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Mastering Correction of Accounting Errors > Section 2 - The Bank Reconciliation > Flashcards

Section 2 - The Bank Reconciliation Flashcards

1
Q

The companies Cash Ledger balance is $6,725

Given the following, what is the companies ending Cash Ledger balance:

  • Deposits In Transit - $1,540
  • Interest Earned on Bank account - $125
  • Service charge - $35
  • Certified Check Fee - $25
  • Outstanding Checks - $900
  • Note collected on behalf the company - $1,675
A

When reconciling the Companies Cash Ledger

Start with the end of Cash Ledger balance:

End of Month Balance: $6,725

Additions

Note collected 1,675

Interest Earned 125

Subtotal $8,525

Deductions:

Bank Service Charge (35)

Certified Check Fee (15)

Reconciled End of Cash Ledger Balance: $8,475

**The deposits in transit and outstanding checks are reconciled to the company’s bank statement balance.

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2
Q

If there is a separate Cash account for each bank account, a reconciliation must be done for each bank and corresponding cash ledger.

True or False

A

True.

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3
Q

Cash deposits are _____ for the company and ____ for the bank.

A

Assets for the company. Liabilities for the bank.

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4
Q

A bank service charge from the bank should be:

Added/Deducted from Bank Balance

Added/Deducted from Cash Ledger (Book Balance)

A

Deducted from the BOOK BALANCE

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5
Q

In a bank reconciliation, to adjust for a customer’s NSF check requires which of the following:

  • a) increasing the bank balance by the amount
  • b) decreasing the bank balance by the amount
  • c) increasing the book balance by the amount
  • d) decreasing the book balance by the amount
A

D - decreasing the book balance by the amount.

When there is an NSF, the bank issues a debit memo. An NSF takes place when a customer gives a company a check, however, the customer did not have enough funds to cover the check, causing an NSF - ‘Non sufficient funds’, often referred to as a ‘bounced check.’

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6
Q

Receipts and disbursements recorded on the company’s books, but not recorded on the most recent bank statements might include:

A
  • Outstanding Checks
  • Deposits in Transit and undeposited Cash
  • Bank Errors, if any

When reconciling the Bank stament balance, remember to think of ODB - Old Dirty Banks

O - Outstanding Checks - (Subtracted)

D - Deposits in transit and cash on hand - (Added)

B - Bank errors, if any - (Added or subtracted, depending on the error)

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7
Q

The process of bringing the bank and Cash accounts into balance is called the:

A

Bank Reconciliation Process

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8
Q

What is the journal entry to record interest earned on a bank account?

A

Cash (DR.)

Interest Revenue or Interest Income (CR.)

When a company earns interest from their bank account, the journal entry is a debit to Cash to reflect an increase in Cash and a Credit to Interest Revenue to show the increase in Revenue.

Please note, in addition to preparing the bank reconciliation, it is also important to know how to prepare the journal entries to reconcile the cash ledger.

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9
Q

A night deposit made after the bank was closed on the last day of the month should be:

Added/Deducted from Bank Balance

Added/Deducted from Cash Ledger (Book Balance)

A

Added to the BANK BALANCE

When reconciling the Bank stament balance, remember to think of ODB - Old Dirty Banks

  • O - Outstanding Checks - (Subtracted)
  • D - Deposits in transit and cash on hand - (Added)
  • B - Bank errors, if any - (Added or subtracted, depending on the error)
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10
Q

Receipts and disbursements recorded on the bank statement, but not recorded on the company’s Cash Ledger might include:

A
  • Credit Memo - Additions to the company’s bank balance
  • Debit Memo - Deductions from the company’s bank balance
  • Authorized payments to a third party
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11
Q

Interest earned from the bank should be:

Added/Deducted from Bank Balance

Added/Deducted from Cash Ledger (Book Balance)

A

Added to the BOOK BALANCE

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12
Q

What is a debit memo?

A

A debit memo is an item on a company’s bank statement that decreases a company’s checking account balance.

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13
Q

The companies Cash Ledger balance is $2,970

Given the following, what is the companies ending Cash Ledger balance:

  • Interest Earned - $225
  • Outstanding Checks - $500
  • Bank service charge - $15
  • Note collected on behalf of the company - $1,700
  • Safe Deposit Fee - $15
  • Deposits in Transit - $420
A

When reconciling the Companies Cash Ledger

Start with the end of Cash Ledger balance:

End of Month Balance: $2,970

Additions

Note collected $1,700

Interest Earned 225

Subtotal $4,895

Deductions:

Bank Service Charge (15)

Safe Deposit Fee (15)

Reconciled End of Cash Ledger Balance: $4,865

**The deposits in transit and outstanding checks are reconciled to the company’s bank statement balance.

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14
Q

Additions to the company’s bank balance such as interest earned, wired funds and notes collected are examples of:

A

A credit memo.

A credit memo is an item on a company’s bank statement that increases the company’s checking or savings account balance.

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15
Q

The companies Cash Ledger balance is $3,650

Given the following, what is the companies ending Cash Ledger balance:

  • Safe Deposit Fee - $20
  • Deposits In Transit - $2,950
  • Service charge - $35
  • Note collected on behalf the company - $1,600
  • Outstanding Checks - $1,500
A

When reconciling the Companies Cash Ledger

Start with the end of Cash Ledger balance:

End of Month Balance: $3,650

Additions (Credit Memos)

Note collected $1,600

Subtotal 5250

Deductions: (Debit Memos)

Bank Service Charge (35)

Safe Deposit Fee (20)

Reconciled End of Cash Ledger Balance: $5,195

**Deposits in transit and outstanding checks are accounted for when reconciling the Bank Statement Balance.

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16
Q

An NSF check from a customer should be:

Added/Deducted from Bank Balance

Added/Deducted from Cash Ledger (Book Balance)

A

Deducted from the BOOK BALANCE

When there is an NSF, the bank issues a debit memo. An NSF takes place when a customer gives a company a check, however, the customer did not have enough funds to cover the check, causing an NSF - ‘Non sufficient funds’, often referred to as a ‘bounced check.’

17
Q

Checks written by the company and recorded in the Cash ledger but not yet cleared by the bank are referred to as:

A

Outstanding checks

Outstanding checks are deducted from the bank balance.

18
Q

The bank erroneously charged $275 against your account for the payment of another company.

How is this amount reconciled?

A

Since the bank charge of $275 to your account was not incurred by your company, after the bank has been called and notified of the error, a credit memo will be issued and the $275 is added back, increasing the company’s end of month bank balance.

19
Q

What is an outstanding check?

A

An outstanding check are checks written by the company and recorded in the Cash ledger and checkbook, but not yet paid by the bank. Therefore, outstanding checks, are usually not reflected as a deduction on the current bank statement.

20
Q

A company issued a check for $325, however, it was recorded as $352.

During the bank reconciliation process, you would:

A

This is a book error, therefore the amount would be adjusted to the cash ledger. Since the ledger Cash Balance is $27 lower than it should be, $27 must be added back.

The company deducted $352, when it should’ve been $325, they deducted ($352- $325 = $27) $27 too much.

21
Q

The companies bank statement balance is $7,200

Given the following, what is the companies ending bank balance:

  • Outstanding Checks - $3,100
  • NSF - $525
  • Bank Charge - $35
  • Deposits In Transit - $4,450
  • Note collected on behalf the company - $1,110
A

When reconciling the Companies Bank Account:

Start with the end of month Bank balance:

End of Month Balance: $7,200

Additions

Deposits in Transit $4,450

Subtotal $11,650

Deductions:

Outstanding Checks (3,100)

Reconciled End of Month Bank Balance: $8,550

**The note collected, NSF and bank charge are reconciled to the company’s cash ledger.

22
Q

Deductions from a company’s bank balance such as NSF fees and bank service charges are an example of:

A

Debit memos

A debit memo is an item on a company’s bank statement that decreases the company’s checking or savings account balance.

23
Q

Deposits made by mail or in a night deposit lockbox are:

A

Deposits in Transit - Deposits in Transit and other cash on hand are added to the bank statement balance.

When reconciling the Bank stament balance, remember to think of ODB - Old Dirty Banks

  • O - Outstanding Checks - (Subtracted)
  • D - Deposits in transit and cash on hand - (Added)
  • B - Bank errors, if any - (Added or subtracted, depending on the error)
24
Q

What are the three major purposes a bank reconciliation serves?

A
  1. to review information needed to bring company accounting records up to date at the end of the month or another period
  2. to verify that the ledger Cash account balance at the end of the month or other period is accurate and to correct any errors if any.
  3. to verify that the checking account balance at the end of the month or other period is accurate and to alert the bank of any errors if any.
25
Q

What is the journal entry to record a note collected by the bank on behalf of Perry Co?

A

Cash (DR.) - Increase in the company’s cash ledger

Note Receivable (CR.) - Decrease in the customer’s receivable balance

Please note, in addition to preparing the bank reconciliation, it is also important to know how to prepare the journal entries to reconcile the cash ledger.

26
Q

When reconciling the end of month bank balance, assuming there were no canceled checks, and all deposit amounts listed on the bank statement conform to the amounts on the company’s deposit slips, the next step would be to:

A

Add: Any cash on hand and/or deposits in transit

27
Q

What is the journal to record Interest earned on the company’s bank account?

