Financial Accounting Quiz: Bank Reconciliation
20 questions · exam conditions
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Bank ReconciliationQuestion 1 of 20

Peridot Inc.'s bank reconciliation at December 31 shows a balance per books of ($14,000) and a balance per bank of ($16,500). Outstanding checks are ($3,000). There are no deposits in transit or bank errors. Which of the following single items could explain the remaining discrepancy and reconcile both balances to the same adjusted amount?

A ($500) note collected by the bank, not yet recorded by Peridot.
A bank service charge of ($500), not yet recorded by Peridot.
A company check for ($500) recorded in the books as ($1,000).
A deposit of ($500) recorded by the company, but credited by the bank as ($1,000).
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Financial Accounting Quiz

Financial Accounting Quiz: Bank Reconciliation

Practice Bank Reconciliation in Financial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Bank Reconciliation, giving you a quick way to practice the rules, question types, and explanations that matter most for Financial Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

Peridot Inc.'s bank reconciliation at December 31 shows a balance per books of ($14,000) and a balance per bank of ($16,500). Outstanding checks are ($3,000). There are no deposits in transit or bank errors. Which of the following single items could explain the remaining discrepancy and reconcile both balances to the same adjusted amount?

  1. A ($500) note collected by the bank, not yet recorded by Peridot.
  2. A bank service charge of ($500), not yet recorded by Peridot. (correct answer)
  3. A company check for ($500) recorded in the books as ($1,000).
  4. A deposit of ($500) recorded by the company, but credited by the bank as ($1,000).
Explanation: First, find the adjusted bank balance: ($16,500) (bank balance) - ($3,000) (outstanding checks) = ($13,500). This is the target correct cash balance. The unadjusted book balance is ($14,000). To reconcile the book balance to ($13,500), a deduction of ($500) is needed. A bank service charge of ($500) is a deduction from the book balance, which would make the adjusted book balance (14,000 - \500 = $13,500). This reconciles both sides.
  • A (Note collected) would be added to books, resulting in an adjusted balance of ($14,500).
  • C (Book error) means the book disbursement was overstated by ($500), so ($500) would be added back to books, resulting in an adjusted balance of ($14,500).
  • D (Bank error) would be corrected on the bank side, not the book side.

Question 2

During a bank reconciliation, a company notes that check #123 for ($560) was written to pay for supplies but was incorrectly recorded in the cash payments journal as ($650). This check is listed among the cleared checks on the bank statement. Which of the following is the correct reconciling adjustment?

  1. Deduct ($90) from the balance per bank.
  2. Add ($90) to the balance per bank.
  3. Deduct ($90) from the balance per books.
  4. Add ($90) to the balance per books. (correct answer)
Explanation: The error occurred in the company's records (the cash payments journal), so the adjustment must be made to the company's book balance. The company recorded a cash payment of ($650), but the actual payment was only ($560). This means the cash payment was overstated by ($90) ((650 - \560)), causing the book cash balance to be understated by ($90). To correct this, ($90) must be added back to the balance per books.

Question 3

Cinnabar Corp. is preparing its bank reconciliation for March. The balance per the bank statement is ($10,500), while the cash account balance per Cinnabar's books is ($7,635). The following reconciling items were identified:

  • Deposits in transit: ($2,000)
  • Outstanding checks: ($3,500)
  • Bank service charge: ($50)
  • Note collected by the bank (principal and interest): ($1,505)
  • A check for utilities written for ($100) was erroneously recorded in the company's books as ($10).

What is the correct cash balance that Cinnabar should report on its March 31 balance sheet?

  1. ($9,000) (correct answer)
  2. ($9,090)
  3. ($9,180)
  4. ($6,135)
Explanation: To find the correct cash balance, both the bank and book balances must be reconciled to a single, corrected amount. Bank Reconciliation:
  • Balance per bank statement: ($10,500)
  • Add: Deposits in transit ($2,000)
  • Deduct: Outstanding checks (($3,500))
  • Adjusted cash balance: (10,500 + \2,000 - $3,500 = $9,000)
Book Reconciliation:
  • Balance per books: ($7,635)
  • Add: Note collected by bank ($1,505)
  • Deduct: Bank service charge (($50))
  • Deduct: Correction of recording error ((100 - \10 = $90))
  • Adjusted cash balance: (7,635 + \1,505 - $50 - $90 = $9,000)
The correct cash balance to be reported is ($9,000).

