Question

Identify each of the following reconciling items as one of the below options:

a) An addition to the cash balance according to the bank statement.
b) Deduction from the cash balance according to the bank statement.
c) An addition to the cash balance according to the company's records.
d) A deduction from the cash balance according to the company's records.

Assume that none of the transactions reported by bank debit and credit memos have been recorded by the company.

1. Check for $690 incorrectly recorded by the company as $960.
2. Check for $420 incorrectly recorded by the company as $240.
3. Outstanding checks.
4. Deposits in transit.
5. Bank service charges.
6. NSF check.

Answer 1

Answer:

a) An addition to the cash balance according to the bank statement.  (4)

b) Deduction from the cash balance according to the bank statement.  (3)

c) An addition to the cash balance according to the company's records.  (1)

d) A deduction from the cash balance according to the company's records. (2), (5), (6).

Explanation:

1. Company has understated its cash balance by recording a credit amount of $960 instead of $690, so add the Balance to Cash Account.

2. Company has overstated its cash balance by recording a credit amount of $240 instead of $420, so deduct the Balance from Cash Account.

3. Company has recorded a Payment but Bank hasn't yet updated its records. So, deduct from Bank Account.

4. Company has recorded a Deposit but Bank hasn't yet updated its records. So, Add to Bank Account.

5. Bank Service Charges are deducted from Cash Account maintained by Company.

5. Company has recorded a collection from customer in its accounts. When the check was sent to Bank, the banking authority found that the balance in the customer account is not sufficient and declared the check as "NSF". So, deduct it from Cash Account maintained by Company to reconcile.