported by the bank in the bank statement.

Identify the purpose of a bank reconciliation: The primary purpose is to identify and explain any differences between the two balances. These differences can arise due to outstanding checks, deposits in transit, bank fees, errors, or unauthorized transactions.

Clarify why the other options are incorrect: Calculating interest earned, recording outstanding checks, or determining cash available for investment are not the primary purposes of a bank reconciliation. These may be secondary outcomes but are not the main focus.

Explain the reconciliation process: The process involves adjusting the book balance and the bank balance to account for discrepancies such as outstanding checks (checks issued but not yet cleared), deposits in transit (deposits made but not yet recorded by the bank), and any bank fees or errors.

Highlight the importance of internal control: Bank reconciliations are a critical internal control mechanism to ensure the accuracy of cash records, detect errors or fraud, and maintain financial integrity.