Question 4

After completing its bank reconciliation, a company determined its adjusted cash balance to be ($25,000). The reconciliation included ($2,000) in deposits in transit, ($500) in outstanding checks, a ($100) bank service charge, and a ($1,200) note collected by the bank on the company's behalf. Which of the following adjusting journal entries is required?

  1. Debit Cash ($1,100); Credit Notes Receivable ($1,200); Debit Bank Service Charge Expense ($100)
  2. Debit Cash ($1,100); Debit Bank Service Charge Expense ($100); Credit Notes Receivable ($1,200) (correct answer)
  3. Debit Cash ($1,500); Credit Accounts Receivable ($1,500)
  4. Debit Miscellaneous Expense ($500); Credit Cash ($500)
Explanation: Adjusting journal entries are required only for items that reconcile the company's book balance to the correct cash balance. Deposits in transit and outstanding checks are timing differences related to the bank balance and do not require adjusting entries. The bank service charge and the note collected by the bank are book reconciling items. The note increases cash (Dr. Cash ($1,200)) and decreases notes receivable (Cr. Notes Receivable ($1,200)). The service charge decreases cash (Cr. Cash ($100)) and increases expenses (Dr. Bank Service Charge Expense ($100)). Combining these gives a net debit to Cash of ($1,100), a debit to Bank Service Charge Expense of ($100), and a credit to Notes Receivable of ($1,200).

Question 5

A company's bookkeeper correctly wrote a check to a supplier for ($271) but erroneously recorded it as ($721) in the cash disbursements journal. The bank processed the check for the correct amount of ($271). How should this error be treated on the company's bank reconciliation?

  1. As a deduction of ($450) from the balance per bank.
  2. As an addition of ($450) to the balance per books. (correct answer)
  3. As a deduction of ($450) from the balance per books.
  4. As an addition of ($450) to the balance per bank.
Explanation: This is a company recording error, so it must be corrected on the book side of the reconciliation. The company recorded a cash disbursement of ($721) when the actual disbursement was only ($271). This means the company's book cash balance was decreased by ($450) too much ((721 - \271)). To correct this overstatement of cash paid out, the company must add ($450) back to its cash balance per books.

Question 6

The cash account for Cobalt Inc. showed a balance of ($22,500) on November 30. The bank statement balance was ($25,700). Additional information is as follows:

  • Bank service charge: ($100)
  • Deposits in transit: ($4,000)
  • NSF check from a customer: ($1,600)
  • A check written by Cobalt for ($2,100) was incorrectly recorded in the company's books as ($1,200).

What is the total amount of outstanding checks at November 30?

  1. ($9,800) (correct answer)
  2. ($8,000)
  3. ($7,200)
  4. ($11,000)
Explanation: First, calculate the adjusted cash balance using the book information. Then, use the adjusted balance to solve for the unknown outstanding checks on the bank side. Book Reconciliation:
  • Balance per books: ($22,500)
  • Deduct: Service charge (($100))
  • Deduct: NSF check (($1,600))
  • Deduct: Recording error ((2,100 actual - \1,200 recorded = $900) understatement of disbursement)
  • Adjusted cash balance = (22,500 - \100 - $1,600 - $900 = $19,900)
Bank Reconciliation:
  • Balance per bank: ($25,700)
  • Add: Deposits in transit ($4,000)
  • Deduct: Outstanding checks (X)
  • Adjusted cash balance = ($19,900)
Solve for X: $25,700+$4,000−X=$19,900\$25,700 + \$4,000 - X = \$19,900 $29,700−X=$19,900\$29,700 - X = \$19,900 X=$29,700−$19,900=$9,800X = \$29,700 - \$19,900 = \$9,800

Question 7

Garnet Company's bank statement for July showed a balance of ($12,300). The statement also showed that the bank had incorrectly debited Garnet's account for a ($600) check written by "Garnett Company." Deposits in transit were ($2,500) and outstanding checks totaled ($1,800). Garnet's unadjusted book balance was ($13,550), and the bank statement included a debit memo for ($50) for service charges. What is the correct cash balance at the end of July?

