On a bank reconciliation, which of the following items would be subtracted from the bank statement balance to arrive at the adjusted bank balance?

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

Answer: (D)

Verified step by step guidance

1. Understand the purpose of a bank reconciliation: It is a process used to match the bank statement balance with the company's cash account balance, identifying any discrepancies and ensuring accuracy.
2. Identify the items that affect the bank statement balance: These include outstanding checks, deposits in transit, bank service charges, and interest earned. Each item impacts the reconciliation differently.
3. Focus on outstanding checks: Outstanding checks are payments issued by the company that have not yet cleared the bank. These reduce the bank statement balance because the bank has not yet processed them.
4. Determine the adjustment: To arrive at the adjusted bank balance, subtract the total amount of outstanding checks from the bank statement balance. This reflects the reduction in available funds due to these pending payments.
5. Exclude other items: Interest earned and deposits in transit increase the bank balance, while bank service charges reduce the company's book balance, not the bank statement balance. Therefore, only outstanding checks are subtracted from the bank statement balance.