Final answer:
The non-reconciling item for bank reconciliation is 'outstanding deposits' as they are already reflected in the company's cash records. Bank reconciliation involves adjusting for items like interest collected and bank charges that affect the cash balance. In transactions, loan valuation fluctuates with loan risks and market interest rates.
Step-by-step explanation:
The item that is not a reconciling item when preparing a bank reconciliation statement is 'outstanding deposits.'
When a bank reconciliation is prepared, the aim is to find differences between the bank statement balance and the company's cash account record, and correct them so that they both reflect the actual amount of cash.
Outstanding checks and deposits are timing differences that reconcile the actual cash balance; however, they are already reflected in the company's cash records and thus, are not adjustments to be made on the reconciliation.
In contrast, interest collected by the bank on the company's behalf and bank service charges not recorded by the company are examples of reconciling items that would be adjusted during the bank reconciliation process.
Looking at the larger picture, the money listed as assets on a bank balance sheet may not be physically in the bank because banks operate under the principle of fractional reserve banking, meaning they keep only a fraction of the bank's deposits on hand as reserves, and lend out the rest.
In the scenario of buying loans in the secondary market, the valuation might fluctuate based on multiple factors related to loan risks and market interest rates. For instance:
- A loan with a history of late payments by the borrower would likely be valued less due to increased risk of default.
- If market interest rates have risen, existing loans at lower rates become less attractive, thus you'd pay less for such a loan.
- When a borrowing firm shows high profits, its loan would seem more secure, which might increase your willingness to pay more.
- If the market interest rates have fallen, loans bearing higher interest rates from past agreements are more valuable, and you would likely pay more for them.