Question

Nash Corporation is preparing a bank reconciliation and has identified the following potential reconciling items. Indicate how each would be reported on a bank reconciliation?

1) As an addition to the bank balance
2) As a deduction from the bank balance
3) As an addition to the book balance
4) As a deduction from the book balance

Answer 1

Reconciling items on a bank reconciliation are classified based on their nature and are added or deducted from the bank or book balances to ensure they reflect the actual cash available to the company.

Step-by-step explanation:

The student’s question pertains to how to report various potential reconciling items on a bank reconciliation. There are typically four ways to treat these items: as an addition or deduction to either the bank balance or the book balance. The categorization depends on what the item is. An example can be if the bank balance is less than what the company’s records show due to a deposit in transit, this would be added to the bank balance in the reconciliation because it’s an amount that the bank will soon process.

Conversely, if the bank has not yet recorded a check or withdrawal, this would be a deduction from the bank balance. On the other side, if an error is made in the company's books that caused an overstatement of cash, it would be a deduction from the book balance, while an unrecorded receipt would be added to the book balance. The goal is that after adjustments, both the bank and book balances should mirror each other, reflecting the actual available cash the company has.