Alright, fellow entrepreneurs and number-phobes alike, let’s tackle a topic that might sound as thrilling as watching paint dry but is absolutely crucial for your business’s financial health: bank reconciliation journal entries. Don’t worry—we’re about to make this as painless (and maybe even as enjoyable) as sipping your favorite beverage on a Friday evening.

You see, at the end of every financial period, reconciling your bank statements isn’t just some bureaucratic hoop to jump through. It’s like giving your finances a much-needed therapy session, ensuring everything lines up and that there are no sneaky discrepancies lurking in the shadows. So, grab a cup of coffee (or something stronger), and let’s dive into the world of bank reconciliation journal entries with some relatable examples and maybe a chuckle or two along the way.

Related: Journalizing Adjusting Entries Examples and Types

What is a Bank Reconciliation?

So, what exactly is this bank reconciliation thingamajig? Think of it as a financial reality check—a moment where you sit down and make sure your company’s financial records are singing the same tune as your bank account. It’s like balancing your checkbook, but for your business, and without the 90s nostalgia.

At the end of the month, your bank sends over a shiny statement. It’s got your account’s beginning balance (think of it as the “previous episode recap”), the ending balance (spoiler alert!), and all the plot twists in between—every deposit, withdrawal, and fee.

But here’s the kicker: the ending balance on your bank statement and the balance in your company’s general ledger accounts are often about as in sync as a boy band after a messy breakup. That’s where the bank reconciliation statement swoops in to save the day.

Bank Reconciliation Journal Entries are the adjustments you make to your books to account for the differences between your records and the bank’s. These differences, known as reconciling items, are like the plot holes in a movie—you’ve got to resolve them for the story (or in this case, your financial statements) to make sense.

Bank reconciliation journal entries: Piecing together your financial puzzle.

Here’s a sneak peek at what a bank reconciliation statement looks like:

Bank	Amount	Books	Amount
Balance	$00	Balance	$00
Add:		Add:
Outstanding deposits	$0	Bank collections	$0
Bank errors	$0	Interest revenue	$0
		EFT receipts	$0
		Book errors	$0
Subtotal	$00	Subtotal	$00
Less:		Less:
Outstanding checks	$0	Service charges	$0
Bank errors	$0	NSF checks	$0
		EFT payments	$0
		Book errors	$0
Adjusted Bank Balance	$00	Adjusted Book Balance	$00

Bank reconciliation statement format—your roadmap to financial harmony.

In this reconciliation rendezvous, we’re aiming for the adjusted bank balance and the adjusted book balance to match up perfectly. Think of it as setting up your financial soulmates—they just need a little nudge to realize they’re made for each other.

After you’ve identified all the reconciling items (those pesky differences), you’ll make the necessary bank reconciliation journal entries to adjust your books. Adjustments that increase your cash balance are recorded as debits, while those that decrease it are credits. It’s like financial yoga—finding balance and flexibility in your accounts.

See also: How to Do Adjusting Entries with Examples

Common Bank Reconciliation Journal Entries

Now, let’s get into the nitty-gritty of the typical journal entries you’ll encounter during bank reconciliation. These entries adjust your book balance to reflect transactions that appear on your bank statement but haven’t been recorded in your general ledger. Here are some usual suspects:

• Bank service charges or fees for things like check printing and account maintenance.
• Electronic deposits and withdrawals that haven’t been recorded yet.
• Interest earned on your bank accounts—hey, every little bit counts!
• Bank collections on your behalf, like when the bank collects notes receivable.
• Corrections for any errors you’ve made in recording deposits or payments.
• Loan payments automatically deducted from your account.
• Not sufficient funds (NSF) checks from customers that bounced like a failed trampoline attempt.
• Adjustments for deposits in transit—money you’ve received but hasn’t hit your bank account yet.

These entries ensure your books reflect the true state of your finances, keeping everything transparent and accurate. Let’s delve deeper into some of these entries with examples.

Deposits in Transit

First up: deposits in transit. Imagine you made a hefty deposit at the end of the month—say, $3,000 on June 30th. You’ve recorded it in your books, feeling all responsible and grown-up. But the bank statement arrives, and that deposit is nowhere to be seen. It’s like it ghosted you.

Fear not! This simply means the deposit is in transit—it hasn’t been processed by the bank yet. In your bank reconciliation, you’d add this amount to the bank statement balance to reflect the true total. No journal entry is needed here since you’ve already recorded the deposit in your books.

Outstanding Checks

Next, let’s tackle outstanding checks. You’ve written checks to suppliers or vendors, and they’ve yet to cash them. Meanwhile, your bank account is blissfully unaware these funds are spoken for. In your bank reconciliation, you’ll subtract these outstanding checks from the bank statement balance. Again, no journal entry is required since the payments are already recorded in your books.

