Bank Reconciliation Flashcards
What is the purpose of bank reconciliation?
To ensure the company’s general ledger Cash account is complete and accurate, preventing overdrafts and incorrect cash reporting on the balance sheet.
What should a company establish to safeguard its cash?
Internal controls over its cash, including separation of accounting duties and routine bank reconciliations.
True or False: A bank reconciliation should only be prepared at the end of the month.
False
Companies can prepare bank reconciliations throughout the month due to online banking.
What should be compared during the bank reconciliation process?
Every check amount on the bank statement with the general ledger Cash account and every deposit on the bank statement with the receipts in the Cash account.
What are adjustments to BANK during bank reconciliation likely to include?
- Outstanding checks
- Deposits in transit
What are adjustments to BOOKS during bank reconciliation likely to include?
- Bank fees
- Bank credit memos
What happens if the adjusted balances per BANK and BOOKS are identical?
The bank statement is reconciled.
Fill in the blank: The unadjusted balance in the general ledger Cash account may differ from the bank statement balance because _______.
[transactions are recorded at different times]
What is the definition of a checking account?
A demand deposit account where the bank must return the depositors’ account balances on demand.
What are cancelled checks?
Checks that have been issued by the company and paid by the company’s bank.
What is a stop payment order?
A company’s instruction to its bank to not pay a specific check that has not yet been paid.
What is meant by deposits in transit?
Cash and checks received and recorded by the company but not yet processed by the bank.
What are outstanding checks?
Checks written and recorded in the Cash account but not yet paid by the bank.
What do bank credit memos indicate?
That the bank increased the balance in a company’s checking account.
What do bank debit memos indicate?
That the bank decreased the balance in a company’s checking account.
What is a bank overdraft?
Occurs when checks are presented for payment and the checking account balance is insufficient.
Define ‘voided checks’.
Checks that were written in error, marked with the word ‘VOID’.
What is the significance of authorized signers?
They are designated individuals who are allowed to sign checks drawn on the company’s checking account.
True or False: The bank’s largest liability is customers’ deposits.
True
How does accounting differ between a bank and a company when a customer deposits money?
The bank debits its Cash account (increasing assets) and credits Customers’ Deposits (increasing liabilities), while the customer debits their Cash account.
What is the effect of a bank debit on a depositor’s checking account?
It decreases the checking account balance.
What is the bank’s liability when a customer deposits money?
The bank has an obligation to return the customer’s checking account balance on demand.
What is a bank debit memo?
Indicates that the bank has decreased the balance in a company’s checking account.
Examples include bank fees, loan payments, and overdraft fees.
How is a bank debit memo recorded in the bank’s general ledger?
With a debit to the bank’s liability account Customers’ Deposits and a credit to another account.
