Final answer:
Deposits in transit are added to the book balance during bank reconciliation. EFT payments and NSF cheques are deducted, while EFT cash receipts affect the bank statement balance. Understanding M1 and M2 classifications helps categorize different forms of money.
"The correct option is approximately option C"
Step-by-step explanation:
When preparing a bank reconciliation, the item that would be added to the book balance is c. deposits in transit. A deposit in transit refers to money that has been received and recorded by a company but has not yet been recorded by the bank. It is necessary to add deposits in transit to the company's book balance during the bank reconciliation process to match the bank's records, given that they will be reflected in the bank statement at a later time.
EFT payments and NSF cheques (non-sufficient funds) are generally deducted from the book balance, as they represent amounts that the bank has already deducted or will need to deduct from the account. EFT cash receipts would likewise increase the bank statement balance rather than the book balance as they represent funds that the bank has processed.
The purpose of a bank reconciliation is to ensure that the company's general ledger account balance matches the balance reported by the bank and to identify any discrepancies that may need to be resolved. It is a critical control measure for ensuring the accuracy of a company's cash records.
Understanding money supply classifications (M1, M2):
Line of credit: Neither M1 nor M2 because it represents potential borrowing, not actual money.
Traveler's checks: M1, as they are a form of check that is usable the same as cash.
Quarters in your pocket: M1, as it is physical currency.
Checking account balance: M1, because it is liquid and used for transactions.
Money market account: M2, as it includes all of M1 plus savings accounts, and other near monies that are not as liquid as those in M1.