In the normal operation of business you receive a check from a customer and deposits it into your account.?

Question

With your bank statement you are advised that this check for $450 is NSF. The bank informs you that due to the amount of activity on your business account the monthly service charge is $40. During a bank reconciliation 1. subtract both values from balance according to bank

2. add both values from balance according to books 3. add both balance according to bank 4. subtract both values from balance according to books.

Answer 1

Okay,

The problem states that the bank's records and your books are not in agreement due to the returned check and the service fees.

The solution is to enter the differences in your books.  You would subtract $450 from Cash in Bank and create an expense entry for $40 which would also reduce Cash in Bank.

The answer therefore is #4.

I know that accounting is strange if you haven't been exposed to it in the past, but you can usually figure out the answers using common sense.  For example you can't change the bank's numbers so #1 cannot be the answer.  The bank told you that they are subtracting $450 because of the bad check (NSF stands for Not Sufficient Funds) so you certainly shouldn't add that amount to your books and rules out choice #2.  Choice #3 is just a rephrasing of choice #2 so it to can't be correct.  The final choice #4 is not only the only choice left, but is makes sense.

Hope this helps

Jerry-the-bookkeeper