CB Banking and Cash Management 1 — Questions and Answers
Question 1: What is the primary purpose of a bank reconciliation?
- To verify that the company's book cash balance agrees with the bank statement balance (Correct answer)
- To record all cash transactions in the general ledger
- To prepare the monthly income statement
- To calculate the company's net income
Correct answer: To verify that the company's book cash balance agrees with the bank statement balance
A bank reconciliation compares the company's book balance with the bank statement balance to identify and resolve all differences between the two.
Question 2: Outstanding checks are best described as checks that have been:
- Written and recorded by the company but not yet cleared the bank (Correct answer)
- Received from customers but not yet deposited
- Returned by the bank due to insufficient funds
- Written but not yet recorded in the company's books
Correct answer: Written and recorded by the company but not yet cleared the bank
Outstanding checks have been issued and recorded by the company but have not yet been presented to and processed by the bank.
Question 3: Deposits in transit on a bank reconciliation are:
- Deposits recorded by the company but not yet shown on the bank statement (Correct answer)
- Deposits shown on the bank statement but not recorded by the company
- Electronic transfers received directly by the bank
- Deposits that have been rejected by the bank
Correct answer: Deposits recorded by the company but not yet shown on the bank statement
Deposits in transit are amounts the company has recorded in its books and sent to the bank, but which haven't yet appeared on the bank statement due to timing.
Question 4: If the bank statement balance is $8,000, outstanding checks total $1,200, and deposits in transit are $500, what is the adjusted bank balance?
- $7,300 (Correct answer)
- $8,700
- $9,200
- $6,800
Correct answer: $7,300
Adjusted bank balance = $8,000 − $1,200 (outstanding checks) + $500 (deposits in transit) = $7,300.
Question 5: A credit memo from the bank appearing on the bank statement typically represents:
- An increase to the company's bank account balance (Correct answer)
- A decrease to the company's bank account balance
- A bookkeeping error made by the company
- A customer check returned for insufficient funds
Correct answer: An increase to the company's bank account balance
A bank credit memo increases the depositor's account balance, such as interest earned or a note collected by the bank on the company's behalf.
Question 6: When a bank charges an NSF (non-sufficient funds) fee, the bookkeeper should:
- Reduce the book balance by recording the fee as an expense (Correct answer)
- Increase the bank statement balance by the fee amount
- Record it as miscellaneous income
- Add it to the bank side of the reconciliation only
Correct answer: Reduce the book balance by recording the fee as an expense
An NSF fee charged by the bank reduces the company's account balance, so the company must record a journal entry to decrease cash and recognize the bank charge expense.
Question 7: Which of the following is an example of a bank debit memo?
- A monthly service charge deducted from the account (Correct answer)
- Interest credited to the account by the bank
- A customer deposit processed by the bank
- A check that has successfully cleared the bank
Correct answer: A monthly service charge deducted from the account
A bank debit memo reduces the depositor's balance; common examples include service charges, loan payment deductions, and NSF fees.
CB Banking and Cash Management 1
What is the primary purpose of a bank reconciliation?