Question 1

On a bank reconciliation,the amount of an NSF check is:

Accepted Answer

An NSF check is deducted from the company's book balance because it has already been deducted from the bank balance but not yet removed from the company's balance.

Question 2

A bank reconciliation item that a company's bank may not know about would be:

Accepted Answer

There is a time lag between deposits made recently that are recorded on a company's records,but not yet recognized by the bank.These are deposits in transit.

Question 3

A check is said to have cleared the bank when:

Accepted Answer

After a check is written,the payee usually presents the check to a financial institution for deposit or cash.That financial institution contacts the check writer's bank,which in turn withdraws the amount of the check from the check writer's account and reports it as a deduction on the bank statement.The check is then said to have cleared the bank.

Question 4

Urban Bloom,Inc.'s books show an ending cash balance of $18,000 before preparing the bank reconciliation.Given the bank reconciliation shows outstanding checks of $5,400,deposits in transit of $3,600,NSF check of $180,and interest earned on the bank account of $18,the company's up-to-date ending cash balance equals:

Accepted Answer

In this situation:
Up-to-date ending cash balance = Ending cash balance per books + Interest received from bank − NSF check
= $18,000 + $18 − 180 = $17,838

Question 5

Which of the following would not cause the bank balance to differ from the cash balance in the accounting records?

Accepted Answer

The company's records can differ from the bank's records for two basic reasons: (1)the company has recorded some items that the bank doesn't know about at the time it prepares the statement of account or (2)the bank has recorded some items that the company doesn't know about until the bank statement is examined.Both the company and the bank will know about company checks that have cleared the bank.

Question 6

A check that was outstanding on last period's bank reconciliation was not among the cancelled checks returned by the bank this period.In preparing the bank reconciliation for this period,the amount of this check should be:

Accepted Answer

All outstanding checks are deducted from the bank balance.Whether the check was written during the current period or written in a prior period is irrelevant.There is still a timing difference;the check is recorded on the company's books but has not yet been processed by the bank.

Question 7

Outstanding checks are ________ on a bank reconciliation.

Accepted Answer

The bank balance is adjusted since the bank does not yet know about this item.Think about what the bank will do when it processes the item.Outstanding checks are deducted from the bank balance.

Question 8

When you identify outstanding checks in performing a bank reconciliation,you must:

Accepted Answer

The balance per the bank does not reflect outstanding checks because they are not aware of them yet,so the outstanding checks must be deducted from the balance per the bank.

Question 9

An internal report prepared to verify the accuracy of both the bank statement and the cash accounts of a business or individual is a(n):

Accepted Answer

A bank reconciliation is an internal report prepared to verify the accuracy of both the bank statement and the cash accounts of a business or individual.

Question 10

Which of the following situations would cause the balance per bank to be more than the balance per books?

Accepted Answer

The balance per the bank would be greater than the balance per the books if the books did not reflect cash receipts that were reflected by the bank,or if the balance per the books reflected deductions such as outstanding checks that were not yet recorded by the bank.

Question 11

A company made a bank deposit on September 30 that did not appear on the bank statement dated September 30.In preparing the September 30 bank reconciliation,the company should:

Accepted Answer

Deposits in transit should be added to the end cash balance per bank statement to arrive at the up-to-date ending cash balance.

Question 12

The bank will show a customer's deposit on the bank statement as a:

Accepted Answer

The bank statement is presented from the bank's point of view.The amounts in a company's bank account are liabilities to the bank because they will eventually be used by or returned to the account holder.As with all liabilities,increases are reported as credits on the bank statement.Amounts that are removed from a bank account reduce the bank's liability,so they are reported as debits on the bank statement.Banks typically explain the reasons for these increases (credits)and decreases (debits)with symbols or in a short memo,appropriately called a credit memo or debit memo.

Question 13

Which of the following would be added to the ending cash balance per bank when performing a bank reconciliation?

Accepted Answer

Deposits in transit were not known to the bank at the time the bank statement was prepared.Therefore,they are added in updating the ending cash balance per bank statement.Electronic fund transfers,NSF checks,and service charges would already have been processed by the bank.

Question 14

Which one of the statements appearing below is incorrect regarding bank reconciliations?

Accepted Answer

Since the company has already recorded outstanding checks or deposits in transit in its records,no journal entries are needed for these items.A bank reconciliation is an internal report prepared to verify the accuracy of the cash account.The up-to-date ending cash balance on both sides should always equal.A difference between the company's cash balance and the bank's balance can result from either errors or timing differences.

Question 15

The bank will show a customer's withdrawal as a:

Accepted Answer

The bank statement is presented from the bank's point of view.The amounts in a company's bank account are liabilities to the bank because they will eventually be used by or returned to the account holder.As with all liabilities,increases are reported as credits on the bank statement.Amounts that are removed from a bank account reduce the bank's liability,so they are reported as debits on the bank statement.Banks typically explain the reasons for these increases (credits)and decreases (debits)with symbols or in a short memo,appropriately called a credit memo or debit memo.

Question 16

A deposit in transit on last month's bank reconciliation is shown as a deposit on the bank statement this month.As a result,in preparing this period's reconciliation,the amount of this deposit should:

Accepted Answer

A deposit in transit on last month's bank reconciliation that is listed as a deposit on this month's bank statement has been processed by the bank.As a result,it should not be shown on this month's bank reconciliation.There is no longer a timing difference;the deposit has been recorded on the company's books and processed by the bank.

Question 17

A $6,000 bank deposit made on the last day of the month did not appear on this month's bank statement.How would this item be treated on the bank reconciliation?

Accepted Answer

The bank balance is adjusted since the bank does not yet know about this item.Think about what the bank will do when it processes the item.Deposits in transit are added to the bank balance.

Question 18

Outstanding checks refer to checks that have been:

Accepted Answer

An outstanding check occurs when you write a check and send it to a company,but your bank does not find out about it until that company deposits the check in its own bank,which then notifies your bank.

Question 19

Outstanding checks have:

Accepted Answer

Outstanding checks have been recorded by the company but have not yet been recorded by the bank.

Question 20

McKeel Publishing had outstanding checks totaling $7,560 on its June bank reconciliation.In July,McKeel issued checks totaling $54,460.The July bank statement shows that $36,820 in checks cleared the bank in July.The amount of outstanding checks on McKeel's July bank reconciliation should be:

Accepted Answer

Remaining outstanding checks = Outstanding checks + Additional checks issued − Checks cleared
= $7,560 + $54,460 − $36,820 = $25,200

Quiz 5: Fraud,Internal Control,and Cash