Question

The following data were obtained from the bank statement and from the process of reconciling the bank balance with the company's cash balance: Bank service charges $ 20 Deposit outstanding $ 150 Interest earned on the bank account $ 10 Checks outstanding $ 400 Which items should be deducted from and added to the bank balance in completing the reconciliation?

Answer 1

To reconcile a bank balance, add deposit outstanding ($150) and interest earned ($10) to the bank balance, and deduct bank service charges ($20) and checks outstanding ($400).

Step-by-step explanation:

Reconciliation of Bank Balance:

When completing the process of reconciling the bank balance with the company's cash balance, certain items need to be added to or deducted from the bank balance. In particular:

• Bank service charges of $20 should be deducted from the bank balance because these are fees the bank has taken out that have not yet been accounted for in the company's books.
• Deposit outstanding of $150 should be added to the bank balance. This represents money that has been received by the company but has not yet been processed and recorded by the bank.
• Interest earned on the bank account amounting to $10 should be added to the bank balance as it increases the company's available funds.
• Checks outstanding amounting to $400 should be deducted from the bank balance because the money has been spent but has not yet cleared the bank.

By adding the deposit outstanding and the interest earned, and subtracting the bank service charges and checks outstanding, the accurate adjusted bank balance can be determined.