Which of the following is a reason to deduct from the bank balance during reconciliation?

During bank reconciliation, outstanding checks represent checks that have been written and recorded in the company’s books but have not yet cleared the bank. These checks have already reduced the company’s cash balance in its financial statements, but the bank has not yet reflected this decrease in its records since the checks have not been presented for payment. As a result, when reconciling the bank statement, these checks must be deducted from the bank balance to arrive at the true cash position of the company.

This deduction reflects the company’s actual available cash, ensuring that the reconciliation accurately accounts for all transactions that have impacted cash flow. The objective of reconciliation is to ensure that the bank’s records and the company’s records match up, providing a clear picture of the cash status. The other options represent items that either increase the bank balance (like deposits in transit or interest earned) or do not directly affect the bank balance calculation at that stage (like cash on hand, which is money in the physical possession of the company rather than in the bank).