Practice Question – Bank Reconciliation

Hilltop Co.'s monthly bank statement shows a balance of $54,200. Reconciliation of the statement with company books reveals the following information:

Bank service charge $10

Insufficient funds check 650

Checks outstanding 1,500

Deposits in transit 350

Check deposited by Hilltop and cleared by the bank for $125 but improperly recorded by Hilltop as $152. What is the net cash balance after the reconciliation?

This question is looking for the net cash balance after the reconciliation (i.e., the ending cash book balance). We start with the bank balance of $54,200. We have four reconciling items to consider. For each item, we need to ask, “Does the bank know about this item?” If it does, then it means that the item is already included in the bank statement balance of $54,200 and we don’t need to make an adjustment for it.

Does the bank know about the bank service charge? Yes, this $10 is already included in the ending bank statement balance of $54,200. Because it’s already included, then there is no adjustment to make for it.

Does the bank know about the insufficient funds check (i.e., non-sufficient funds check) of $650? Yes, so there’s no adjustment to make for it.
Does the bank know about checks outstanding for $1,500? No, it does not, so we need to adjust for checks outstanding by subtracting them from the $54,200 bank statement bal- ance. Does the bank know about the deposits in transit for $350? No, so we need to add them to the $54,200 bank statement balance.

We deposited an item for $125, but improperly recorded it in the books for $152 (i.e., this is an error). The bank knows that $125 is the correct amount. It’s already included in the $54,200 ending balance, therefore there’s no adjustment to make.

To solve the question, we start with the $54,200 bank statement balance, subtract the outstanding checks for $1,500 and add the deposits in transit for $350. Therefore the net cash balance after the reconciliation is $53,050 ($54,200 – $1,500 + $350).