A

Cash (DR.) - Increase in company’s bank account

Interest Income (CR.) - Increase in Interest Revenue account

Please note, in addition to preparing the bank reconciliation, it is also important to know how to prepare the journal entries to reconcile the cash ledger.

28
Q

The companies bank statement balance is $5,220

Given the following, what is the companies ending bank balance:

  • Deposits In Transit - $2,450
  • Outstanding Checks - $1,100
  • Service charge - $25
  • Safe Deposit Fee - $15
A

When reconciling the Companies Bank Account:

Start with the end of month Bank balance:

End of Month Balance: $5,220

Additions

Deposits in Transit 2,450

Subtotal $7,670

Deductions:

Outstanding Checks (1,100)

Reconciled End of Month Bank Balance: $6,570

**The safe deposit fee and service charge are reconciled to the company’s cash ledger.

29
Q

What is an NSF check?

A

An NSF check is a check that was not honored by the bank, on the grounds that the individual or company who issued the check did not have sufficient funds to cover in their bank account. NSF is an acronym for “Not Sufficient Funds” and is often referred to as a bad check, bounced check, or dishonored check.

30
Q

What is the journal entry to record bank service charge or any other bank fees?

A

Miscellaneous Expense (DR.) - to record expense incurred

Cash (CR.) - decrease in the company’s cash ledger

Please note, in addition to preparing the bank reconciliation, it is also important to know how to prepare the journal entries to reconcile the cash ledger.

31
Q

What is a credit memo?

A

A credit memo is an item on a company’s bank statement that increases a company’s checking account balance.

32
Q

The company’s bank balance and Cash ledger account rarely show the same balance at the end of the period.

This is mostly caused due to:

A

Timing differences.

Ex. Lag in credit from the bank for a deposit made or company unaware of bank charge.

33
Q

After the adjusted Cash ledger balance and adjusted bank balance equal, what are the last two steps to complete the bank reconciliation process?

A
  1. Record the journal entries for each adjustment to the Cash ledger such as Bank Fees and Interest Earned and any book errors, if any.
  2. Notify the bank of any errors, if any.
34
Q

When the bank collects a note receivable on behalf of the company, what is the journal entry?

A

Cash (DR.)

Note Receivable (CR.)

When the bank collects notes on behalf of the company’s behalf, the journal entry is a debit to Cash for the increase in Cash and a credit to Notes Receivable to reduce the balance owed for the customer.

Please note, in addition to preparing the bank reconciliation, it is also important to know how to prepare the journal entries to reconcile the cash ledger.

35
Q

What is a deposit in transit?

A

A deposit in transit are deposits made by mail or in a night deposit lock bock not yet credited by the bank, so it does not appear as an addition on the current bank statement.

36
Q

The bank reconciliation is a ____ part process

A

The bank reconciliation is a two-part process.

The bank balance and ledger Cash account are adjusted and reconciled to each other.

37
Q

When a customer gives a company an NSF check, the journal entry to record the check returned by the bank is:

A

Accounts Receivable (DR.)

Cash (CR.)

When the company first received the check, they Debited their cash account to reflect an increase in Cash and credited Accounts Receivable to reduce the customer’s balance. Since the check did not clear, the company has to reverse the entry and increase the customer’s balance, by debiting Accounts Receivable, and Crediting the Cash account since the check did not clear on the bank, therefore, less money is available.

38
Q

Given the following, how much is subtracted from the bank account?

Checks drawn on June 29 have not yet cleared the bank account - $ 300

Deposit in transit on June 30 not yet recorded by the bank - $435

June bank charges on the bank statement - $62

An NSF check in the amount of - $230

A payment of $140 was entered twice into the cash account(s)

June bank interest earned on the bank statement $167

A
39
Q

The companies bank statement balance is $2,200

Given the following, what is the companies ending bank balance?

  • Outstanding Checks - $875
  • NSF - $130
  • Interest Earned on Bank account - $65
  • Deposits In Transit - $3,220
  • Bank incorrectly recorded deposit as $130 when it was $310
A

When reconciling the Companies Bank Account:

Start with the end of month Bank balance:

End of Month Balance: $2,200

Additions

Deposits in Transit $3,220

Interest Earned 65

Bank Error 180​

Subtotal $5,485

Deductions:

Outstanding Checks (875)

Reconciled End of Month Bank Balance: $5,090

**The NSF is reconciled to the company’s cash ledger as it has already been accounted for on the bank statement.

Mastering Correction of Accounting Errors (5 decks)

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