  1. ($13,600) (correct answer)
  2. ($13,550)
  3. ($13,000)
  4. ($12,400)
Explanation: The question can be solved by reconciling the bank balance. The bank error (incorrect debit) must be added back to the bank balance. The service charge and the unadjusted book balance are book-side items. While they could be used to confirm the answer, the quickest path is through the bank side. Bank Reconciliation:
  • Balance per bank statement: ($12,300)
  • Add: Bank error (incorrect debit) ($600)
  • Add: Deposits in transit ($2,500)
  • Deduct: Outstanding checks (($1,800))
  • Adjusted cash balance = (12,300 + \600 + $2,500 - $1,800 = $13,600)
To verify using the book balance: ($13,550) (unadjusted book balance) - ($50) (service charge) = ($13,500). This does not reconcile, indicating an error in the given book balance or additional unstated items, but the adjusted bank balance is determinable from the data provided.

Question 8

A company has $1,000 of outstanding checks at the beginning of the month. During the month, it issued $12,000 of new checks. The bank statement shows that $10,500 in checks cleared the bank during the month. There were no bank errors. What is the amount of outstanding checks at the end of the month?

  1. $500
  2. $1,500
  3. $2,500 (correct answer)
  4. $3,500
Explanation: Outstanding checks represent checks written by the company but not yet cleared by the bank. To calculate the ending balance:
  • Outstanding checks at beginning: $1,000
  • Add: New checks issued during month: $12,000
  • Total checks available to clear: $13,000
  • Less: Checks that actually cleared: ($10,500)
  • Outstanding checks at end: $2,500
Distractor A (500)incorrectlyignoresthebeginningbalance.DistractorB(500) incorrectly ignores the beginning balance. Distractor B (1,500) only considers new checks issued minus cleared checks. Distractor D ($3,500) represents a computational error in the reconciliation process.

Question 9

Obsidian Co. received its bank statement, which showed an ending balance of ($8,200). The company's unadjusted book balance was ($5,800). The reconciliation revealed ($2,500) in deposits in transit and ($1,200) in outstanding checks. Additionally, the bank collected a ($3,000) note on Obsidian's behalf and charged a ($300) NSF check from a customer. Based on this, what journal entry should Obsidian make?

  1. Debit Cash ($2,700); Credit Notes Receivable ($3,000); Debit Accounts Receivable ($300)
  2. Debit Cash ($2,700); Debit Accounts Receivable ($300); Credit Notes Receivable ($3,000) (correct answer)
  3. Debit Cash ($1,300); Debit Accounts Receivable ($300); Credit Notes Receivable ($3,000); Credit Sales Revenue ($1,300)
  4. Debit Cash ($4,000); Debit Accounts Receivable ($300); Credit Notes Receivable ($3,000)
Explanation: Journal entries are only made for items affecting the book balance. The deposits in transit and outstanding checks affect the bank balance and require no entry. The book-side items are the note collected (increases cash, decreases notes receivable) and the NSF check (decreases cash, increases accounts receivable).
  • Note collected: Debit Cash ($3,000), Credit Notes Receivable ($3,000).
  • NSF check: Debit Accounts Receivable ($300), Credit Cash (($300)).
Combining these into a single compound entry: The net effect on cash is a debit of (3,000 - \300 = $2,700). The entry also requires a debit to Accounts Receivable for ($300) and a credit to Notes Receivable for ($3,000). Therefore, the correct entry is: Debit Cash ($2,700), Debit Accounts Receivable ($300), Credit Notes Receivable ($3,000).

Question 10

A company's bank statement shows a ($20) service charge, a ($10) credit for interest earned, and a credit memo for a ($500) note receivable collected by the bank. The company also has ($300) in deposits in transit and ($250) in outstanding checks. Which of these items will require a debit to the Cash account in the company's general ledger?

