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

A company's bookkeeper is preparing adjusting entries based on the month-end bank reconciliation. The reconciliation included interest earned of $70, a customer's NSF check for $880, outstanding checks of $1,500, a deposit in transit of $2,000, and a bank service charge of $20. The compound journal entry to adjust the books will include:

A net debit to the Cash account for $830.
A net credit to the Cash account for $830.
A net credit to the Cash account for $330.
A net credit to the Cash account for $900.
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Financial Accounting Quiz

Financial Accounting Quiz: Bank Reconciliation Entries

Practice Bank Reconciliation Entries 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 Entries, 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

A company's bookkeeper is preparing adjusting entries based on the month-end bank reconciliation. The reconciliation included interest earned of $70, a customer's NSF check for $880, outstanding checks of $1,500, a deposit in transit of $2,000, and a bank service charge of $20. The compound journal entry to adjust the books will include:

  1. A net debit to the Cash account for $830.
  2. A net credit to the Cash account for $830. (correct answer)
  3. A net credit to the Cash account for $330.
  4. A net credit to the Cash account for $900.
Explanation: Journal entries are only required for items on the book side of the reconciliation. The interest earned increases cash (debit $70). The NSF check decreases cash (credit $880). The bank service charge decreases cash (credit 20). The outstanding checks and deposit in transit are bank-side items and do not require entries. The net effect on the Cash account is a credit of \(880 + $20 - $70 = $830).

Question 2

During the bank reconciliation process, Eastern Manufacturing identified that a customer's NSF check for $2,100 was returned by the bank, and the bank charged a $30 NSF fee. The original sale was made on credit terms of 2/10, n/30, and the customer had taken the discount when the check was initially received within the discount period. How should the NSF check and related fee be recorded?

  1. Debit Accounts Receivable $2,057; Debit NSF Check Fee Expense $30; Credit Cash $2,087
  2. Debit Accounts Receivable $2,100; Debit Bank Service Expense $30; Credit Cash $2,130
  3. Debit Accounts Receivable $2,143; Credit Sales Discount $43; Credit Cash $2,100
  4. Debit Accounts Receivable $2,057; Debit Sales Discount $43; Debit Bank Service Expense $30; Credit Cash $2,130 (correct answer)
Explanation: When an NSF check is returned, the full amount received ($2,100) must be removed from cash. Since the customer took a 2% discount, the original gross amount was $2,100 ÷ 0.98 = $2,143 (rounded). The discount taken was 43.Thereceivableisreinstatedatthenetamountactuallyowed(43. The receivable is reinstated at the net amount actually owed (2,057), the discount reversal is recorded separately (43),andtheNSFfeeisexpensed(43), and the NSF fee is expensed (30). Total cash credit: $2,100 + $30 = $2,130.

Question 3

When completing a bank reconciliation, which of the following items requires a journal entry on the company's books?

  1. Outstanding checks at month-end.
  2. A deposit recorded on the books but not yet shown on the bank statement.
  3. A bank debit memo for an NSF check from a customer. (correct answer)
  4. A bank error that understated a customer's deposit.
Explanation: Journal entries are required for items that the company was unaware of until receiving the bank statement. A bank debit memo for an NSF check represents a reduction in the company's cash that has not yet been recorded. Outstanding checks and deposits in transit are timing differences that have been recorded by the company but not yet by the bank; they do not require new entries. A bank error must be corrected by the bank.

Question 4

A bank statement shows that the bank collected a $10,000, 6-month, 9% note receivable on behalf of a company. The bank deducted a $50 collection fee from the proceeds. The company has not yet accrued any interest on this note. The journal entry to record the collection would include a credit to Interest Revenue for:

  1. $400
  2. $450 (correct answer)
  3. $850
  4. $900
Explanation: The interest revenue earned on the note must be calculated and recorded. Interest = Principal × Rate × Time. In this case, (10,000 \times 0.09 \times (6/12) = \450). The bank collection fee is a separate expense and does not reduce the amount of interest revenue recognized.

Question 5

A bank reconciliation reveals a customer's check for $450 was returned for non-sufficient funds (NSF) and a monthly bank service charge of $30 was assessed. What is the total credit to the Cash account in the journal entry or entries required to adjust the books?

