Question

During the month of July, Clanton Industries issued a check in the amount of $967 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:

Multiple Choice

A. Deduct the check amount from the book balance of cash.
B. Add the check amount to the book balance of cash.
C. Deduct the check amount from the bank balance.
D. Add the check amount to the bank balance.
E. Make a journal entry in the company records for an error.

Answer 1

While reconciling Clanton Industries' bank statement, the correct action for an uncleared check is to deduct the amount from the bank balance, not the book balance.

Step-by-step explanation:

When preparing the July 31 bank reconciliation for Clanton Industries, and addressing the outstanding check of $967 that has not cleared the bank, the appropriate action according to general accounting practices is C. Deduct the check amount from the bank balance. This means that when reconciling the bank statement with the company's ledger, you should recognize that the bank has not yet processed the check, so its balance is higher than what the company's books will show once the check clears. The bank balance is adjusted downwards (or deducted) by the check amount to match the company's books which already show the check as an expense.

Answer 2

C. Deduct the check amount from the bank balance

Step-by-step explanation:

Outstanding Checks should be subtracted from the bank side of the reconciliation because they were subtracted from the book balance when the checks were written.