Future Business Leaders of America (FBLA) Personal Finance Practice Test

When performing a bank reconciliation, outstanding checks should be?

1. Added to the bank statement balance

2. Ignored in the reconciliation

3. Subtracted from the bank statement balance

4. Reported to the bank

The correct answer is: Subtracted from the bank statement balance

During a bank reconciliation, outstanding checks represent amounts that have been issued by the account holder but have not yet cleared the bank. Since these checks are deducted from the account holder's record but are not yet reflected in the bank's balance, they need to be accounted for in the reconciliation process. To achieve an accurate reconciliation, the outstanding checks must be subtracted from the bank statement balance. This ensures that the adjusted bank statement balance accurately reflects the true available funds in the account. By doing this, you will reconcile your record of available funds with the bank’s records, thus highlighting the differences due to the timing of transactions. This process helps identify any discrepancies and ensures that both your financial records and the bank’s records match up as closely as possible.