ACCA Applied Knowledge · Financial Accounting · Bank reconciliations
A bank reconciliation identifies bank charges of $85 and a direct debit of $240 for insurance that appear on the bank statement but not in the cash book. What is the correct effect on the cash book?
The cash book is credited with $325 in total, being $85 of bank charges plus the $240 direct debit. Both are payments made by the bank that the business has not yet recorded, so the bank balance falls.
- ACredit the cash book by $325 in totalCorrect
- BDebit the cash book by $325 in total
- CCredit the cash book by $155 in total
- DDebit the cash book by $155 in total
Explanation
Both items are payments made by the bank and not yet recorded by the business. The cash book must be credited with $85 plus $240, giving $325, with debits to bank charges and insurance expense. A debit would wrongly increase the balance.
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