How will the customer's bounced checks be handled on a bank reconciliation?
a. add to the balance from the company records
b. add to the bank statement balance
c. subtract from the balance from the company records
d. subtract from the bank statement balance
To determine how the customer's bounced checks will be handled on a bank reconciliation, we need to understand the process of bank reconciliation.
Bank reconciliation is the process of comparing and matching the balances recorded in the company's books (company records) with the balances reflected in the bank statement. The purpose is to identify and resolve any discrepancies between the two.
In the case of bounced checks, the situation arises when a customer's check is deposited into the bank, but the bank returns the check unpaid due to insufficient funds in the customer's account. As a result, the bank statement balance and the company's records will reflect different amounts for that specific transaction.
To handle bounced checks on a bank reconciliation, we need to consider the following:
1. Determine the balance as per the company records: Start by taking the balance from the company's records, which includes all the checks issued by the customer, including the bounced checks.
2. Determine the balance as per the bank statement: Next, take the balance from the bank statement, which will not include bounced checks as they are returned as unpaid by the bank. The bank statement balance reflects only the transactions that the bank has processed.
3. Match the transactions: Compare the individual transactions listed on the bank statement with those recorded in the company's books. Typically, the company's records will show the customer's check and the subsequent reversal of the amount due to the bounced check.
Considering the options given, with regards to adding or subtracting from the balance, we need to determine which balance would be affected.
Based on the above explanation, the correct answer would be:
c. subtract from the balance from the company records
When a customer's check bounces, it means the company no longer has the funds that were represented by that check. Therefore, the company's balance needs to be adjusted by subtracting the amount of the bounced check to reflect this change.