Final answer:
Adjustments to the bank balance in a monthly reconciliation may include outstanding checks, bank errors, deposits in transit, and interest earned. Money categories include M1, M2, or neither, with certain types of money like credit lines not included in these measurements.
Step-by-step explanation:
Adjustments to Bank Balance in Monthly Reconciliations
During the monthly bank reconciliation process, some adjustments are typically made to the ending bank balance to reconcile it with the company's cash records. Outstanding checks and Deposits in transit are two common adjustments made to the bank balance. Outstanding checks are checks written by the company that have not yet been cleared by the bank. Deposits in transit are cash and checks received and recorded by the business, but not yet recorded by the bank. Bank errors could be another adjustment if the bank has made a mistake in recording transactions. Finally, Interest earned needs to be added to the company's cash records since it increases the bank account balance.
Categories of Money Supply
When categorizing different forms of money into the money supply, we look at M1 which includes more liquid assets, and M2 which includes M1 plus savings deposits, small-time deposits, and non-institutional money market funds.
Your $5,000 line of credit on your Bank of America card is neither in M1 nor M2 because it is not actual money but credit.
$50 worth of traveler's checks you have not used yet are included in M1 since traveler's checks are considered to be cash equivalents.
$1 in quarters in your pocket is part of M1 because it's currency in circulation.
$1200 in your checking account is in M1 because it's part of demand deposits.
$2000 in a money market account is included in M2, as it encompasses M1 and additional balances that are less liquid.