Question

Which one of the statements appearing below is incorrect regarding bank reconciliations? Multiple Choice

A)If a company's records show a different cash balance from that shown on the company's bank statement, either the company or the bank has made an error.
B)A bank reconciliation is an internal report prepared to report the cash balance to investors and creditors.
C)The up-to-date ending cash balance on the bank statement side will always equal the up-to-date ending cash balance on the book side.
D) After preparing a bank reconciliation, no journal entries need to be made for outstanding checks or deposits in transit.

Answer 1

The incorrect statement regarding bank reconciliations is that they are prepared to report the cash balance to investors and creditors. Statement B is incorrect as bank reconciliations serve as an internal control tool, not a report for external parties, and adjustments may be required in the form of journal entries after a bank reconciliation is completed.

Step-by-step explanation:

Regarding bank reconciliations, the incorrect statement is: A bank reconciliation is an internal report prepared to report the cash balance to investors and creditors. A bank reconciliation is in fact an internal document used by a company to ensure that its cash records are in agreement with its bank statements. This process helps to identify any discrepancies between the two, which can arise from time lags in recording transactions or errors.

Statement B is incorrect because a bank reconciliation is not typically prepared to report to investors and creditors, but rather as an internal control mechanism to verify the accuracy of cash transactions. The correct balances reached at the end of the bank reconciliation should be reflected in the financial statements, which are then used to report to investors and creditors.

Also, regarding Statement D, journal entries may be necessary after a bank reconciliation for items identified during the process that are not yet recorded in the company's books, such as bank fees or interest earned.