Bank Reconcilliation

Question 1

What is bank reconciliation?

Answer 1

The process of matching a company’s cash records with the bank statement.

Question 2

Why is bank reconciliation important?

Answer 2

To identify errors or fraud and ensure accurate financial reporting.

Question 3

How often should bank reconciliation be done?

Answer 3

Usually monthly, after receiving the bank statement.

Question 4

What is a bank statement?

Answer 4

A summary of all transactions in an account during a period.

Question 4

What is the book balance?

Answer 4

The cash balance according to the company’s accounting records.

Question 5

What is an outstanding check?

Answer 5

A check issued by the company not yet cleared by the bank.

Question 6

What is the bank balance?

Answer 6

The cash balance according to the bank statement.

Question 7

What is a deposit in transit?

Answer 7

A deposit recorded in books but not yet shown in the bank statement.

Question 8

How are outstanding checks treated in reconciliation?

Answer 8

Subtracted from the bank statement balance.

Question 9

How are deposits in transit treated in reconciliation?

Answer 9

Added to the bank statement balance.

Question 10

How are bank service charges treated in reconciliation?

Answer 10

Subtracted from the book balance.

Question 10

What are bank service charges?

Answer 10

Fees charged by the bank, recorded by the bank but not the company.

Question 11

What is an NSF check?

Answer 11

A check not honored by the bank due to insufficient funds.

Question 12

How is an NSF check treated in reconciliation?

Answer 12

Subtracted from the book balance.

Question 13

How is a bank error corrected in reconciliation?

Answer 13

Adjust the bank balance to correct the error.

Question 13

What is an error in the bank statement?

Answer 13

A mistake made by the bank in recording transactions.

Question 14

What is a company error?

Answer 14

A mistake in the company’s accounting records.

Question 15

How is a company error corrected in reconciliation?

Answer 15

Adjust the book balance to fix the error.

Question 16

What are automatic withdrawals?

Answer 16

Payments made directly from the bank account.

Question 17

How are automatic withdrawals treated in reconciliation?

Answer 17

Subtracted from the book balance.

Question 18

What is a direct deposit?

Answer 18

Funds deposited directly into the company’s bank account.

Question 19

How is a direct deposit treated in reconciliation?

Answer 19

Added to the book balance.

Question 20

What should be reviewed along with the reconciliation?

Answer 20

Bank statement, journal entries, and ledger balances.

Question 21

What is the adjusted book balance?

Answer 21

Book balance after all reconciling entries are made.

Question 22

What happens if adjusted bank and book balances don't match?

Answer 22

Recheck for errors or missing items.

Question 23

Should bank reconciliations be documented?

Answer 23

Yes, for internal control and audit purposes.

Question 23

Who prepares the bank reconciliation?

Answer 23

Usually the company's accountant or bookkeeper.

Question 24

How are reconciling entries recorded?

Answer 24

Through journal entries in the accounting system.

Question 25

What is the journal entry for a bank service charge?

Answer 25

Debit Bank Charges Expense, Credit Cash.

Question 25

What is the journal entry for an interest income on the bank statement?

Answer 25

Debit Cash, Credit Interest Income.

Question 26

What is the journal entry for an NSF check?

Answer 26

Debit Accounts Receivable, Credit Cash.

Question 27

What is the journal entry for a company-recorded deposit error (too low)?

Answer 27

Debit Cash, Credit Sales/Revenue.

Question 28

What is the journal entry for a company-recorded payment error (too high)?

Answer 28

Debit Cash, Credit Expense.

Question 29

What does a typical bank reconciliation format include?

Answer 29

Bank section, Book section, Adjustments, Final balances.

Question 30

Can a bank error be corrected by the company?

Answer 30

No, it must be reported to the bank.

Question 31

Can an unreconciled balance affect financial reporting?

Answer 31

Yes, it may misstate cash and affect decisions.

Question 32

What are examples of timing differences?

Answer 32

Deposits in transit and outstanding checks.

Question 32

What are examples of errors?

Answer 32

Duplicate entries, transposition errors, or recording wrong amounts.

Question 33

What is the cutoff date for bank reconciliation?

Answer 33

The date of the bank statement being reconciled.

Question 34

Is bank reconciliation part of internal control?

Answer 34

Yes, it helps detect fraud and errors.

Question 35

What is the first step in preparing a bank reconciliation?

Answer 35

Compare the bank statement with the cash book.

Question 36

What is a reconciling item?

Answer 36

A difference between bank and book balances needing adjustment.

Question 37

Why might deposits in transit occur?

Answer 37

Bank processes the deposit after the statement date.

Question 38

Why might a check be outstanding?

Answer 38

The payee hasn’t yet cashed or deposited it.

Question 39

What is a stale check?

Answer 39

A check not cashed within a set period, often 6 months.

Question 40

How are stale checks treated in reconciliation?

Answer 40

Reversed or reissued depending on company policy.

Question 41

What tool can help automate bank reconciliation?

Answer 41

Accounting software with bank feeds.

Question 42

What is the purpose of reconciling journal entries?

Answer 42

To adjust the book records to match the bank.

Question 43

What happens after reconciliation is complete?

Answer 43

Adjusting entries are posted, and reports are filed.

Question 44

Why is segregation of duties important in reconciliation?

Answer 44

To prevent fraud through independent review.