  1. $30
  2. $420
  3. $450
  4. $480 (correct answer)
Explanation: Both the NSF check and the bank service charge decrease the company's cash balance and require adjusting entries. The NSF check requires a credit to Cash for $450 and a debit to Accounts Receivable. The bank service charge requires a credit to Cash for 30 and a debit to Bank Service Charge Expense. The total credit to Cash is the sum of these two amounts (\(450 + $30 = $480)).

Question 6

A company wrote check #123 for $870 to pay for the monthly utility bill. The bookkeeper erroneously recorded the check in the cash disbursements journal as $780. The check cleared the bank for the correct amount. Which journal entry is required to correct this error?

  1. Debit Cash, $90; Credit Utilities Expense, $90.
  2. Debit Utilities Expense, $90; Credit Cash, $90. (correct answer)
  3. Debit Utilities Expense, $870; Credit Cash, $870.
  4. Debit Accounts Payable, $90; Credit Cash, $90.
Explanation: The company's books understated both the cash payment and the utilities expense by (870 - \780 = $90). To correct this error, the company must increase Utilities Expense (a debit) and decrease Cash (a credit) by the amount of the error, $90.

Question 7

A bank reconciliation for Zenith Corp. revealed the following items not yet recorded on the company's books: interest earned of $50, an NSF check from a customer of $300, and an EFT from a customer paying their account balance of $1,200. What is the net effect of the required journal entries on Zenith Corp.'s cash balance?

  1. A decrease of $950
  2. An increase of $850
  3. An increase of $950 (correct answer)
  4. An increase of $1,250
Explanation: Each of these items requires a journal entry that affects the cash balance per books. Interest earned increases cash (+50).TheNSFcheckdecreasescash(−50). The NSF check decreases cash (-300). The EFT collection increases cash (+1,200). The net effect is an increase of \(50 - $300 + $1,200 = $950).

Question 8

During a bank reconciliation, a company discovers two errors in its own records: (1) Check #201 for $340 paid for supplies was incorrectly recorded as $430. (2) A customer deposit of $800 was recorded as $80. What is the net adjustment (debit or credit) required for the Cash account?

  1. A net credit of $630.
  2. A net debit of $630.
  3. A net credit of $810.
  4. A net debit of $810. (correct answer)
Explanation: For error (1), the cash payment was overstated by (430 - \340 = $90). To correct this, the Cash account must be increased (debited) by 90. For error (2), the cash receipt was understated by \(800 - $80 = $720). To correct this, the Cash account must be increased (debited) by 720. The net adjustment is the sum of the two debits: \(90 + $720 = $810) debit.

Question 9

A bank reconciliation for Corbin Company included a bank credit memo for $85. What journal entry is the most likely reason for this memo?

  1. Debit Cash, $85; Credit Interest Revenue, $85. (correct answer)
  2. Debit Miscellaneous Expense, $85; Credit Cash, $85.
  3. Debit Accounts Receivable, $85; Credit Cash, $85.
  4. No entry is required as this is a bank-side reconciling item.
Explanation: From the company's perspective, a bank credit memo indicates an increase in its bank account balance. This is typically for items the company is not aware of until seeing the bank statement, such as interest earned or the collection of a note receivable. A debit to Cash is required to increase the book balance, and the credit is to a revenue or receivable account. Interest revenue is the most common reason for a small, unexplained credit memo.

Question 10

A company's cash receipts journal shows a cash receipt of $4,231 from a customer on account. However, the deposit slip and the bank statement both show that $4,321 was correctly deposited. The journal entry to correct this transposition error would include a:

  1. Credit to Cash for $90.
  2. Debit to Accounts Receivable for $90.
  3. Credit to Sales Revenue for $90.
  4. Debit to Cash for $90. (correct answer)
Explanation: The company recorded less cash than it actually received by an amount of $4,321 - $4,231 = $90. The original entry understated both Cash (debit) and the reduction of Accounts Receivable (credit) by $90. To correct this error, Cash must be increased (debited) by $90, and Accounts Receivable must be further reduced (credited) by $90 to reflect the additional payment received.

