[xmas]

Hilltop Co.’s monthly bank statement shows a balance of $54,200. Reconciliation of the statement with company books reveals the following information:

Bank service charge $10

Insufficient funds check $650

Checks outstanding $1,500

Deposits in transit $350

Check deposited by Hilltop and cleared by the bank for $125,

but improperly recorded by Hilltop as $152

What is the net cash balance after the reconciliation?

answer:

Bank Balance $54,200

Checks out $(1,500)

Deposits in transit $350

Bank balance $53,050

The other reconciling items are already included in the bank balance.

I do not quite understand “its already included in the bank balance” … Thoughts?

[Thrawn]

A reconciliation is finding the true cash balance which combines things that the company GL has and the bank does not, as well as the things the bank knows about but are not reflected on the GL.

So you take your bank statement from the end of the month which will include all of the banks fees, bounced checks, deposits that have been received and checks which have cleared the bank.

You then layer in checks which have been written but have not yet cleared the bank (checks outstanding) and deposits which have been mailed to the bank but not yet received.

This gives you your true cash balance.

BEC 87 Feb 14
REG 84 Apr 14
FAR 82 Nov 14
AUD 86 Feb 15

[xmas]

But the layering is not happening in the above MCQ. We are not considering the following…why?

Bank service charge $10

Insufficient funds check $650

[Anonymous]

Beginning Bank Balance — $54,200

Less Checks Out

---

(1,500)

Add Deposits in Transit

---

350

Total $53,050

_________________________________________________________________________________________________

Bank service charge $10

Insufficient funds check $650

^^ The above 2 items are distractions – they are already included in the beginning bank balance because they are BANK charges to Hilltop – so, the only adjustment needed for these items would be to deduct them from your book balance to reconcile to the bank balance – which is not a part of this question, thus a distraction.

Check deposited by Hilltop and cleared by the bank for $125,

but improperly recorded by Hilltop as $152

^^ – This item would just need a book correction to have the book balance reconciled to the bank balance since it is properly included on the bank balance but overstated on the book balance, but yet another distraction since you are not dealing with the book balance.

[Missy]

I think I can help. The items that you are going to add or subtract are items that are GOING to show up in the bank statement but haven't yet. Obviously the bank already reflects the bank service charge and the insufficient funds check. If the bank didn't show them you wouldn't even know about them.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[xmas]

Got it..Thanks so much.

[Author]

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