When preparing a bank reconciliation, outstanding checks would be:

• A. subtracted from the book balance
• B. added to the bank statement balance
• C. added to the book balance
• D. subtracted from the bank statement balance

Answer: (D)

Verified step by step guidance

1. Understand the concept of outstanding checks: Outstanding checks are checks issued by a company that have not yet cleared the bank. These checks reduce the actual cash available in the bank account but are not yet reflected in the bank statement balance.
2. Identify the purpose of a bank reconciliation: Bank reconciliation is the process of comparing the company's book balance (cash account) with the bank statement balance to ensure accuracy and identify discrepancies.
3. Determine the impact of outstanding checks: Since outstanding checks represent payments that have been issued but not yet cleared, they reduce the actual cash available in the bank account. Therefore, they must be subtracted from the bank statement balance during reconciliation.
4. Apply the adjustment to the bank statement balance: To reconcile the bank statement balance with the book balance, subtract the total amount of outstanding checks from the bank statement balance.
5. Verify the reconciliation process: After subtracting outstanding checks, ensure that all other adjustments (e.g., deposits in transit, bank fees, errors) are accounted for to finalize the reconciliation.