Bank Reconciliation Made Easy
What action should be taken when identifying outstanding checks in a bank reconciliation process?
a) Deduct the amount of the outstanding checks from the balance per books.
b) Deduct the amount of the outstanding checks from the balance per bank.
c) Add the amount of the outstanding checks to the balance per books.
d) Add the amount of the outstanding checks to the balance per bank.
Final Answer:
When performing a bank reconciliation, you must deduct the amount of the outstanding checks from the balance per bank.
When you identify outstanding checks in performing a bank reconciliation, you must deduct the amount of the outstanding checks from the balance per bank. This adjustment accounts for checks that have been written but not yet cleared by the bank, which ensures an accurate comparison between your checkbook and bank statement.
Outstanding checks are those checks that have been written and recorded in the checkbook balance but have not yet been cleared by the bank. The balance per bank does not reflect these uncashed checks, so they must be subtracted from the bank's balance to reconcile with the balance per books. This is important to ensure that your checkbook is balanced, and it helps in managing your money, keeping tabs on your cash flow, and avoiding overdraft and the fees associated with having insufficient funds.
To use a check for payment for goods and services, you simply write the check and hand it to the recipient. The store, or recipient, deposits the check to their bank account, where the money is transferred from your account to theirs, assuming the funds are available. An overdraft occurs when you try to make a payment without sufficient funds in your account, leading to additional fees unless you have overdraft protection.