Banking and Cash Management Flashcards

What is the primary purpose of a bank reconciliation?

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.

Outstanding checks are best described as checks that have been:

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.

Deposits in transit on a bank reconciliation are:

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.

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?

Answer: $7,300

Adjusted bank balance = $8,000 − $1,200 (outstanding checks) + $500 (deposits in transit) = $7,300.

A credit memo from the bank appearing on the bank statement typically represents:

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.

When a bank charges an NSF (non-sufficient funds) fee, the bookkeeper should:

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.

Which of the following is an example of a bank debit memo?

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.