Question 1

On a bank reconciliation statement, you would find all of the following except:

Accepted Answer

A bank reconciliation statement typically includes a list of outstanding checks, the bank service charge, and a list of NSF (non-sufficient funds) checks. However, it would not include a list of canceled checks, as these are checks that have already cleared and been processed by the bank.

Question 2

The entry to replenish a petty cash fund includes:

Accepted Answer

When replenishing a petty cash fund, you record the expenses incurred by debiting the relevant expense and asset accounts and credit the Cash account to reflect the outflow of cash used to replenish the fund.

Question 3

A check issued for $1,980 to pay a vendor on account was recorded in the firm's records as $1,890; the canceled check was properly listed on the bank statement at $1,980. To arrive at an accurate balance on a bank reconciliation statement, the error should be:

Accepted Answer

The error was made in recording the check in the firm's records or book balance, so it should be deducted from the book balance to arrive at an accurate balance on the bank reconciliation statement. The bank statement balance already reflects the correct amount, so the error should not be added to it.

Question 4

Which of the following would not be shown as an adjustment to the book balance on a bank reconciliation statement?

Accepted Answer

Deposits in transit are adjustments to the bank balance, not the book balance, because they have been recorded by the company but not yet by the bank.

Question 5

The entry to create a petty cash fund includes:

Accepted Answer

The correct entry to create a petty cash fund involves debiting the Petty Cash account to increase it and crediting the Cash account to decrease it, reflecting the movement of cash from the main cash account to the petty cash fund.

Question 6

To arrive at an accurate balance on a bank reconciliation statement, deposits in transit should be:

Accepted Answer

Deposits in transit are amounts that have been recorded by the company but not yet reflected on the bank statement. Therefore, to reconcile the bank statement balance with the company's records, these deposits should be added to the bank statement balance.

Question 7

To arrive at an accurate balance on a bank reconciliation statement, outstanding checks should be:

Accepted Answer

Outstanding checks have not yet been processed by the bank, so they are not reflected in the bank statement balance. Deducting them from the bank statement balance adjusts it to match the actual available balance in the account, aligning it more closely with the company's book balance.

Question 8

A firm wrote a check for $78 but entered the amount as payment of $87 in its records. On a bank reconciliation statement this error would be shown as:

Accepted Answer

The firm overrecorded the payment by $9 ($87 recorded - $78 actual = $9), so to correct this, $9 should be added back to the book balance to match the actual amount spent.

Question 9

To arrive at an accurate balance on a bank reconciliation statement, a service charge should be:

Accepted Answer

Service charges, which are fees charged by the bank, are not initially recorded in the company's book balance. Therefore, to reconcile the bank statement with the company's records, these charges need to be deducted from the book balance to reflect the actual available cash.

Question 10

A check issued for $890 to pay a vendor on account was recorded in the firm's records as $980; the canceled check was properly listed on the bank statement at $890. To arrive at an accurate balance on a bank reconciliation statement, the error should be:

Accepted Answer

The error was in the firm's records, not the bank's. Since the firm recorded the payment as more than it actually was, the book balance is less than it should be. Adding the difference ($90) to the book balance corrects this error.

Question 11

A firm's bank reconciliation statement shows a book balance of $16,640, a non-interest note collected by the bank of $3,400 an NSF check of $1,650, and a service charge of $60. Its adjusted book balance is:

Accepted Answer

Starting with the book balance of $16,640, we add the non-interest note collected by the bank of $3,400, giving us a subtotal of $20,040. 
Next, we subtract the NSF check of $1,650 and the service charge of $60:

$20,040 - $1,650 - $60 = $18,330

Therefore, the adjusted book balance is $18,330. The correct answer is C.

Question 12

To arrive at an accurate balance on a bank reconciliation statement, an error made by the bank in which the bank deducted a check issued by another business from the balance of the company's bank account should be:

Accepted Answer

This error by the bank incorrectly reduced the company's bank statement balance. To correct this, the amount of the check should be added back to the bank statement balance to reflect the true amount available in the company's bank account.

Question 13

While reconciling the bank statement, it is noted that the bank deducted a check written by another depositor. On a bank reconciliation statement this error would be shown as:

Accepted Answer

This error would be corrected by adding the amount back to the bank statement balance, as the deduction was made in error and does not affect the company's actual book balance.

Question 14

A firm wrote a check for $282 but the bank deducted $228 from the firm's account for the check. On a bank reconciliation statement this error would be shown as:

Accepted Answer

The error would be shown as a deduction of $54 from the bank statement balance because the bank only deducted $228 instead of the correct amount of $282. The difference of $54 needs to be subtracted from the bank statement balance to reconcile the error.

Question 15

To arrive at an accurate balance on a bank reconciliation statement, a credit memorandum from the bank for the collection of a note and interest should be:

Accepted Answer

A credit memorandum for the collection of a note and interest increases the account holder's balance, so it should be added to the book balance to reflect the increase in funds that the bank has collected on behalf of the account holder.

Question 16

A firm's bank reconciliation statement shows a book balance of $21,640, an NSF check of $800, and a service charge of $50. Its adjusted book balance is:

Accepted Answer

Adjusted book balance = book balance - NSF check - service charge
Adjusted book balance = $21,640 - $800 - $50
Adjusted book balance = $20,790

Question 17

Identify the procedure below that is NOT essential for proper control over cash receipts.

Accepted Answer

Holding all cash received during a month and making one bank deposit at the end of the month can increase the risk of loss or theft of cash. It is recommended to make frequent bank deposits to reduce the amount of cash on hand and increase control over cash receipts. Therefore, this procedure is NOT essential for proper control over cash receipts.

Question 18

Identify the procedure below that is NOT essential for proper control over cash payments.

Accepted Answer

While using a petty cash or travel and entertainment fund can help to control cash payments, it is not essential. The other procedures listed (using prenumbered checks, entering payments in accounting records, and having designated personnel approve bills) are all essential for proper control over cash payments.

Question 19

A check for $2,560 to pay a vendor on account was recorded in the firm's records as $2,650; the canceled check was properly listed on the bank statement at $2,560. To arrive at an accurate balance on a bank reconciliation statement:

Accepted Answer

The error was in the firm's records, not the bank's, so you correct the firm's book balance by adding the difference ($90) to it.

Question 20

To arrive at an accurate balance on a bank reconciliation statement, a debit memorandum for a customer check marked NSF should be:

Accepted Answer

NSF stands for "non-sufficient funds" and means that the customer's check bounced because they did not have enough money in their account to cover it. Therefore, the bank did not credit the company's account with the amount of the check. As a result, the company's book balance (the amount it thought it had in the account) is actually higher than the bank statement balance (the amount the bank shows on its records). To account for this difference and arrive at an accurate balance, the NSF check should be deducted from the book balance.

Quiz 9: Cash Receipts, Cash Payments, and Banking Procedures