  1. Only the note receivable collected by the bank.
  2. The deposits in transit and the interest earned.
  3. The note receivable and the interest earned. (correct answer)
  4. The note receivable, interest earned, and deposits in transit.
Explanation: Journal entries, including debits to Cash, are required for items that adjust the book balance, not the bank balance. Deposits in transit and outstanding checks are bank-side reconciling items and do not require new journal entries. The service charge requires a credit to Cash. The interest earned and the note collected both increase the company's cash balance and were unknown before the bank statement, so they require adjusting entries that include a debit to the Cash account.

Question 11

Turquoise Co. had checks outstanding totaling ($5,400) on its October bank reconciliation. In November, the bank statement showed that ($4,600) of these checks had cleared. The bank statement also showed that a check written by "Turkoise Inc." for ($300) was incorrectly charged to Turquoise Co.'s account. Furthermore, a check for ($700) from a customer was returned NSF. Which of these items will appear as a reconciling item on Turquoise Co.'s November bank reconciliation?

  1. The remaining ($800) of October checks and the ($300) bank error. (correct answer)
  2. The remaining ($800) of October checks and the ($700) NSF check.
  3. Only the ($300) bank error and the ($700) NSF check.
  4. Only the remaining ($800) of October checks.
Explanation: A bank reconciliation explains the difference between the bank balance and the book balance. The reconciling items on the bank side are timing differences and bank errors. The ($800) of October checks that still haven't cleared ((5,400 - \4,600)) are still considered outstanding and will be a deduction on the bank side. The ($300) incorrect charge is a bank error that needs to be corrected (added back) on the bank side. The NSF check is a book-side reconciling item because the company's records need to be updated.

Question 12

While reconciling its bank account, Zircon Co. discovered that a deposit for ($1,890) was incorrectly recorded in the company's cash ledger as ($1,980). The bank statement shows the correct deposit amount. Which of the following is the correct adjustment on the bank reconciliation?

  1. An addition of ($90) to the balance per books.
  2. A deduction of ($90) from the balance per bank.
  3. An addition of ($90) to the balance per bank.
  4. A deduction of ($90) from the balance per books. (correct answer)
Explanation: The error was made by the company, so the adjustment must be made to the balance per books. The company recorded a cash receipt of ($1,980) when the actual receipt was ($1,890). This means the cash balance per books is overstated by (1,980 - \1,890 = $90). To correct this, ($90) must be deducted from the balance per books. Adjustments to the balance per bank are only for timing differences (like outstanding checks) or bank errors.

Question 13

At the end of the month, Topaz Corp.'s cash T-account has a balance of ($12,100). The bank statement has a balance of ($11,000). The reconciliation includes ($1,500) of deposits in transit, ($800) of outstanding checks, and an NSF check for ($400). What is the adjusted cash balance?

  1. ($11,700) (correct answer)
  2. ($12,500)
  3. ($11,300)
  4. ($12,100)
Explanation: The adjusted cash balance can be calculated from either the book side or the bank side. Both should yield the same result. Book Side Reconciliation:
  • Balance per books (T-account): ($12,100)
  • Deduct: NSF check (($400))
  • Adjusted cash balance = (12,100 - \400 = $11,700)
Bank Side Reconciliation:
  • Balance per bank statement: ($11,000)
  • Add: Deposits in transit ($1,500)
  • Deduct: Outstanding checks (($800))
  • Adjusted cash balance = (11,000 + \1,500 - $800 = $11,700)
Both calculations result in an adjusted cash balance of ($11,700).

Question 14

On its October 31 bank reconciliation, a company learns of an NSF check from a customer for ($450). The company had not been previously notified. On November 2, the customer visits the company and replaces the NSF check with cash. The company is preparing financial statements for the year ended October 31. How should the ($450) NSF check be treated on the October 31 financial statements?

  1. No journal entry is needed as of October 31 because the amount was collected shortly after month-end.
  2. An adjusting journal entry is required to debit Accounts Receivable and credit Cash for ($450) as of October 31. (correct answer)
  3. The amount should be listed as an outstanding check on the October 31 bank reconciliation to reduce the bank balance.
  4. The amount should be added back to the company's cash balance per books on the October 31 reconciliation.
Explanation: Financial statements must reflect the company's financial position as of the balance sheet date, which is October 31. The subsequent collection of cash in November does not change the fact that on October 31, the original cash receipt was invalid. Therefore, the company must make an adjusting entry dated October 31 to decrease its cash balance and re-establish the accounts receivable from that customer. An NSF check is a reconciling item for the books (a deduction), not the bank. It reduces the book cash balance, it does not add to it.

