Question

If a check correctly written and paid by the bank for $408 is incorrectly recorded on the company's books for $480, the appropriate treatment on the bank reconciliation would be to deduct $72 from the bank's balance. deduct $408 from the book's balance. add $72 to the bank's balance. add $72 to the book's balance.

Answer 1

The correct answer is add $72 to the book's balance.

Step-by-step explanation:

Bank reconciliation is a way of identifying discrepancies between the cash book balance (company's books) and the bank balance (balance per bank statement). The discrepancies can be as a result of erroneous posting, deposit in transit, outstanding checks, etc.

In the instance of the question, there was an erroneous posting in the cash book of $72 ($480 - $408). Instead of crediting cash book by $408, it was rather credited by $480 - meaning that the credit was overstated by $72. To correct this erroneous posting, we have to add back $72 to the cash book balance.