AFC AFC Bank Reconciliation 2 — Questions and Answers
Question 1: A check for $540 was correctly recorded by the bank but entered in the company's books as $450. In the bank reconciliation, this error is:
- Deducted $90 from the bank balance
- Added $90 to the bank balance
- Deducted $90 from the book balance (Correct answer)
- Added $90 to the book balance
Correct answer: Deducted $90 from the book balance
The company understated the check by $90 ($540 − $450), so the book balance must be reduced by $90 to correct the error.
Question 2: An NSF (non-sufficient funds) check returned by the bank means:
- The customer's check bounced and cash must be reduced on the company's books (Correct answer)
- The bank made an error that will be corrected automatically
- The company has insufficient funds and must reduce accounts payable
- The check amount should be added back to the bank balance
Correct answer: The customer's check bounced and cash must be reduced on the company's books
An NSF check was dishonored by the customer's bank; the company must reverse the original deposit entry, reducing cash and reinstating the receivable.
Question 3: Which of the following items would appear on the bank side of the reconciliation (not the book side)?
- NSF checks
- Bank service charges
- Outstanding checks (Correct answer)
- Errors in the company's cash journal
Correct answer: Outstanding checks
Outstanding checks are checks the company has written and recorded, but the bank has not yet processed, so they appear as adjustments to the bank balance.
Question 4: A note receivable collected by the bank on the company's behalf for $1,000 plus $50 interest has not been recorded in the company's books. What is the correct adjustment?
- Deduct $1,050 from the book balance
- Add $1,050 to the book balance (Correct answer)
- Add $1,050 to the bank balance
- Deduct $1,050 from the bank balance
Correct answer: Add $1,050 to the book balance
The bank collected $1,050 for the company; since the company hasn't recorded it yet, add $1,050 to the book balance and record the journal entry.
Question 5: After all reconciling items are applied, the adjusted bank balance and adjusted book balance should:
- Differ by the total of outstanding checks
- Both equal the same reconciled cash balance (Correct answer)
- Differ by the amount of deposits in transit
- Equal the ending balance on the bank statement
Correct answer: Both equal the same reconciled cash balance
A properly completed bank reconciliation results in both adjusted balances agreeing to the same correct cash balance.
Question 6: How often should a bank reconciliation typically be prepared for good internal control?
- Annually, at fiscal year-end
- Quarterly
- Monthly (Correct answer)
- Only when discrepancies arise
Correct answer: Monthly
Monthly bank reconciliations are a best practice internal control because they promptly detect errors, fraud, and unauthorized transactions.
AFC AFC Bank Reconciliation 2
A check for $540 was correctly recorded by the bank but entered in the company's books as $450.
In the bank reconciliation, this error is: