WHEN BANK CHARGES ARE DISCOVERED IN A BANK STATEMENT, THE ADJUSTMENT IS EFFECTED IN THE

• A. bank reconciliation statement
• B. cash book ✓
• C. suspense account
• D. bank loan account

The cash book is a primary record that records all financial transactions of a business in an organized and systematic manner. It is also known as the cash receipts and disbursements journal. When bank charges are discovered in a bank statement, they represent an outflow of cash from the business. Therefore, these charges must be recorded in the cash book under the appropriate expense account, such as “Bank Charges Expense” or “Other Expenses.”

Recording bank charges in the cash book ensures that the transactions are properly accounted for and reflected in the financial statements of the business. This information is then used to prepare the bank reconciliation statement, which is a process of reconciling the transactions recorded in the cash book with those appearing on the bank statement. The purpose of reconciling these records is to identify any discrepancies between them and make any necessary adjustments to maintain accurate financial records.

It is important to note that bank charges should not be recorded in a suspense account or a bank loan account. A suspense account is used when there is uncertainty about which account an amount should be debited or credited to. Bank loans are recorded as separate liabilities on the balance sheet, and interest payments on these loans would be recorded as expenses in the income statement. Bank charges, however, are not related to loans but rather to maintaining a checking account with a financial institution.

In summary, when bank charges are discovered in a bank statement, they should be recorded in the cash book under an appropriate expense account before preparing the bank reconciliation statement to ensure accurate financial reporting for your business.