Bank Reconciliation Notes

Bank Reconciliation Overview

  • Purpose of Bank Reconciliation
    • To ensure that the records of a company's cash balance match the bank's records.

Correct Options in Bank Reconciliation

  • The statement "which of the following is correct" is referencing multiple choice options regarding actions taken during bank reconciliation. Here are the options discussed:
Potential Actions during Bank Reconciliation

  1. Subtract the NSF check from the company's ending balance.

    • Definition: NSF (Non-Sufficient Funds) check refers to a check that cannot be processed because the account it’s drawn on does not have enough funds.
    • Correctness: This action is correct because the NSF check reduces the cash available from the company's perspective.

  2. Subtract the amount of interest earned from the bank's ending balance.

    • Definition: Interest earned refers to the money earned from the bank for keeping funds on deposit.
    • Correctness: This statement is incorrect; the interest earned should be added to the company’s account balance, not subtracted.

  3. Add the deposits outstanding to the company's ending balance.

    • Definition: Outstanding deposits are deposits that have been recorded in the company’s books but have not yet cleared the bank.
    • Correctness: This statement is correct as adding these deposits reflects additional cash that will be available once they clear.

  4. Add the total bank service fee to the company's ending balance.

    • Definition: The bank service fee is a charge assessed by the bank for maintaining the account or other services.
    • Correctness: This statement is incorrect; service fees should be subtracted from the balance as they decrease the available cash.

Conclusion of Options

  • Therefore, the correct actions during a bank reconciliation are:
    • Subtracting the NSF check from the company's ending balance AND
    • Adding the deposits outstanding to the company's ending balance, while the other options are not correct.