Question

4 when reconciling a checkbook, which of the following is true regarding the interest and bank service fees?

interest and bank service charges are added to the checkbook register.

interest is added to the checkbook register and bank service charges are subtracted.

interest is subtracted from the checkbook register and bank service charges are added.

interest and bank service charges are subtracted from the checkbook register.

Explanation:

Understand bank reconciliation

Bank reconciliation is the process of matching the balance in a person's checkbook register with the balance on their bank statement. Because some transactions are recorded by the bank before the account holder is aware of them, adjustments must be made to the checkbook register to ensure both records match.

Analyze interest earned

Interest earned on a checking account is money paid by the bank to the account holder. Since this increases the account balance, it must be added to the checkbook register during reconciliation. This uses Personal Finance Basics to manage account balances.

Analyze bank service fees

Bank service charges are fees deducted by the bank for maintaining the account or providing services. Since these fees decrease the account balance, they must be subtracted from the checkbook register during reconciliation.

Evaluate the options

• Option 1 states both are added, which is incorrect because service charges decrease the balance.
• Option 2 states interest is added and service charges are subtracted, which correctly reflects their impact on the balance.
• Option 3 states interest is subtracted and service charges are added, which is the opposite of the correct financial treatment.
• Option 4 states both are subtracted, which is incorrect because interest increases the balance.

Answer:

• Interest and bank service charges are added to the checkbook register.
• Interest is added to the checkbook register and bank service charges are subtracted. (Correct answer)
• Interest is subtracted from the checkbook register and bank service charges are added.
• Interest and bank service charges are subtracted from the checkbook register.