Question

A cheque that was outstanding las month's bank reconciliation was not among the cancelled cheques returned by the bank this month. As a result in preparing this month reconciliation, the amount of this cheque should be

a. added to book balance of cash

b. deducted from the book balance of cash

c. Added to the bank balance of cash

d. deducted from the bank balance of cash

e. Noted as a memo

Answer 1

Outstanding cheques are the cheques issued by the company that the bank has not cleared for payment. Since, this cheque was not among the cancelled cheques returned by the bank, that means it will be cleared by the bank this month. When the bank books were prepared, the amount of this cheque must have been deducted from the book balance of cash, but it was not deducted in the bank statement as the cheque has not been cleared by the bank. If the bank clears the outstanding cheque this month, then bank will deduct the amount of the cheque from the statement.
Hence, as a result in preparing this month reconciliation, the amount of this cheque should be:

d. deducted from the bank balance of cash

The amount of cheque cannot be added to book balance of cash as the cheque is issued by the company which means a deduction of the bank balance of the cash.

The amount of cheque has already been deducted from the book balance of cash and if it is again deducted from the book balance of cash during reconciliation, there will be a double difference of the amount of cheque.

Since the cheque issued means the company is the payer and its bank balance will get deducted, hence the amount of cheque cannot be added to the bank balance of cash.

The amount of cheque during reconciliation has been deducted from the book balance of cash, so for reconciling the book balance of cash with the bank balance of cash, it needs to be deducted from the bank balance of cash and cannot be noted as a memo.