If the company's accountant mistakenly recorded a $78 deposit as $125, the error would be shown on the bank reconciliation as a(n):
$47 addition to the book balance.
$125 deduction from the book balance.
$47 deduction from the book balance.
$125 addition to the book balance.
To determine the correct answer, let's break down the scenario and the bank reconciliation.
When a company records its financial transactions, it keeps a record known as the "book balance" in its accounting books. On the other hand, the bank holds a separate record of the company's transactions, known as the "bank balance."
The purpose of a bank reconciliation is to compare the book balance to the bank balance and identify any discrepancies between the two. These discrepancies can occur due to various reasons, including error in recording transactions.
In this scenario, the company's accountant mistakenly recorded a $78 deposit as $125. So, there is an overstatement of $47 ($125 - $78).
Since the bank balance is the accurate and official record of the transactions, the bank reconciliation should correct any errors in the book balance. Therefore, the error of overstatement or $47 should be shown on the bank reconciliation as a deduction from the book balance.
So, the correct answer is:
$47 deduction from the book balance.