A bank charge of $5000 was left out of the cash book. What is the proper adjustment to make in the cash book?
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Answer: C. Bank charges will be credited in cash book
Explanation
Bank charges reduce the available cash balance and require a corresponding credit entry in the cash book. Omitting this fee means the cash book currently shows a higher balance than the actual bank statement. Crediting the cash book corrects the discrepancy and aligns the internal records with actual banking activity. Financial institutions automatically deduct service fees and bank charges directly from customer checking accounts. Bank reconciliation statements help businesses identify differences between internal cash records and external bank statements. Accurate bookkeeping requires timely recording of all bank fees to maintain reliable financial reporting standards.
Monthly bank account statements often reveal overlooked service fees that require immediate cash book adjustments. Regular reconciliation prevents overdrafts and ensures that management relies on accurate cash position data. Internal auditors review bank reconciliations to verify that all financial transactions are properly documented. Debiting the cash book would incorrectly increase the recorded cash balance instead of reducing it. Adding bank charges to the cash book balance contradicts the reduction caused by financial institution fees. Leaving bank charges unadjusted guarantees that internal records remain permanently out of balance with statements.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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