Question

I want a detailed explanation- No copy past, please.

If a check correctly written and paid by the bank for $342 is incorrectly recorded in the company's books for $290, how should this error be treated on the bank reconciliation?

Answer 1

Let us first see a sample Bank Reconciliation Statement

	Amount	Adjustment to Books
Ending Bank Balance	XXXX
Less: Uncleared cheques	-X	None
Add: Deposit in transit	X	None
Adjusted Bank Balance	XXXX
Ending Book Balance	XXXX
Less: Service charge	-X	Debit expense, credit cash
Add: Interest income	X	Debit cash, credit interest income
Less: Error on check	-X	Debit expense, credit cash
Add: Note receivable	X	Debit cash, credit notes receivable
Less: NSF check	-X	Debt accounts receivable, credit cash
Adjusted Book Balance	XXXX

First of all, the error has been INCORRECTLY recorded in Company's Books. So, it would be shown as a correction to the BOOK BALANCE.

Since the actual amount was $ 342 and amount recorded was $ 290, there was a difference of $ 52. Book balance is MORE by $ 52. In this case, we need to correct the balance. In order to do that we need to reduce the book balance by this amount.