Identify each of the following reconciling items as:
Let's identify each reconciling item with the appropriate treatment:
Bank service charges, $20.
a. Addition to the cash balance according to the bank statement
b. Deduction from the cash balance according to the bank statement
c. Addition to the cash balance according to the company's records
d. Deduction from the cash balance according to the company's records.
(None of the transactions reported by bank debit and credit memos have been recorded by the company.)
1. Bank service charges, $20.
Answer: Deduction from the cash balance according to the company's records
2. Check drawn by company for $174 but incorrectly recorded by company as $147.
Answer: Deduction from the cash balance according to the company's records
3. Check for $10 incorrectly charged by bank as $100.
Answer: Addition to the cash balance according to the bank statement
4. Check of a customer returned by bank to company because of insufficient funds, $240.
Answer: Deduction from the cash balance according to the company's records
5. Deposit in transit, $2,475.
Answer: Addition to the cash balance according to the bank statement
6. Outstanding checks, $7,385.
Answer: Deduction from the cash balance according to the bank statement
7. Note collected by bank, $5,300.
Answer: Addition to the cash balance according to the company's records
Expert Explanation
Bank service charges, $20.
Deduction from the cash balance according to the company's records.
Bank service charges reduce the company's cash balance but have not yet been recorded by the company.
Check drawn by company for $174 but incorrectly recorded by company as $147.
The company needs to correct its records by deducting the additional $27 ($174 - $147).
Check for $10 incorrectly charged by bank as $100.
The bank incorrectly reduced the account by $90 more than it should have ($100 - $10), so this amount needs to be added back to the bank balance.
Check of a customer returned by bank to company because of insufficient funds, $240.
The company must deduct this amount from its records because the check was not actually received.
Deposit in transit, $2,475.
This amount has been recorded by the company but has not yet been recorded by the bank, so it needs to be added to the bank balance.
Outstanding checks, $7,385.
These checks have been recorded by the company but have not yet been deducted from the bank balance, so they need to be subtracted from the bank balance.
Note collected by bank, $5,300.
The company needs to record this amount as it has been collected by the bank on behalf of the company but not yet recorded by the company.
Bank service charges reduce the company's cash balance but have not yet been recorded by the company.
Check drawn by company for $174 but incorrectly recorded by company as $147.
Deduction from the cash balance according to the company's records.
The company needs to correct its records by deducting the additional $27 ($174 - $147).
Check for $10 incorrectly charged by bank as $100.
Addition to the cash balance according to the bank statement.
The bank incorrectly reduced the account by $90 more than it should have ($100 - $10), so this amount needs to be added back to the bank balance.
Check of a customer returned by bank to company because of insufficient funds, $240.
Deduction from the cash balance according to the company's records.
The company must deduct this amount from its records because the check was not actually received.
Deposit in transit, $2,475.
Addition to the cash balance according to the bank statement.
This amount has been recorded by the company but has not yet been recorded by the bank, so it needs to be added to the bank balance.
Outstanding checks, $7,385.
Deduction from the cash balance according to the bank statement.
These checks have been recorded by the company but have not yet been deducted from the bank balance, so they need to be subtracted from the bank balance.
Note collected by bank, $5,300.
Addition to the cash balance according to the company's records.
The company needs to record this amount as it has been collected by the bank on behalf of the company but not yet recorded by the company.
