Which sequence correctly outlines the steps in performing a bank reconciliation?

Which sequence correctly outlines the steps in performing a bank reconciliation?

• A. Compare bank balance and book balance, add deposits in transit, subtract outstanding checks, adjust for bank errors and bank charges/interest; adjust book balance to reconcile.
• B. Only compare bank balance to book balance without any adjustments.
• C. Adjust the bank balance by ignoring deposits in transit.
• D. Reconcile by adjusting only the book balance.

Answer: (A)

Bank reconciliations align the company’s cash records with the bank statement by correcting for timing differences and items that the other party has recorded differently. Start by checking both balances to spot what doesn’t match. Then adjust the bank balance for items that the company has already processed but the bank hasn’t reflected yet: deposits in transit are added because the cash is effectively on the way to the bank, while outstanding checks are subtracted because they have left the company’s books but haven’t cleared the bank. You also account for bank-related adjustments such as errors on the bank’s side and any bank charges or interest that affect what the bank has reported. After aligning the bank side, you adjust the company’s own books for items the bank has recorded but the company hasn’t yet entered, such as service charges, interest earned, and any misstatements. The goal is to bring the book balance into agreement with the corrected bank balance. This sequence is the best fit because it explicitly covers comparing balances, adjusting the bank side for timing items and corrections, and then updating the company’s books so both records reflect the same amount of cash. The other options omit essential adjustments or focus on only one side, which would leave the reconciliation incomplete.

Bank reconciliations align the company’s cash records with the bank statement by correcting for timing differences and items that the other party has recorded differently. Start by checking both balances to spot what doesn’t match. Then adjust the bank balance for items that the company has already processed but the bank hasn’t reflected yet: deposits in transit are added because the cash is effectively on the way to the bank, while outstanding checks are subtracted because they have left the company’s books but haven’t cleared the bank. You also account for bank-related adjustments such as errors on the bank’s side and any bank charges or interest that affect what the bank has reported.

After aligning the bank side, you adjust the company’s own books for items the bank has recorded but the company hasn’t yet entered, such as service charges, interest earned, and any misstatements. The goal is to bring the book balance into agreement with the corrected bank balance.

This sequence is the best fit because it explicitly covers comparing balances, adjusting the bank side for timing items and corrections, and then updating the company’s books so both records reflect the same amount of cash. The other options omit essential adjustments or focus on only one side, which would leave the reconciliation incomplete.