Question

Which one of the statements below is true? Deposits in transit are deducted from the balance per the bank statement, and outstanding checks are added to the balance per the bank statement during the bank reconciliation process. Both deposits in transit and outstanding checks are added to the balance per the bank statement during the bank reconciliation process. Both deposits in transit and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process. The deposits in transit are added to the balance per the bank statement, and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process.

Answer 1

Answer:

The correct answer is letter "D": The deposits in transit are added to the balance per the bank statement, and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process.

Explanation:

The bank reconciliation process refers to the match between the bank account in the company's books and the real balance the company has in its bank accounts. Both amounts must be the same, otherwise, there is a mistake whether from the bank of the company.

Deposits in transit are those the firm has already accepted the charge for but have not been transferred to the corresponding party. They tend to be included in the bank statement balance. Outstanding checks refer to those the firm has not paid for, therefore, if there is any balance in the bank statement, the amount of the funds will directly be deducted.

Answer 2

Answer:

Option D. The deposits in transit are added to the balance per the bank statement, and outstanding checks are deducted from the balance per the bank statement during the bank reconciliation process.

Explanation:

The reason is that the bank balance as per business books are kept updated according to their knowledge of the transaction verified and bank keeps its business books updated according to its knowledge of the verified transactions.

When the customer presents the check to the business, the business increases its bank balance as per its books and at this point the bank doesn't know whether there is any monetary transaction actually taken place or not. So the bank hasn't altered the business bank balance in their books of accounts. This means the bank is overstated by the deposit in transit and for reconciliation sake we will have to add it to balance as per bank to tally it with the balance as per the business.

Similarly the Outstanding checks which is also known as unpresented checks are the money not yet withdrawn from the business bank account but is actually deducted from the bank balance as per the business books because the payments that the business makes actually records it. This means that the bank balance as per business books are lower than the balance as per the bank and for reconciliation sake we will have to deduct it from the balance as per bank to tally it with the balance as per the business.