Question

Minor Company had checks outstanding totaling $5,407 on its April bank reconciliation. In May, Minor Company issued checks totaling $40,849. The May bank statement shows that $25,832 in checks cleared the bank in May. A check from one of Minor Company's customers of $640 was also returned marked "NSF." The amount of outstanding checks on Minor Company's May bank reconciliation should be

a. $19,784

b. $20,425

c. $66,681

d. $20,424

Answer 1

Solution:

Option D is the correct answer = $20,424

Explanation:

Outstanding Check in the Bank Reconciliation - means the checks which are issued by the company and recorded in its general ledger account, But checks are not yet cleared the bank account on which it is drawn.

Particular	Amount in $
Opening Outstanding Checks	5,407
Add: Checks issued during the month	40,849
Less: Checks cleared by the bank	25,832
Closing Outstanding Checks Balance	20,424

Note:

1. Information given in the question about check return collected from customers is not relevant here to calculate the checks outstanding as checks outstanding concerned with the checks issued by the company but not presented for payment. On the other hand, if the customer checks are returned due to any reason this will be adjusted in the book of the account by again increasing the account receivable balance on the party account to which such check belongs.

2. The impact of such Outstanding checks is that Bank balance will be greater than the company's actual balance of cash in books of account of the company.

3. Treatment of Outstanding Checks in Bank Reconciliation - when adjusted balance as per the bank is calculated at end of a period, Total amount of outstanding checks is deducted from the ending balance of the bank statement.