Bank Reconciliation Adjustment Steps:

• Start with bank statement credit balance: $1500.
• Add receipt recorded in cash book but not on bank statement: +$1250 (deposit in transit).
• Subtract payment recorded in cash book but not on bank statement: -$500 (outstanding check).
• Subtract erroneous bank interest of $1000 recorded on statement (correct by removing incorrect charge, as cash book has accurate$100).
• Total: $1500 +$1250 - $500 -$1000 = $1250 (matches cash book balance).

Why C is correct:

• Bank reconciliation adjusts the statement balance for uncleared items and errors to equal the cash book balance, per standard accounting procedure.

Why the others are wrong:

• A. $650: Subtracts extra$600, possibly double-counting interest difference.
• B. $850: Adds net outstanding ($1250 - $500 =$750) to $1500 then subtracts$1400 erroneously.
• D. $350: Subtracts receipt instead of adding it, inverting deposit in transit adjustment.

Final answer: C