If a check is correctly written and paid by the bank for \$450, but is erroneously recorded in the company's books as \$540, how should this error be treated in the bank reconciliation?

• A. Add \$90 to the book balance
• B. Subtract \$90 from the book balance
• C. Add \$90 to the bank balance
• D. No adjustment is necessary

Answer: (A)

Verified step by step guidance

1. Understand the nature of the error: The check was correctly written and paid by the bank for \$450, but the company recorded it as \$540 in its books. This means the company's book balance is overstated by \$90 (\$540 - \$450).
2. Determine the impact of the error: Since the company's book balance is overstated, an adjustment is needed to reduce the book balance by the overstated amount.
3. Identify the adjustment required: To correct the error, subtract \$90 from the book balance to align it with the actual amount paid by the bank.
4. Explain why no adjustment is needed for the bank balance: The bank has correctly processed the check for \$450, so no changes are required to the bank balance.
5. Summarize the reconciliation step: The error is corrected by subtracting \$90 from the book balance during the bank reconciliation process.