In short
A bank reconciliation explains the difference between the cash balance on the bank statement and the balance in the company's records, so both can be adjusted to the true cash balance.
Key takeaways
- Deposits in transit and outstanding checks adjust the bank side and need no journal entry.
- Bank charges, returned checks, collections by the bank and the company's own errors adjust the book side and need journal entries.
- Preparing it should be separated from handling cash.
Where it's tested
FAR: Cash, Receivables & Bad Debts — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
At year-end the bank statement shows a balance of $50,000. Deposits in transit total $8,000, outstanding checks total $12,000, and a $100 bank service charge has not been recorded by the company. What is the correct cash balance?