5 Bank Reconciliation Journal Entries

Today, you’ll learn bank reconciliation journal entries.

When discrepancies arise between the company’s accounting records and the bank statement, it is essential to make appropriate bank reconciliation journal entries.

What is bank reconciliation?

Before we dive into the journal entries click here to learn more about bank reconciliation.

Continuing, here are the journal entries with debits and credits (Double-entry bookkeeping):

1. Recording a Deposit

An example of recording a deposit, in a bank reconciliation, will usually have the following journal entries.

Suppose you deposited $1,000 in cash into your bank account from the day’s collection, but it was not recorded in your books.

To rectify this reconciling item, create the following journal entry:

  • Debit: Bank (increasing the bank balance)
  • Credit: Receivables/Income (decreasing receivables or increasing the income)

Conversely, when a deposit in transit is not really deposited, the accounting entry is:

  • Debit: Cash on Hand – Treasury/ Other Receivables – Cash Shortage.
  • Cash in Bank

Debit Cash on Hand if the money is in the hands of the treasury.

Debit Due from Officers and Employees if there is a shortage.

The balance per book (Cash In Bank account) is overstated, and reduction is appropriate.

2. Recording Bank Fees

In this example, recording bank fees usually have this journal entry after a bank reconciliation.

Imagine your bank deducted a service fee (bank service charge) of $10, which you neglected to record.

To record this fee, create the following simple journal entry:

  • Debit: Bank Charges (increasing expenses)
  • Credit: Bank (decreasing the bank balance)

3. Recording Outstanding Checks

Recording outstanding checks, with this example, in a bank reconciliation would usually have this journal entry.

Next, look for any outstanding checks, which are checks issued but not yet cleared by the bank.

These checks will also need to be considered during the reconciliation process.

Suppose you issued a check for $500 (not yet recorded in your book), which has not yet been cleared by the bank.

To account for this outstanding check, create the following journal entry:

  • Debit: Expenses/Payables (increasing expenses or reducing payable)
  • Credit: Bank (decreasing the bank balance)

A subsequent accounting adjustment involving outstanding checks entails reclassifying them as accounts payables.

This occurrence typically transpires when a check becomes stale, signifying that it has remained uncleared in the bank for a duration of six months.

In such cases, the transition from outstanding checks to accounts payables reflects the recognition of a prolonged lack of financial transaction completion.

This accounting practice ensures accuracy in financial reporting by aligning the representation of liabilities with the current state of financial affairs, accounting for the extended period during which the check has not been processed by the bank.

The journal entry is shown below:

  • Debit: Cash in Bank
  • Credit: Accounts Payable

This entry increases the liability and decreases Cash in Bank.

4. Adjusting for Timing Differences

With this example for adjusting for timing differences, the journal entry after bank reconciliation depends upon the type of timing differences.

Timing differences can occur when transactions are recorded in different periods, leading to discrepancies between your books and the bank statement, which is the transaction account of the depositor.

You will need to adjust for these timing differences during the bank reconciliation process.

Suppose a customer issued a check of $200 to you by the end of the month, and although you recorded it in your books on the last day of the month, the bank cleared it in the subsequent month.

To adjust for this timing difference, create the following journal entry:

  • Debit: Accounts Receivable (decreasing the accounts receivable balance)
  • Credit: Cash (decreasing the cash balance)

Note: This entry depends upon the accounting standards of your country.

5. Interest income

When recording interest income, in a bank reconciliation, the journal entry usually increases the Cash in Bank and Interest Income account.

Generally, the company bank credits your account with interest income at the end of the month, quarter, or some other predetermined period.

However, this interest income might not be recorded in your cash book until you actually receive a bank statement or notice.

As a result, there’s a timing difference between when the bank records the interest and when you acknowledge it in your records.

  • Debit: Cash in Bank (increasing the bank)
  • Credit: Interest income (increasing the income)

This entry increases the book balance.

6. Accounting for errors in amounts

Sometimes, reconciling errors happen due to human error during data entry and they may require journal entries, after bank reconciliation.

If you mistakenly record a transaction in your cash book or enter it with the wrong amount, it can lead to differences when compared to the bank statement.

In this case, the journal entries depend upon the type of error found.

7. NSF check

In general, after bank reconciliation, the journal entry for an NSF check is:

  • Debit: Accounts Receivable\Sales\Revenue
  • Credit: Cash in Bank
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