Question 15

Information for Jasper Corp. for the month of May is as follows:

  • Balance per bank statement: ($38,400)
  • Balance per cash account: ($37,850)
  • Deposits in transit: ($5,300)
  • Bank service charge: ($150)
  • Note collected by bank (including ($200) interest): ($4,000)
  • A check written for ($1,200) was correctly paid by the bank but recorded by Jasper as ($2,100).

What is the total amount of outstanding checks for May?

  1. ($1,100) (correct answer)
  2. ($2,900)
  3. ($2,000)
  4. ($9,100)
Explanation: First, calculate the adjusted cash balance from the book side. Then, use that balance to solve for the outstanding checks on the bank side. Book Reconciliation:
  • Balance per books: ($37,850)
  • Add: Note collected ($4,000)
  • Add: Book error ((2,100 recorded - \1,200 actual = $900) over-recorded disbursement) ($900)
  • Deduct: Service charge (($150))
  • Adjusted cash balance = (37,850 + \4,000 + $900 - $150 = $42,600)
Bank Reconciliation:
  • Balance per bank: ($38,400)
  • Add: Deposits in transit ($5,300)
  • Deduct: Outstanding checks (X)
  • Adjusted cash balance = ($42,600)
Solve for X: $38,400+$5,300−X=$42,600\$38,400 + \$5,300 - X = \$42,600 $43,700−X=$42,600\$43,700 - X = \$42,600 X=$43,700−$42,600=$1,100X = \$43,700 - \$42,600 = \$1,100

Question 16

A company's adjusted cash balance at month-end is determined to be ($15,200). The bank reconciliation for the month included deposits in transit of ($3,000), outstanding checks of ($1,800), and bank service charges of ($40). What was the unadjusted balance on the bank statement before any reconciling items were considered?

  1. ($14,000) (correct answer)
  2. ($16,400)
  3. ($15,240)
  4. ($13,960)
Explanation: The formula to reconcile the bank balance is: Unadjusted Bank Balance + Deposits in Transit - Outstanding Checks = Adjusted Cash Balance. We can work backward from the adjusted balance to find the unadjusted bank balance. The service charge is a book reconciling item and is irrelevant for this calculation. Let 'X' be the unadjusted bank balance: X+$3,000−$1,800=$15,200X + \$3,000 - \$1,800 = \$15,200 X+$1,200=$15,200X + \$1,200 = \$15,200 X=$15,200−$1,200X = \$15,200 - \$1,200 X=$14,000X = \$14,000 Distractor B represents reversing the signs for deposits in transit and outstanding checks ((15,200 - \3,000 + $1,800 = $14,000)). Distractor C incorrectly adjusts the adjusted balance for a book-side item. Distractor D incorrectly adjusts the unadjusted bank balance for a book-side item.

Question 17

A company's unadjusted cash balance per books is ($9,000). The company's bank reconciliation reveals the following: outstanding checks, ($2,000); deposits in transit, ($1,500); bank service charge, ($50); and interest earned on the account, ($100). What amount of cash should be reported on the balance sheet?

  1. ($8,500)
  2. ($8,950)
  3. ($9,050) (correct answer)
  4. ($9,150)
Explanation: The cash amount reported on the balance sheet should be the adjusted, or correct, cash balance. To find this, we must adjust the book balance for any items the company was unaware of before the reconciliation. Outstanding checks and deposits in transit are bank-side adjustments and do not affect the book balance directly.
  • Unadjusted book balance: ($9,000)
  • Add: Interest earned ($100)
  • Deduct: Bank service charge (($50))
  • Adjusted cash balance = (9,000 + \100 - $50 = $9,050)
This is the correct amount to report on the balance sheet.

Question 18

During the bank reconciliation process, Metro Industries discovered that the bank had erroneously charged their account $1,200 for another company's check. Additionally, Metro had recorded a $890 payment to a supplier as $980 in their cash disbursements journal. If Metro's book balance before adjustments was $12,340 and the adjusted bank balance is $15,750, what was the bank statement balance before considering any reconciling items?