Question 11

A company's bank statement shows an automatic payment of $1,500 to a lender. The loan agreement specifies that this payment consists of $1,200 for principal reduction and $300 for interest. The company had not previously recorded this payment. Which journal entry is required?

  1. Debit Loan Payable, $1,500; Credit Cash, $1,500.
  2. Debit Interest Expense, $1,500; Credit Cash, $1,500.
  3. Debit Loan Payable, $1,200; Debit Interest Expense, $300; Credit Cash, $1,500. (correct answer)
  4. Debit Cash, $1,500; Credit Loan Payable, $1,200; Credit Interest Revenue, $300.
Explanation: The journal entry must reflect the components of the loan payment. The portion of the payment that reduces the loan balance is a debit to Loan Payable (1,200).TheportionthatrepresentsthecostofborrowingisadebittoInterestExpense(1,200). The portion that represents the cost of borrowing is a debit to Interest Expense (300). The total cash paid out is a credit to Cash ($1,500).

Question 12

A company's bank statement shows an EFT collection from a customer, Mavis Corp., for $2,940. This amount was received net of a $60 bank processing fee. Mavis Corp. was settling a $3,000 invoice. Which journal entry correctly records this transaction?

  1. Debit Cash $2,940; Credit Accounts Receivable $2,940.
  2. Debit Cash $3,000; Credit Accounts Receivable $3,000.
  3. Debit Cash $2,940; Debit Bank Service Charge Expense $60; Credit Accounts Receivable $3,000. (correct answer)
  4. Debit Cash $2,940; Debit Sales Discounts $60; Credit Accounts Receivable $3,000.
Explanation: The entry must record the actual cash received (2,940),recognizetheprocessingfeeasanexpense(2,940), recognize the processing fee as an expense (60), and remove the full amount of the customer's invoice from Accounts Receivable (3,000). The total debits (\(2,940 + $60)) equal the total credit (($3,000)). Simply crediting Accounts Receivable for the net cash received would leave an incorrect balance in the customer's account.

Question 13

A bank statement included a debit memo for $750 related to a pre-authorized monthly payment for equipment rent. The company had not yet recorded this payment. The journal entry to record this transaction should include a:

  1. Debit to Cash for $750.
  2. Credit to Rent Expense for $750.
  3. Debit to Accounts Payable for $750.
  4. Debit to Rent Expense for $750. (correct answer)
Explanation: A debit memo from the bank indicates a reduction in the company's cash balance. This payment was for rent, which is an expense. Therefore, the company needs to record the expense (debit Rent Expense) and the corresponding decrease in cash (credit Cash).

Question 14

A company's bank reconciliation process revealed the following: a note collected by the bank for $4,000 plus $100 interest; an NSF check from customer XYZ for $550; a bank service charge of $25; and interest earned on the bank account of $45. What is the net effect of the required journal entries on the Accounts Receivable account?

  1. No effect.
  2. A debit of $550. (correct answer)
  3. A credit of $550.
  4. A debit of $3,450.
Explanation: Of the items listed, only the NSF check affects the Accounts Receivable account. When a customer's check is returned as NSF, the company has not actually been paid. The journal entry reverses the initial cash receipt by crediting Cash and re-establishing the receivable by debiting Accounts Receivable for the amount of the check, $550. The other items affect Cash, Notes Receivable, Interest Revenue, and Expense accounts.

Question 15

A company recorded a $1,600 cash sale in its journal. However, the bank statement shows the deposit was correctly made for $1,060, as the bookkeeper had transposed the last two digits. The journal entry to correct this error will:

  1. Increase total assets by $540.
  2. Decrease total assets by $540. (correct answer)
  3. Have no effect on total assets.
  4. Decrease total liabilities by $540.
Explanation: The company's books overstated cash and sales revenue by (1,600 - \1,060 = $540). The correcting entry is a debit to Sales Revenue for $540 and a credit to Cash for $540. A credit to Cash decreases the Cash account, which is an asset. Since the corresponding debit is to a revenue account (which decreases equity), total assets will decrease by $540.

Question 16

At month-end, a company's Cash account shows a balance of $12,500. The bank statement shows a balance of $13,850. The only reconciling items are outstanding checks of $2,000, a deposit in transit of $1,000, bank service charges of $50, and interest earned of $300. What is the total amount of the credit to Cash in the necessary adjusting journal entries?

