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1. Checks written but not yet appearing on the bank statement.
Outstanding checks are checks that a company had written and recorded in its Cash account, but the checks have not yet been paid by the company’s bank (have not “cleared” the bank). Since the outstanding checks are not yet in the bank’s records/bank statement, the company’s bank reconciliation will show the outstanding checks as a subtraction from the balance per bank.
Example: ABC Company issued check #1001 for $500 on April 28. As of April 30, the check had not cleared the bank. On ABC’s April 30 bank reconciliation, check #1001 is listed as an outstanding check and is subtracted from the balance per bank.
2. Deposits made but not yet appearing on the bank statement are deposits in __________.
Deposits in transit are the cash and checks a company has received and has recorded in its general ledger accounts, but the deposit has not been processed by the bank as of the date of the bank reconciliation. Deposits in transit are sometimes referred to as outstanding deposits.
Example: On June 30, XYZ Corp received and recorded $2,000 in checks from customers. The checks were deposited in the bank’s night depository on June 30 and will be processed by the bank on July 1. On XYZ’s June 30 bank reconciliation, the $2,000 is a deposit in transit and is added to the balance per bank.
3. A common deduction on the bank statement is the bank _________ charge.
A common deduction on the bank statement is a bank service charge. This charge is for the bank’s cost of maintaining the checking account.
Example: The bank statement for LMN Inc. shows a service charge of $20 on March 31. Since this $20 is not yet recorded in LMN’s books, the $20 will appear on LMN’s bank reconciliation as a deduction from the balance per books.
4. A customer's check that was returned NSF is sometimes referred to as a check that ____________.
A customer’s check that was returned NSF from a bank is sometimes referred to as a check that bounced. NSF stands for “not sufficient funds” and means the customer’s account lacked adequate funds to cover the amount of the check.
Example: QRS Co. received a $100 check from a customer and deposited it. QRS’s bank statement shows the check was returned NSF and the bank deducted $100 plus a $25 returned check fee from QRS’s account. QRS’s bank reconciliation will subtract $125 from its balance per books.
5. NSF is the acronym for not ______________ funds.
NSF is the acronym for “not sufficient funds”. This means the check writer’s account lacks enough money to cover the amount of the check.
Example: A customer’s $75 check deposited by TUV Inc. was returned by the bank due to insufficient funds in the customer’s account. TUV’s bank reconciliation will deduct the $75 NSF check from the balance per books.
6. A check that has been paid and therefore appears on the bank statement is said to have _________ the bank.
A check that has been paid and therefore appears on the bank statement is said to have cleared the bank.
Example: WXY Corp issued check #2050 for $300 on May 15. The May 31 bank statement shows check #2050 was paid by the bank. Check #2050 has cleared the bank and will not appear as an outstanding check on WXY’s May 31 bank reconciliation.
7. Items on the bank statement that are not yet on the company's books will need to be ___________ on the books.
Items on the bank statement that are not yet recorded in the company’s books will need to be recorded in the company’s books.
Example: The bank statement for JKL Ltd shows interest income of $10 for April that is not yet recorded in JKL’s general ledger. The $10 will be added to the balance per books on JKL’s April bank reconciliation. A journal entry will debit Cash and credit Interest Income for $10.
8. A customer's check that was returned NSF will likely be debited to _____________ Receivable.
A customer’s check that was returned NSF will likely be debited to Accounts Receivable. This is done because the customer still owes the money to the company.
Example: A company received a $250 check from a customer as payment on its account balance. The company deposited the check, but it was returned NSF. Therefore, the company will debit Accounts Receivable and credit Cash for $250.
9. The dollar amount of checks written but not yet clearing the bank is referred to as _________.
The dollar amount of checks written but not yet clearing the bank is referred to as float. In other words, the company’s Cash account balance has been reduced, the bank balance has not.
Example: EFG Corp has $8,000 of outstanding checks on its November 30 bank reconciliation. This $8,000 is subtracted from the balance per bank and is considered to be the corporation’s float.
10. The adjusted balance per bank statement should agree with the adjusted balance per _________.
The adjusted balance per bank statement should agree with the adjusted balance per books. This means that after all adjustments are made to the balance per bank and the balance per books on the bank reconciliation, the two adjusted balances must be equal.
Example: After making all adjustments on a company’s December 31 bank reconciliation, the adjusted balance per bank is $12,350 and the adjusted balance per books is also $12,350. The books and the bank statement are reconciled.
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