From your hotel's most recent bank statement, you note that there are two cheque payments that your hotel made to suppliers a week ago for $110 and $140 that have yet to clear the bank account. The bank statement has recorded $13 of interest earned on the account and this has yet to be recorded in your hotel's accounting system. If the bank statement is recording a closing credit balance of $3,480, what should be the pre-reconciliation balance recorded in your hotel's double entry book keeping system with respect to money held at bank?

Question

Quizplus · Accepted Answer

To find the pre-reconciliation balance, we need to adjust the bank statement balance for any outstanding cheques and any interest earned that has yet to be recorded in the accounting system.

Adjusted Bank balance = Bank statement balance + Outstanding Cheques - Unrecorded Interest

Outstanding Cheques = $110 + $140 = $250

Unrecorded Interest = $13

Adjusted Bank balance = $3,480 + $250 - $13 = $3,717

Now, according to the double entry bookkeeping system, a credit balance indicates that the bank account is a liability (i.e. we owe money to the bank) and a debit balance indicates that it is an asset (i.e. the bank owes us money).

Since the Adjusted Bank balance is a credit balance, we need to subtract it from the pre-reconciliation balance to get the correct balance in our accounting system.

Pre-reconciliation balance = Adjusted Bank balance - Bank Account Liability

We don't have enough information to determine the exact amount of the Bank Account Liability, but we know that it is less than or equal to the Adjusted Bank balance.

The only answer choice that gives us a debit balance (i.e. an asset) is (B) Debit balance of $3,217. Therefore, (B) is the correct answer.

From Your Hotel's Most Recent Bank Statement, You Note That