Automatic Withdrawals and Deposits

Now, let’s chat about those sneaky automatic withdrawals and deposits that the bank handles without sending you a handwritten note. These could be automatic bill payments (like your utility bills or loan payments) or deposits from customers paying via electronic funds transfer (EFT).

Since you might not have recorded these transactions yet, you’ll need to make some journal entries. For automatic withdrawals, you’ll credit Cash (since money’s leaving your account) and debit the appropriate expense or liability account. For automatic deposits, you’ll debit Cash and credit the revenue or accounts receivable account.

For example, if the bank statement shows an automatic withdrawal of $253 for your utility bill, your journal entry would look like this:

Account	Debit	Credit
Utilities Expense	$253
Cash		$253

Interest Earned

Let’s not forget the feel-good moment when you realize you’ve earned a bit of interest. If your bank statement shows $18 in interest that you’ve yet to record, you’ll need to make a journal entry to reflect this addition to your cash balance:

Account	Debit	Credit
Cash	$18
Interest Income		$18

Bank Service Charges

Bank fees are like that annoying friend who always eats your fries—they sneak up on you. Suppose your bank hits you with a $90 service charge for various fees. You’ll need to adjust your books accordingly:

Account	Debit	Credit
Bank Service Charges	$90
Cash		$90

NSF Checks

Ah, the dreaded NSF (Not Sufficient Funds) check. It’s like getting a gift card only to find out it’s expired. If a customer’s check for $500 bounces, you’ll need to remove that amount from your cash balance and increase Accounts Receivable, since the customer still owes you money:

Account	Debit	Credit
Accounts Receivable	$500
Cash		$500

Errors

Even the best of us make mistakes—fat finger syndrome is real! If you discover an error in your books, like recording a $381 check as $318, you’ll need to make an adjusting entry to fix it. In this case, your cash is overstated by $63 ($381 – $318). Here’s how you’d correct it:

Account	Debit	Credit
Accounts Payable	$63
Cash		$63

Read about: Types of Adjusting Entries with Examples

Bank Reconciliation Journal Entries Examples

Let’s bring it all together with a practical example. Suppose ABC Company has the following bank reconciliation statement for September:

Bank	Amount	Books	Amount
Ending Bank Balance	$27,395.00	Ending Book Balance	$24,457.00
Add:		Add:
30/9/2022 Deposit	$6,700.00	Interest	$3.00
		Note Collected	$3,000.00
Subtotal	$34,095.00	Subtotal	$27,460.00
Less:		Less:
O/S Ck #2004	$1,000.00	Bank Fee	$5.00
Ck #2008	$650.00	Customer NSF	$350.00
Ck #2009	$200.00	CK #2005 Error	$360.00
Ck #2012	$5,500.00
Adjusted Bank Balance	$26,745.00	Adjusted Book Balance	$26,745.00

ABC Company’s bank reconciliation statement for September

Example 1: Recording Interest Income

The bank statement shows $3 in interest income that hasn’t been recorded. Time to give yourself credit (literally):

Date	Account	Debit	Credit
30/09/2022	Cash	$3
	Interest Revenue		$3

Example 2: Bank Collection of Notes Receivable

The bank collected a $3,500 note receivable on your behalf but kept $500 as a fee. Here’s how you record this transaction:

Date	Account	Debit	Credit
30/09/2022	Cash	$3,000
	Bank Fee Expense	$500
	Notes Receivable		$3,500

Example 3: Recording Bank Fees

The bank charged you a $5 fee. It’s small, but it counts:

Date	Account	Debit	Credit
30/09/2022	Bank Fee Expense	$5
	Cash		$5

Example 4: NSF Check

A customer’s $350 check bounced. Time to adjust your books:

Date	Account	Debit	Credit
30/09/2022	Accounts Receivable	$350
	Cash		$350

Example 5: Correcting an Error

You recorded check #2005 as $5,483 instead of the actual $5,843. Time to fix that $360 difference:

Date	Account	Debit	Credit
30/09/2022	Equipment	$360
	Cash		$360

Final Thoughts

Bank reconciliation might not be the highlight of your month, but it’s a vital part of keeping your business’s financial house in order. By regularly reconciling your bank statements and making the necessary journal entries, you’re ensuring that your financial records are accurate and up-to-date. Plus, it puts you in a better position to spot any discrepancies, errors, or even fraudulent activities early on.

So next time you’re faced with a pile of bank statements and a general ledger that doesn’t quite add up, remember: you’ve got the tools and the know-how to set things straight. And maybe, just maybe, it won’t be as tedious as you once thought.