Bookkeeping & Principles
Bank Reconciliations
Calculating service charges and adjusted balances.
Questions provide a scenario with book balance, bank statement balance, a list of outstanding checks, and one or more deposits in transit. The exam tests whether you can isolate the service charge or compute the true adjusted balance. Kiting identification requires recognizing that the same funds appear simultaneously in two accounts.
What the exam tests
Service Charge Calculation
Given the book balance, bank statement balance, outstanding checks, and deposits in transit, solve for the exact dollar amount of the bank service charge.
Adjusted Balance Determination
Calculate the 'true' adjusted cash balance that should appear on financial statements by reconciling differences between internal records and the bank's records.
Auditing and Fraud Identification
Identify timing errors or irregularities in the reconciliation, including kiting, a fraud where a check written from one account is deposited into another so funds appear in both balances simultaneously.
Structural Recognition (Reconciliation Logic)
Key rules
- ›Bank Side: Bank Balance + Deposits in Transit − Outstanding Checks = Adjusted Bank Balance.
- ›Book Side: Book Balance − Service Charges ± Other adjustments = Adjusted Book Balance.
- ›Both sides must arrive at the same Adjusted Balance. Any remaining difference is the service charge or an error.
- ›Service Charge = difference between the balance variance and the outstanding items variance.
Common traps
- !Applying outstanding checks to the book side instead of the bank side.
Interpretive Data Reading
Key rules
- ›Separate items into Bank Side vs. Book Side before calculating. Do not mix them.
- ›Outstanding checks and deposits in transit belong on the Bank Side.
- ›Service charges and errors discovered in the books belong on the Book Side.
Common traps
- !Adding deposits in transit to the book balance instead of the bank balance.
Arithmetical Accuracy
Key rules
- ›Work with exact dollar amounts including cents. Misplaced decimals will cause the reconciliation to fail.
- ›Verify addition and subtraction on both sides independently before comparing totals.
Common traps
- !Rounding intermediate values, which creates a false discrepancy at the end.
Try one
Mary was preparing a bank reconciliation statement for Wyatt. The checkbook balance was $68,231.84. The bank balance was $67,537.22. There were $1,575.60 in outstanding checks and $2,133.98 in deposits in transit. What is the bank service charge?
First find the difference between checkbook and bank balances: $68,231.84 − $67,537.22 = $694.62. Then find the outstanding items variance (deposits in transit minus outstanding checks): $2,133.98 − $1,575.60 = $558.38. The bank service charge is the difference between these two variances: $694.62 − $558.38 = $136.24.
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