Question

: Identifying timing differences related to a bank reconciliation

For each timing difference listed, identify whether the difference would be reported on

the book side of the reconciliation or the bank side. In addition,

identify whether the difference would be an addition or subtraction.

a. Deposit in transit

b. Bank collection

c. Debit memorandum from bank

d. EFT cash receipt

e. Outstanding checks

f. \(1,000 deposit erroneously recorded

by the bank as \)100

g. Service charges

h. Interest revenue

i. \(2,500 cash payment for rent

expense erroneously recorded by

the business as \)250

j. Credit memorandum from bank

Short answer

Deposit in transit will affect the bank side of reconciliation.

Step-by-step solution

Definition of the bank reconciliation statement

Bank reconciliation is a statement that is prepared to match the cash and bank balance of the company.

Effect of the timing difference

1. Deposit in transit: Deposit in transit would be reported on the bank side of the reconciliation, and the difference is added.
2. Bank collection: It is the type of receipt directly received by the bank, and this amount is not recorded in the company’s books. Hence this will affect the book side of the company, and it is added.
3. Debit memorandum from the bank: A debit memorandum from the bank is the type of deduction that the bank deducts. It is recorded in the bank statement, but it is not recorded in the book side of the company. Hence, this would affect the book side of the company, and it is subtracted from the balance.
4. EFT cash receipts: The difference in the EFT receipts would be recorded in the book side of the company. The EFT receipts will be added as EFT receipts.
5. Outstanding Checks: The outstanding checks are recorded on the bank side of the reconciliation. This will be deducted as outstanding checks.
6. $1,000 deposit erroneously recorded by the bank as $100: This difference will be recorded on the bank side, and the difference amount is added.
7. Service Charges: Service charges are the charges that are deducted by the bank directly. Hence, it will affect the book side, subtracted as a service charge from the balance.
8. Interest Revenue: Interest revenue is a deposit made by the bank. Hence it would affect the book side, and it is added to the balance.
9. $2,500 cash payment for rent expense erroneously recorded by the business as $250: This is what is made in the company’s books; hence, this affects the book side, and the difference amount is deducted from the cash balance.
10. Credit memorandum from bank: A credit memorandum is a type of receipt received from the bank. It affects the book side of the company, and it is added to the cash balance.