  1. $14,460
  2. $15,840
  3. $16,950 (correct answer)
  4. $17,040
Explanation: First, determine Metro's correct book balance: $12,340 + $90 (correction of recording error) = $12,430. Since the adjusted bank balance is $15,750, there must be $3,320 in timing differences (deposits in transit minus outstanding checks). The bank statement balance before adjustments was $15,750 + $1,200 (bank error to be corrected) = $16,950. Choice A incorrectly subtracts the bank error. Choice B fails to account for the full bank error amount. Choice D incorrectly includes the book recording error as affecting the bank statement balance.

Question 19

Meridian Corp's September bank reconciliation revealed several discrepancies. The bank statement balance was $28,400, and the book balance was $25,150. Outstanding checks totaled $3,900. A deposit of $2,200 made on September 30 did not appear on the bank statement. The bank collected a note receivable of $1,500 plus $45 interest, depositing the full amount. Bank charges included a $20 monthly fee and a $35 charge for printed checks. A customer's check for $380 was returned NSF.

After completing the bank reconciliation and making all necessary adjusting entries, what will be the correct cash balance reported on Meridian's September 30 balance sheet?

  1. $26,700
  2. $26,260 (correct answer)
  3. $25,760
  4. $25,355
Explanation: Start with the book balance of $25,150. Add note collection: $1,500 + $45 interest = $1,545. Subtract bank charges: $20 + $35 = $55. Subtract NSF check: $380. Adjusted book balance = $25,150 + $1,545 - $55 - $380 = $26,260. To verify: Bank balance $28,400 - outstanding checks $3,900 + deposit in transit $2,200 = $26,700. The difference represents reconciling items affecting only one side.

Question 20

Atlantic Enterprises uses a lockbox system where customer payments are sent directly to a bank lockbox and the bank deposits them daily. During September, the bank deposited $127,500 in customer payments to Atlantic's account. However, Atlantic's cash receipts journal for September shows only $124,200 in customer collections. Investigation revealed that $2,800 in checks were deposited by the bank on September 30 but the remittance advices were not processed by Atlantic until October 2. Additionally, a $500 customer check was returned NSF on September 29, but Atlantic was not notified until October.

What adjusting entry should Atlantic make on September 30 to properly reflect the lockbox transactions for the month?

  1. Debit Cash $2,300; Credit Accounts Receivable $2,800; Debit Accounts Receivable $500 to record net lockbox activity (correct answer)
  2. Debit Cash $2,800; Credit Accounts Receivable $2,800 to record the unprocessed customer payments
  3. Debit Cash $3,300; Credit Accounts Receivable $3,300 to record the total variance in customer collections
  4. Debit Accounts Receivable $500; Credit Cash $500 to record only the NSF check since deposits are automatically recorded
Explanation: When you encounter lockbox accounting questions, focus on timing differences between when the bank processes transactions and when the company records them. The key is identifying what transactions the company knows about versus what actually occurred at the bank. Let's analyze the timing differences. The bank deposited $127,500, but Atlantic only recorded $124,200. This $3,300 difference consists of two components: $2,800 in checks deposited September 30 (but remittance advices not processed until October 2) and a $500 NSF check returned September 29 (but Atlantic wasn't notified until October). For proper September 30 financial statements, Atlantic must record both events. The $2,800 represents legitimate customer payments that increased cash and reduced accounts receivable. The $500 NSF check means cash was actually reduced and the receivable should be reinstated. The net cash adjustment is $2,800 - $500 = $2,300 increase. Answer A correctly captures both adjustments: Debit Cash $2,300 (net effect), Credit Accounts Receivable $2,800 (for customer payments), and Debit Accounts Receivable $500 (reinstating the NSF amount). Answer B ignores the NSF check entirely, overstating cash by $500. Answer C treats the entire $3,300 variance as a cash increase, incorrectly assuming both components increase cash when the NSF check actually reduces it. Answer D only records the NSF check, missing the $2,800 in legitimate deposits that haven't been processed. Remember: In lockbox questions, always reconcile both directions—what increased cash that you haven't recorded, and what reduced cash that you haven't recorded.