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ACCA Applied Knowledge · Financial Accounting · Bank reconciliations

Which statement best describes the main purpose of preparing a bank reconciliation statement?

The main purpose is to explain the difference between the cash book balance and the bank statement balance, identifying timing differences and items such as bank charges or errors that require correcting entries in the cash book.

  1. ATo explain differences between the cash book balance and the bank statement balance and identify items needing adjustmentCorrect
  2. BTo replace the need for a cash book by relying on the bank statement
  3. CTo calculate the profit earned by the business during the month
  4. DTo confirm that the bank has charged the correct rate of interest on the overdraft

Explanation

A bank reconciliation compares the cash book with the bank statement, explains timing differences such as unpresented cheques and outstanding lodgements, and highlights items such as charges or errors that must be entered in the cash book. It is not used to calculate profit or replace the cash book.

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