  1. $50 (correct answer)
  2. $250
  3. $350
  4. $1,350
Explanation: Journal entries are only made for items that adjust the company's book balance. In this case, those items are the bank service charges and the interest earned. The bank service charges require a credit to Cash for $50. The interest earned requires a debit to Cash for $300. The question asks for the total credit to Cash, which is solely from the service charges, amounting to $50. Outstanding checks and deposits in transit are bank-side adjustments and do not require entries.

Question 17

A company's bank statement for the month shows the collection of a $5,000 note receivable, plus $200 of accrued interest. The bank charged a $25 collection fee. The company had not previously recorded the interest revenue. Which of the following journal entries is required to record this transaction?

  1. Debit Cash for $5,175; Credit Notes Receivable for $5,000; Credit Interest Revenue for $175.
  2. Debit Cash for $5,200; Credit Notes Receivable for $5,000; Credit Interest Revenue for $200.
  3. Debit Cash for $5,175; Debit Bank Service Charge Expense for $25; Credit Notes Receivable for $5,000; Credit Interest Revenue for $200. (correct answer)
  4. Debit Cash for $5,175; Credit Notes Receivable for $4,975; Credit Interest Revenue for $200.
Explanation: The journal entry must record the full amount of cash received, recognize the expense for the bank's fee, remove the note receivable from the books, and recognize the full amount of interest revenue earned. The cash received is the principal plus interest, less the fee ((5,000 + \200 - $25 = $5,175)). The collection fee is a separate expense and should not be netted against the interest revenue.

Question 18

A company's cash balance per its books is $25,600. After analyzing the bank statement, the controller determines that the correct, adjusted cash balance is $25,150. Which of the following single items, discovered during the reconciliation, would account for this difference?

  1. A bank debit memo for a customer's NSF check for $450. (correct answer)
  2. Outstanding checks totaling $450.
  3. A bank credit memo for interest earned of $450.
  4. A book error where a check for $500 was recorded as $50.
Explanation: The book balance of 25,600 needs to be reduced by \(25,600 - $25,150 = $450) to arrive at the correct adjusted balance. A debit memo for an NSF check reduces the book balance and requires a journal entry (Dr. Accounts Receivable, Cr. Cash). A credit memo would increase the book balance. Outstanding checks are a bank-side adjustment. The described book error would mean cash was understated by $450, requiring an increase (debit) to correct it.

Question 19

A company's bookkeeper mistakenly recorded a $500 check written to a supplier as a $500 cash receipt. The original incorrect entry was a debit to Cash and a credit to Accounts Payable. The correcting journal entry requires a:

  1. Credit to Cash for $500.
  2. Debit to Cash for $500.
  3. Credit to Cash for $1,000. (correct answer)
  4. Debit to Accounts Payable for $500.
Explanation: The original incorrect entry was Dr. Cash $500, Cr. Accounts Payable $500. The correct entry should have been Dr. Accounts Payable $500, Cr. Cash $500. To correct the error, the original entry must be reversed (Dr. A/P $500, Cr. Cash $500) and the correct entry must be made (Dr. A/P $500, Cr. Cash $500). The combined correcting entry is Dr. Accounts Payable $1,000, Cr. Cash $1,000. Therefore, a credit to Cash for $1,000 is required.

Question 20

A company receives notice from its bank that a customer's check for $900 has been returned NSF. The bank also charged the company a $30 fee for processing the returned check. The company's policy is to pass this fee on to the customer. The journal entry to record this event should include:

  1. A debit to Accounts Receivable for $900 and a debit to Bank Service Charge Expense for $30.
  2. A debit to Accounts Receivable for $930. (correct answer)
  3. A credit to Cash for $900.
  4. A debit to Bad Debt Expense for $930.
Explanation: The company needs to re-establish the receivable for the original amount of the check (900)plusthebankfeethatwillbepassedontothecustomer(900) plus the bank fee that will be passed on to the customer (30). Thus, Accounts Receivable should be debited for the total amount now owed by the customer, which is $930. The corresponding credit would be to Cash for $930 (to reverse the check and pay the bank fee). Expensing the fee is incorrect because it is being charged back to the customer.