Q16RQ - Horngren'S Financial And Managerial Accounting

Question

List some examples of timing differences, and for each difference, determine if it would affect the book side of the reconciliation or the bank side of the reconciliation.

Step-by-Step Solution

Answer

Examples of bank reconciliation statements are check deposits, EFT payments, and cash deposits. 

Step-by-Step Solution Step 1: Definition of the bank reconciliation statement

It is a statement that shows the difference between the bank account balance and the company’s books.

Step 2: Some examples of timing differences

• When a business writes a check, it immediately deducts the amount in its checkbook

and Cash account. The bank, however, does not subtract the check from the company’s

account until the bank pays the check a few days later. It would affect the bank account balance.

• When a company deposits cash in its account, it immediately adds the cash receipt to the

chequebook and Cash account. The bank, however, may take a day or two to add deposits

to the company’s balance. It would affect the book side of reconciliation.

• EFT cash payments and EFT cash receipts are often recorded by the bank before a company learns of them. It would affect book side reconciliation.