Adjusting Entries for Bank Reconciliation: The Definitive Guide

Today, you’ll learn about adjusting entries for bank reconciliation.

In business finance, bank reconciliation is a vital process to ensure that your financial records accurately reflect your bank account activity.

However, discrepancies may occur for various reasons, such as errors in recording your deposits or cash disbursements, bank charges, interest income, and recording cash transactions in the wrong bank account subsidiary ledger.

In this blog post, we will explore each of these topics and provide examples of journal entries for better understanding.

Interest Income

When reconciling your bank statement with your records, adjustments may be necessary to account for any interest income that you have not yet recorded.

For instance, if your bank statement shows that you have earned $100 in interest but have failed to record it in your books, the appropriate journal entry would be:

Interest Income         $100

     Bank                          $100

Bank Charges

Ensure that you incorporate bank charges into your books to maintain accurate financial records. These charges might include account maintenance fees, transaction fees, or overdraft fees.

Suppose you incur a $50 monthly account maintenance fee. The subsequent journal entry to record this expense would be:

Bank Charges           $50

      Bank                          $50

Errors in Recording Deposits

If errors occur during the recording of your deposits, there might be a mismatch between your records and the bank statement. Adjusting entries is necessary to rectify the discrepancy.

For example, if you mistakenly recorded a deposit of $450 instead of $500, the appropriate journal entry to correct the error would be:

Cash                    $50

Accounts Receivable:  $50

Errors in Recording Check Disbursements

Similar to deposit errors, mistakes can happen while recording check disbursements, resulting in discrepancies between your records and the bank statement. To rectify this, adjusting entries is required.

Suppose you mistakenly recorded a check disbursement of $900, but the actual value was $1,000. The adjusting entry would be:

Accounts Payable       $100

       Cash                            $100

Errors in Recording Cash Disbursements

Mistakes in recording cash disbursements can lead to discrepancies between your records and the bank statement. Correcting these errors necessitates adjusting entries.

For instance, if a $300 cash payment for office supplies was incorrectly recorded as $350, the appropriate journal entry would be:

Cash                  $50

Supplies Expense       $50

Cash Transactions Recorded in Incorrect Bank Account Subsidiary Ledger

At times, cash transactions might be mistakenly recorded in an incorrect subsidiary ledger account, posing a challenge to align your records with the bank statement. Adjusting entries is indispensable to correct these errors.

For example, if $200 in cash collections from accounts receivable were erroneously recorded in Bank A instead of Bank B, the adjusting entry would be:

Cash in Bank – B       $200

     Cash in Bank – A        $200

Jason John Wethe
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