AFC Bank Reconciliation Flashcards

Which of the following is NOT a reason why a company's book balance may differ from its bank statement balance?

Answer: The company using accrual accounting

The accrual vs. cash basis choice affects when revenues and expenses are recognized but does not directly cause differences in the cash account balance versus the bank.

A bank reconciliation reveals a $200 error where the company recorded a payment as $800 but the bank correctly processed it as $600. How should this be corrected on the books?

Answer: Add $200 to the book balance

The company overstated the payment by $200, meaning the book balance is understated; add $200 to the book balance to correct the error.

When a bank reconciliation is complete, the journal entries recorded should only include adjustments to:

Answer: The company's general ledger (book balance)

Journal entries update the company's general ledger for book-side reconciling items; the bank self-corrects when outstanding items clear.

Which internal control best reduces the risk of cash theft going undetected in bank reconciliations?

Answer: Assigning bank reconciliation to someone independent of cash handling

Segregation of duties requires that the person who handles cash not be the same person who reconciles the bank account, reducing fraud opportunity.

A company's bank statement shows a balance of $12,500. Outstanding checks total $1,800 and deposits in transit total $900. What is the adjusted bank balance?

Answer: $11,600

Adjusted bank balance = $12,500 − $1,800 (outstanding checks) + $900 (deposits in transit) = $11,600.

A debit memo on a bank statement typically indicates:

Answer: The bank has decreased the company's account balance

From the bank's perspective, a debit memo reduces the company's deposit liability (checking account), which means a decrease in the company's cash balance.