Fundamentals Of Accountancy, Business, And Management (FABM) 2 Practice Exam

In the Adjusted Method of bank reconciliation, how are the balances determined?

The bank balance is adjusted to reflect the book balance. The bank balance is adjusted to agree with the book balance. The balances per bank record and per company's record are separated and compared. The balances per bank record and per company's record are combined to derive a single reconciled balance.

Correct Answer:

The balances per bank record and per company's record are separated and compared.

Explanation:

In the Adjusted Method, you start by separating the two records and comparing them side by side: the bank’s statement balance and the company’s cash book balance. This approach helps you see all timing differences and items not yet recorded by each side, such as deposits in transit, outstanding checks, bank charges, NSF checks, and any errors. By identifying these differences from both records, you can determine exactly which adjustments are needed in the books (or with the bank) to bring both records to a single reconciled balance. The other ideas focus on adjusting one balance to match the other without explicitly examining both records together, which can miss discrepancies or give a skewed view of where the differences come from.

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