Practice Question – Bank Reconciliation
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Kyle Ashcraft, CPA · 2019 CPA Exam Scores · 95 FAR · 98 BEC · 91 REG · 90 AUD
Bank reconciliation questions give you a pile of reconciling items and ask for one number. The trick isn't the arithmetic — it's knowing which items even belong in the calculation.
What's the practice question?
Hilltop Co.'s monthly bank statement shows a balance of $54,200. Reconciling the statement against the company's books reveals four items:
| Reconciling item | Amount |
|---|---|
| Bank service charge | $10 |
| Insufficient funds (NSF) check | $650 |
| Checks outstanding | $1,500 |
| Deposits in transit | $350 |
A fifth item: Hilltop deposited a check that the bank correctly cleared for $125, but Hilltop's books mistakenly recorded it as $152.
The question: what is the net cash balance after the reconciliation?
How do you decide which items adjust the bank balance?
Ask one question for each item: does the bank already know about it? If yes, it's already baked into the $54,200 statement balance, and you leave it alone. If no, the bank hasn't caught up yet, and you adjust the bank balance to account for it.
Bank already knows → no adjustment. Bank doesn't know yet → adjust the bank balance. That's the entire test for reconciling from the bank side.
Run the four items through that filter:
- Bank service charge ($10): the bank charged it, so it's already reflected in $54,200. No adjustment.
- NSF check ($650): the bank already bounced it and adjusted its own records. No adjustment.
- Checks outstanding ($1,500): Hilltop wrote these checks, but they haven't cleared the bank yet. The bank doesn't know about them. Subtract from the bank balance.
- Deposits in transit ($350): Hilltop made these deposits, but the bank hasn't processed them yet. Add to the bank balance.
The $125/$152 recording error works the same way: the bank cleared the correct $125, so that figure is already sitting inside the $54,200. It's a books problem, not a bank-balance problem, so it doesn't touch this calculation either.
Worked solution: the net cash balance
$54,200 − $1,500 + $350 = $53,050
The service charge, the NSF check, and the recording error would matter if the question instead asked you to reconcile Hilltop's book balance up to the true cash figure — each of those would need to be subtracted from the books. But starting from the bank statement, none of them apply.
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Kyle Ashcraft, CPA scored 90 or above on every section of the CPA exam in 2019, including a 95 on FAR. He is the founder and sole instructor of Maxwell CPA Review, a complete CPA review course covering all six sections, where he creates every lecture, textbook and study outline himself.