It seems like the answer options are missing from your query. Based on common items in a bank reconciliation, items that are already recorded in the company's cash book but not yet by the bank do not require an adjustment to the cash book balance.
Cheque issued but not presented for payments and cheque deposited but not cleared both these situations arise due to timing differences and would get cleared and adjusted automatically and so will not require any adjustment of the cash book balance.
In conclusion, the correct answer is that mistakes in the pass book do not necessitate adjustments in the cash balance since they are not errors made by the business itself.
Identify the items that affect the book balance: Items that must be adjusted to the book balance are those that the company has not yet recorded but are reflected in the bank statement. Examples include bank service charges, interest income, and NSF (non-sufficient funds) checks.
Adjusted Book Balance = Cash Book Balance + Bank Credits - Bank Charges ± Book Errors.
The adjusted cash balance is calculated by taking the ending cash balance from the bank statement and adding any outstanding deposits while deducting outstanding checks. The formula is: Adjusted Cash Balance = Ending Bank Statement Balance + Outstanding Deposits – Outstanding Checks.
It comes in four forms: Single Column (cash only), Double Column (cash and bank), Triple Column (cash, bank, and discounts), and Petty Cash Book (minor expenditures).
Common reconciliation adjustments include outstanding checks, deposits in transit, bank fees, and interest earned or charged by the bank.
Cash book always shows debit balance. It can never show credit balance and it helps to ascertain daily cash receipts and cash payments.
Your adjusted balance is what you owe after any payments you make or credits you receive. Your unadjusted balance is the total amount you owe before any payments or credits.
Credit Purchases: These are not recorded in the cash book because no cash is paid at the time of purchase.
Items Included in the Adjusted Cash Book
Add interest earned to the balance per books: Since interest earned increases the cash balance, it should be added to the balance per books during the reconciliation process. Bank service charges, on the other hand, would be subtracted from the balance per books.
A cash book records all the cash receipts on the debit side and all the cash payments of the organization on the credit side. Credit sales and depreciation expenses are not considered in cash book.
B.
Outstanding checks refers to the checks that are not yet cleared by the bank. These are already subtracted in the company's book balance. Thus, outstanding checks are deducted from the bank's cash balance. It will not result in an adjusting journal entry in the company's books.
Conclude that postdated checks should NOT be considered cash: Based on the definition and characteristics of cash in accounting, postdated checks are excluded from the cash category because they are not liquid or readily available for use.
The balance of cash in a cash book is the total amount of money that is currently in the account. This includes both the money that has been deposited and the money that has been withdrawn. The cash flows will change with every transaction that is recorded in the petty cash book.
Cash is an asset account. Again, asset accounts normally have debit balances. Therefore, to increase Cash you debit it. To decrease Cash, you credit it.
A double column cash book, also known as a two column cash book, consists of two columns on each side to record cash and bank transactions. Discount columns are not balanced, since debit represents discount allowed and credit represents discount received.
The five types of adjusting entries
The book balance must be adjusted for deposits in transit, book error, outstanding checks, interest earned on the checking account, and collections of accounts receivable by the bank.
There are three major types of adjusting entries — accruals, deferrals and estimates. An example of a revenue accrual is a sale that has been earned, but the customer has not yet been invoiced by the time the books are closed.
Standard Rules For Maintaining The Cash Book
Take the ending bank statement balance: + Add any deposits in transit (deposits you have receipted in but did not make it to the bank at month-end). -Subtract any outstanding checks and electronic payments that have not cleared the bank account to find adjusted bank balance. Run a cash report in your software.
A cash book includes two main sections: receipts (debit) and payments (credit). All cash book receipts are entered date-wise on the left side, while all the payments are recorded on the cash book's credit side. At the end of the accounting period, the difference between the debit and credit sides is computed.