College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570



College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Which of the following does not explain the differences between the bank statement balance and the customer’s cash balance?

  1. a. Deposit in transit
  2. b. Canceled checks
  3. c. An NSF check
  4. d. Errors
  5. e. Interest income

To determine

Find the correct option, the option that does not describe the difference between the cash balance in the Cash account of the company, and the cash balance on the bank statement.


Bank statement: This is a periodic or monthly statement issued by bank reporting the account summary of transactions done by the account holder.

Reasons for the difference:

  • Deposits in transit: The deposits which are not recorded by the bank are referred to as deposits in transit. The deposits in transit are not reflected on the bank statement.
  • Outstanding checks: Outstanding checks are the checks that are issued by the company, but not yet paid by the bank. When the check is issued for payment, the company deducts the cash balance immediately. But the bank deducts only when the cash is paid for the issued check.
  • Collections: The receivables collected by bank, are credited to the customer’s bank account. But the customer is not aware of it.
  • Interest income: Interest earned on checking account is credited by bank to the bank account of which the company is not aware of.
  • NSF check: When the customer bank returns the deposited check to the depositor’s bank indicating that there are insufficient funds in the account, such returned or bounced check is referred to as NSF check. The company is not aware of this bounced check.
  • Service charge: Banks deduct the service charge for the services rendered like lock box rental, or printed checks. But the company is not aware of such deductions.
  • Errors: The errors committed either by bank or by company while recording the transactions is another reason for lack of agreement...

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