In a bank reconciliation, which of the following items would be subtracted from the company's book balance to arrive at the adjusted book balance?

• A. Interest earned
• B. Deposits in transit
• C. Outstanding checks
• D. Bank service charges

Answer: (D)

Verified step by step guidance

1. Understand the concept of bank reconciliation: Bank reconciliation is the process of comparing the company's book balance (as per its accounting records) with the bank statement balance to identify discrepancies and make adjustments.
2. Identify the items that affect the company's book balance: Items such as interest earned, bank service charges, and other adjustments directly impact the company's book balance, while deposits in transit and outstanding checks affect the bank statement balance.
3. Determine the impact of each item: Interest earned increases the book balance, deposits in transit increase the bank statement balance, outstanding checks decrease the bank statement balance, and bank service charges decrease the book balance.
4. Focus on the adjustment to the book balance: Since the question asks for items subtracted from the company's book balance, bank service charges are the correct adjustment because they represent fees charged by the bank that reduce the company's cash balance.
5. Conclude the adjustment process: Subtract bank service charges from the company's book balance to arrive at the adjusted book balance, ensuring all other relevant adjustments are accounted for.