Final answer:
The error of recording a deposit of $70 as $700 should be shown as a Book error on a bank reconciliation. This category of error is used to adjust any discrepancies found between the company's records and the bank statement due to mistakes made by the bank.
Step-by-step explanation:
If the bank records a deposit of $70 as $700, the error should be shown on a bank reconciliation as a Book error. Bank reconciliation is a process that matches the balances on a company's books with the corresponding information on a bank statement. When the bank inaccurately records a transaction, it does not affect the checks issued (outstanding checks), nor does it represent a deposit in transit (a deposit made but not yet cleared by the bank) or a bank service charge. Instead, it is an error on the bank's part that must be noted and corrected on the bank's records.
To explain the concept of bank reconciliation further through an example: suppose a bank has deposits of $400, holds reserves of $50, has purchased government bonds worth $70, and has made loans of $500. The T-account balance sheet for this bank would show assets—including reserves, bonds, and loans—on one side and liabilities—such as deposits—on the other. The difference between the total assets and liabilities is the bank's net worth.