Question

In preparing the bank reconciliation, it is found that check number 421 for November's rent was correctly written and drawn for $6,000 but was erroneously entered in the accounting records as $8,000. When preparing the November bank statement, the company should:

O Add 2,000 to the book balance of cash

O Add $2,000 to the bank statement balance

O Deduct $2,000 from the bank statement balance

O Deduct $2,000 from the book balance of cash

Answer 1

The error in the company's books should be corrected by deducting $2,000 from the book balance of cash. A T-account balance sheet would list assets of $620 and liabilities of $400, resulting in a net worth of $220 for the bank.

Step-by-step explanation:

When preparing the November bank statement, the company should deduct $2,000 from the book balance of cash. The error occurred in the company's accounting records, not the bank's records. Since the check was correctly drawn for $6,000 but incorrectly recorded as $8,000 in the books, the books show $2,000 more than what actually exists. Therefore, correcting the error means subtracting the difference from the book balance.

To form a T-account balance sheet for a bank having deposits of $400, reserves of $50, government bonds of $70, and loans of $500:

• Assets: Reserves $50, Loans $500, Government Bonds $70, Total Assets $620.
• Liabilities: Deposits $400

The bank's net worth can be calculated as the difference between total assets and liabilities, which is $620 - $400 = $220 net worth.