Bank Reconciliation
Bank reconciliation compares the company's cash records with the bank statement to identify differences. Learn to prepare reconciliations and make necessary adjusting entries.
Bank reconciliation compares the company's cash records with the bank statement to identify differences. Learn to prepare reconciliations and make necessary adjusting entries.
Key Concepts
Study Tips
- ✓Start from both the bank balance and book balance
- ✓Items the company doesn't know about adjust the book balance
- ✓Items the bank doesn't know about adjust the bank balance
- ✓Only book-side adjustments require journal entries
Common Mistakes to Avoid
Students often put adjustments on the wrong side of the reconciliation. Remember: outstanding checks and deposits in transit adjust the bank balance. NSF checks, service charges, and errors in the books adjust the book balance.
Related Resources
Bank Reconciliation FAQs
Common questions about bank reconciliation
Outstanding checks are checks the company has written and recorded but haven't yet cleared the bank. They reduce the bank balance in the reconciliation since the company already deducted them from its books.
Only items that adjust the book balance require journal entries. These include NSF checks, bank service charges, interest earned, and errors discovered in the company's books.
A deposit in transit is money the company has recorded as deposited but hasn't yet appeared on the bank statement. It's added to the bank balance in the reconciliation.
At least monthly, when the bank statement is received. Many businesses reconcile more frequently — weekly or even daily for high-volume accounts. Timely reconciliation catches errors, fraud, and unauthorized transactions quickly. The longer you wait, the harder it is to trace discrepancies.